Boulder BI Brain Trust Blog

CMOs are Starting to Drive the Next-Gen Application Agenda

2012-03-20T00:32:05Z

A couple of weeks ago my partners and I hosted a meeting of our SaaS advisory board. This is one of our firm’s four advisory boards. I had written about the role of these boards and the value our firm and portfolio companies derive from our advisors’ insights, feedback and help. Our SaaS advisory board includes executives from SaaS application vendors, CIOs and CTOs of companies that are heavy users of SaaS applications, and leading SaaS consultants. One of the most interesting insights that came out of our meeting was that the Chief Marketing Officers (CMOs) are starting to drive the corporate application agenda. This is consistent with Laura McLellan’s position who in a recent Gartner webinarstated that by 2017 the CMO will spend more on IT than the CIO, as well as the conclusions presentedhere.

There are several reasons for the CMO’s emerging power:

The accelerating move from offline to online for commerce, entertainment, and socialization. The web with its various personas (desktop, social, mobile, local) is enabling corporations to finally become truly customer-centric, i.e., to understand the problems customers face and provide mutually advantageous solutions.
The big data that is collected from the various online and offline interactions between a consumer and a brand can now be utilized effectively through a new generation of analytic solutions that enable corporations to better target existing customers and prospects with the right message, at the right time through the right channel, as well as to assess the effectiveness of each message based on the resulting actions.
Through the consumerization of the enterprise we are seeing a new generation of easier to “consume” applications that don’t resemble the monoliths of the past but instead take their cues from mobile applications, i.e., task-specific pieces of functionality that are easy to install, learn and use effectively.
The cloud that is making acquisition and deployment of these next-generation applications easier and faster.
The new generation of marketing personnel, including CMOs, that is more analytical, data-driven and technology-savvy.

Today we are seeing marketing departments acquiring applications to address online advertising for brand development and direct response commerce, social and mobile marketing and commerce, and analytics. Having anticipated this trend, over the past several years Trident Capital has been investing in such applications and today our relevant portfolio includes the online advertising technology companies Turn, Exelate, Jiwire, Brightroll, Sojern, the social marketing and commerce applicationsExtole and 8thbridge, and the retail analytic applications company Pivotlink.

Though the opportunities may appear brilliant, based on our experiences with these portfolio companies we have learned that working with the marketing organization also presents several challenges:

There is little tolerance for long application-implementation periods, inappropriately functioning software and need for specialized personnel to operate these applications. Marketing departments want to see results quickly and, under today’s typical corporate budget environments, they don’t want to have to hire new people just so that they can use a new application.
Short period during which to demonstrate meaningful ROI. Marketing departments may be willing to evaluate several different applications but they will ultimately commit to the ones that give them quick time to value with sustainable and growing ROI.
Data is not always well organized and structured. This is area where most frequently application vendors see a big difference between working with the marketing and the IT departments. For marketing departments managing data and maintaining its quality are new tasks. This task becomes harder as the volume, velocity, complexity, and structure of customer data are increasing. Marketing application vendors must be prepared to help by providing appropriate services in this area and thus ensuring that the application’s time to value will be short.
Skills for data analysis for insight-generation are lacking. While marketing departments are becoming awash in data, they often don’t have the people who can effectively analyze this data. Again, the marketing application vendors need to step and fill the void by offering their own data analytics and insight generation services.
Shorter initial licensing contracts and smaller marketing campaigns. As they try to understand the value of the myriad of applications offered to them in order to implement their customer-centric strategies, marketing departments feel that they must first “get their feet wet.“ In most cases this approach results in application licensing contracts that initially are short-term (1-3 months), or in smaller-dollar (typically $10-50K) marketing campaigns.
Need sales people who can first speak the marketer’s language rather than IT’s language. Over the past 30 years we have trained a cadre of application sales people who are expert at interacting with IT organizations, speaking IT’s language. This was necessary because front- and back-office enterprise applications, regardless of who was using them, were mostly purchased by the IT organization. If the next generation of marketing application companies is to be successful, they will need to hire sales people who can interact with marketing executives.
The sales cycles for these applications are becoming longer and more complex (see also here). Before the final decision for the licensing of these applications is made, IT is now becoming involved, and will continue to do so. Though the CMO’s prominence is rising, don’t expect the CIO’s role in marketing technology decisions to disappear. Over the past year our relevant portfolio companies started to see CIOs participating in important procurement decisions involving solutions for the marketing department.
The application’s user experience must be tailored to the marketing department’s users. We are starting to see application developers creating user experiences that are more akin to the practices being established around consumer software, particularly PostPC consumer applications. To easily adopt the multitude of new applications offered to them, marketing departments must want to interact with them and must be able to do so easily and with little or, preferably, no training.

As corporations become more customer-centric and the move to online continues, data-driven marketing departments stand to reap big rewards. For this reason they are acquiring a new generation of applications to help them improve their interactions with customers and prospects regardless of channel. Marketing application vendors must understand this trend along with its positive and negative implications, as well as the evolving roles of CMOs and CIOs, in order to best capitalize on it.

Insight as a Service (Part 3)

2012-03-10T01:29:19Z

A few days ago I presented a webinar on Insight as a Service. In the presentation I tried to provide further details on the concept which I first introduced here and later elaborated here. I am including the webinar presentation (click on the slide below) and the notes because they elaborate further on Insight as a Service and provide some examples.

Commentary on Pacific Crest’s SaaS Surveys and other Relevant Thoughts

2011-08-15T12:38:55Z

A few days ago I participated in Pacific Crest’s workshop for private SaaS companies. This workshop is being held every year as part of Pacific Crest’s technology conference. In addition to the spirited discussion among SaaS company executives and investors, during the workshop Pacific Crest’s Brendan Barnicle and David Spitz presented the results of two surveys they conducted. Brendan spoke about the CIO survey (sample of about 100 CIOs) regarding SaaS trends and sentiment. David presented the results of the SaaS private company survey (sample of about 70 private SaaS companies) about business metrics. A number of Trident Capital’s SaaS portfolio companies were invited to participate in the workshop in addition to me. Of the material that was presented, the data that caught my attention included:

Overall 2011 IT budgets are expected to increase by 0.9% over 2010 numbers, compared to the 1.1% increase that was anticipated during the 1H11. Of the surveyed CIOs 35% indicated their intention to re-evaluate their IT budgets during 2H11, with 60% of them anticipating selective budget increases.
SaaS application usage in the enterprise is increasing and adoption of such applications is becoming a higher priority. The surveyed CIOs indicated that today 16% of the applications used by their corporations are SaaS, whereas next year the number will be 17%.
CRM and BI/analytics, including web analytics, remain the top the areas where SaaS applications are first being used in the enterprise. More importantly, according to the survey and other information presented by SaaS vendors in the conference, CIOs are now asking for suggestions on the types of SaaS applications to include in their portfolio. I think that CIOs are realizing the unstoppable SaaS adoption and they don’t want to be marginalized by opposing it as was the case just a couple of years ago. According to InformationWeek, 65% of contracts with SaaS companies are still being initiated by the business, and only 35% is initiated by CIOs.
During 2Q11 SaaS vendors were able to increase prices, around 5%, or they offered fewer discounts. Two reasons were given for this trend. First, corporations are finding that SaaS applications can drive revenues or significantly reduce cost. Second, their employees like using these applications so their usage is expanding within each company. Several of the private SaaS company executives participating in the workshop confirmed this pricing trend but they also countered that they are spending more time than in the past negotiating terms with clients.
Data is becoming an increasingly important component of every SaaS solution. SaaS vendors are starting to exploit the data they collect from each customer either in order to offer additional applications around this data, or to provide benchmarking services among their clients. Almost a year ago I had written about this opportunity and called it insight-as-a-service. In the main conference, Realpage reported how it is using data to offer 10 new applications to its customers.
Security, or the perception about the higher security vulnerability of SaaS applications, remains the biggest obstacle to the broader adoption by the enterprise of cloud computing in general and such applications in particular. The CIOs must also move from a product to a service mentality in order to better support the business units that adopt SaaS applications. The employees of SaaS companies realize the importance of service and are focusing on this issue much more than the employees of on-premise software companies.
During 2011 SaaS companies have been growing faster than during 2010 (median revenue will grow 44% during 2011 vs 40% during 2010) but with over 30% of the respondents projecting YoY growth that will be greater than 60%.
SaaS companies expecting to do $10-25M in 2011 revenue are growing the fastest compared to other smaller and larger companies that were surveyed. These companies expect an average growth rate of 75%. This rate is about double of what it was last year’s, indicating that for SaaS companies $10-15M in revenue provides them with “escape velocity.”
In last year’s survey, SaaS companies that were using field sales were growing faster than those relying predominantly on inside sales. The 2010 survey results were more balanced. The companies using inside sales were growing at similar rates to those using field sales. Moreover, among the 2011 survey participants field and inside sales were the two dominant go-to-market models. Internet and channel appear to be used relatively infrequently as the primary sales models. As I had also reported from our own SaaS portfolio company results, the field sales model is being predominantly used by companies whose solutions command higher ACV (over $60-70K).
Median CAC for new customer dollar was reported at $0.93, whereas for upsells and renewals was reported at $0.28 and $0.16, along expected patterns.
The surveyed companies reported that they expected their gross margin at scale (defined as $50M in annual license revenue) to be 71%. Pacific Crest’s target model is at 79%. Companies that are expected to grow by more than 45% expect to spend 38% of their budget in sales and marketing.
More companies, particularly those with larger ACVs, are reporting contract lengths of more than 1 year, again indicating a trend that we have also been seeing in our own portfolio companies. A few of the company executives that participated in the workshop indicated that their customers are asking for longer-term contracts (primarily 3 years) typically paying 1 year upfront. In fewer cases, SaaS company CEOs reported that they are pushing multiyear contracts on their customers.
Companies are moving away from pricing based on seats and are looking for other business models that are primarily related to the application’s usage.
Best in class churn among the companies surveyed was reported at around 5%.
Most companies that have reached “escape velocity,” i.e., annual revenues that are larger than $10-15M, have raised $25-40M
Companies are reaching breakeven and are expecting to generate free cash flow at around $20M of annual revenue.

I walked away from the workshop with a few conclusions regarding the state of SaaS. First, the data presented reaffirmed the unstoppable wave that SaaS and cloud computing represent, along with the tremendous investment opportunity in these sectors. Second, the presented data further validated the data we track in our own SaaS portfolio companies: customer behavior metrics, annual growth rates, contract terms, ACV, CAC, churn, capital efficiency, and escape velocity. As I had written a couple of years ago, the 2008 recession catalyzed and even accelerated the adoption of SaaS applications in the same way the Y2K problem catalyzed the use of IT outsourcing during the late ‘90s and the first decade of this century. I expect that even if the economy continues to exhibit the weakness that has recently been reported, SaaS companies will do great. Enterprises have come to understand and appreciate the financial benefits resulting from the use of SaaS applications to both their top and bottom lines. Finally, over the past couple of years, more than ever before, enterprises have comprehended the importance of customer centricity and customer intimacy. Through the use of SaaS applications, corporations are able to more easily collect and analyze pertinent transactional customer data and mash it with social, mobile and sensor data creating big data collections of unprecedented detail that help them better understand their customers and thus become more customer-centric.

Strong Results during 2Q11 for our SaaS Portfolio

2011-07-31T22:35:02Z

Despite the macro trends that continue to be challenging for the US economy, concerns about Europe and Greece’s impact on the continent’s economy, and the continued impasse for an agreement that will raise the US debt ceiling, SaaS companies have been reporting strong performance results for 2Q11. I got a good feeling for the quarter when our SaaS portfolio company CEOs started to report preliminary positive results before the end of June. We typically have to send messages asking them to update us on the quarter’s performance. During 1Q11 only 40% of our SaaS companies achieved their numbers. It was a different story during 2Q11 when 90% of our SaaS portfolio companies made or exceeded their financial targets.

The public SaaS companies that have already reported quarterly results (Rightnow, Concur, Netsuite, SPS Commerce, Vocus, AthenaHealth) demonstrated strong performance, meeting or beating expectations. Salesforce and SuccessFactors will be reporting in the next few days but are expected to turn up strong results. During the quarter we didn’t see the M&A activity that was exhibited during 1Q11, but there were plenty of private company financings (both initial and follow-on rounds) indicating the continued strong investment interest in the sector. Most of these rounds commanded valuations that depending on how you see it either defy reason or point to investor bullishness on the strength of the SaaS model; but that’s another story. Based on the data provided to Trident by the private SaaS companies that sought financing during the quarter we saw strong performance during 2Q11.

There were several elements of our SaaS portfolio’s performance we liked:

Increasing demand for SaaS applications particularly by the larger enterprises where business application updates remain one of the top priorities. We are seeing similar upmarket movement by several of the public SaaS vendors.
The percent of multiyear contracts is growing, with more of the larger customers opting for 3-year contracts. These customers are prepaying at least the first year which greatly helps SaaS companies with their cash flow needs.
As the demand for SaaS applications increases, more systems integrators are starting to support the model and are seeking partnerships with the right application vendors, including private companies. Our portfolio companies signed more partnership deals during this quarter than ever before.
Contract renewals met targets and several customers not only renewed but expanded their usage. This is the result of continued strong ROI that customers are seeing through the use of our portfolio’s SaaS applications.
Interest from international clients, particularly from Europe, continues to increase and several US customers are expanding the use of SaaS applications to their international operations and subsidiaries.
While still early for definite conclusions, sales pipelines for 3Q and 4Q are growing generating optimism for strong results during these quarters, assuming the US economy does not stall.

The performance elements we didn’t like include:

Higher discounting and more deals signed at the end of the quarter. The larger customers, particularly those signing multi-year contracts, have continued to hold off until the end of the quarter before they commit. We have seen a few percentage points increase in the amount of discounting necessary in order to close several of these larger deals, compared to 1Q11. In addition to the discounting, as can be expected, signing a contract at the end of the quarter had a negative impact on the target MRR for these companies. However, backlogs grew as expected.
Increasing sales and marketing costs. The move upmarket by several of our SaaS companies, as well as many of the public ones by the way, necessitates a different and more expensive sales and marketing approach. Several of our companies are establishing additional field sales teams to adequately address customer expectations. This move is negatively impacting margins and challenges the high-leverage SaaS sales model that, at least at Trident as long term investors of this software area, we have come to expect.
Some of the larger companies looking to adopt SaaS applications expect hybrid cloud implementations primarily because they want to keep their data behind their firewall. Thus far private SaaS companies have been resisting this requirement because it will necessitate R&D investments to create hybrid cloud versions of their applications. It is not clear whether our companies will ultimately be successful in convincing customers, particularly in industries such as financial services, telco and health care, about the adequacy of the public cloud for their application needs.

We hope that the lackluster performance of 1Q11 was this year’s exception and that our SaaS companies during 3Q and 4Q will continue demonstrating the strong performance they exhibited during 2Q11.

Social Business SaaS Applications

2011-07-26T02:00:41Z

A couple of years ago while analyzing the ways SaaS business applications could evolve we started thinking about the social web’s impact on business processes. At the time, Facebook’s success was accelerating while Twitter and Zynga were emerging. We know that consumer-oriented companies want to engage their customers and prospects in the places they frequent, i.e., the social web. We also started seeing early signs of consumer-oriented technology adoption by corporations. These realizations made us hypothesize that the social web will figure prominently in the next generation of business applications and that these applications will be built on top of new platforms that have the social web at their core. To date we have invested in three social application companies: Extole, a company that provides a social marketing application, 8thbridge, a company that provides a social shopping and commerce application, and Jobvite, a company that provides a social recruiting application.

As we examine the characteristics of our three investments as well as those of other relevant companies we have considered investing, we have concluded that the applications developed by such companies:

Are delivered over the cloud.
Automate businesses processes that target individuals (consumers or employees), e.g., marketing, shopping, recruiting, customer experience management, collaboration. For example, Starbucks’ 13M Facebook fans or Coke’s 11M Facebook fans do nothing for these brands unless they can somehow demonstrate their engagement with each brand. A couple of weeks ago 8thbridge, working with Paramount Pictures, created the Facebook store for the recent Transformers movie. In the first two days the store went up in resulted in 900K new fans that, most importantly, generated 77K content interactions and also led to many ticket sales. As consumers increase their participation in social media, business executives continue to create programs to engage with them. In fact, 70% of interactive marketers are currently piloting processes to drive word-of-mouth marketing through their most vocal consumers, 58% have launched systems encouraging consumers to spread company messages; and 47% have launched social tools that allow consumers to support each other, e.g., forums.
Are implemented on new platforms with social networking structures, e.g., enable access and operations on a social graph, and capabilities, e.g., capitalize on the social graph to enable viral distribution, at their core. In addition, these platforms have global reach, support large partner ecosystems, are device agnostic, support online and mobile communications, advertising and commerce. Facebook has emerged as the strongest platform with these characteristics, in the same way that Google a few years earlier emerged as a platform for applications that had search at their core. However, we expect that Google, Microsoft and Apple will soon augment their own web platforms with such features as well.
Are data-centric, in that they generate and operate on big data, and use analytics to provide a variety of insights pertinent to the business. Insights on how a fan uses his social graph to spread a message about a brand, how to improve user engagement around a brand, identify which customers must be nurtured because they are brand influencers or can attract talent to a particular company, which customers or brand fans must be rewarded because they can address product problems, and which consumers shall be offered a reward, e.g., more frequent flier miles, because they can drive a particular group-buying behavior, e.g., organizing a vacation with a group of their Facebook friends and purchasing plane tickets, identify customers that are ready to defect because they are dissatisfied with a company’s service quality.
Require significant consulting services as corporations are in the very early stages of trying to determine how to take advantage of the social web and appropriately adjust their business processes and practices. In general, we are seeing that as much as 50% of these companies’ revenue could come from consulting services. Unfortunately, the established professional services organizations are not yet able to field the right solutions. As a result, the social application companies end up offering the services themselves.

We continue to look for additional investment opportunities in early and expansion stage companies whose applications use the social web to address important business processes in unique and valuable ways. Some application categories are becoming overcrowded with companies that have little differentiation and overfunded by investors. We, however, are looking for the companies that have developed social applications whose value will not become obvious for another couple of years.

Beyond SaaS; Cloud Computing Update and Investment Opportunities

2011-07-05T11:29:31Z

After being away for a few weeks (vacation and business travel), I returned to the Bay Area and attended GigaOm’s Structure conference and Amazon’s AWS Summit. I have been attending Structure since the first event but this was my first time attending the AWS Summit. I was drawn to these conferences for two reasons. First, while over the past 10 years we have invested and continue to invest heavily in SaaS application companies, we have foregone investment opportunities in companies that provide cloud infrastructure solutions, i.e., PaaS and IaaS. I have been trying to determine whether we should be considering investments in cloud infrastructure companies today, particularly capitalizing on our extensive experience from SaaS. Second, I am always interested to hear about cloud computing best practices that can be used by our portfolio companies.

Cloud adoption is growing among corporations of every size but particularly SMBs. In a report published by Forrester on 4/11 the total size of the public cloud market is pegged at roughly $25B (with the majority today being in SaaS applications) and is projected to grow to $160B by 2020. A recent (May 2011) survey conducted by Morgan Stanley establishes that the usage of public clouds for a variety of workloads is expected to show a 23% CAGR over at least the next three years, with higher usage rates for SaaS applications compared to cloud-based infrastructure. SMBs see the use of public clouds as a means of significantly reducing their hardware costs. Larger enterprises are using the public clouds more for rapidly extending the functionality of internally developed applications, with mobile extensions cited most frequently, as well as for executing compute-intensive workloads like analytics. There is also a lot more talk about private clouds and hybrid clouds. Most companies in fact are either using all three types of cloud deployment or state their intent to use them. Only 37% of companies surveyed indicated that they will only use public cloud deployments. This means that SaaS application vendors may need to start thinking more seriously about the need to offer versions of their software running on private and hybrid clouds rather than the public cloud options that most, particularly the startups, have today. For investors this will mean that their SaaS companies may need to invest more in R&D and support as they roll out such options.

Security, interoperability, vendor lock-in, reliability, complexity and data privacy continue to be listed as the top inhibitors to cloud adoption. However, ironically customers don’t always feel that public clouds are less secure than their own data centers. But in security they also tend to include regulatory and compliance issues. Privacy is a different story and one that is viewed differently by the US and Europe.

In a report released during the Structure conference, with some numbers corroborated by Werner Vogels, CTO of Amazon.com during his address at the AWS Summit, GigaOm ranks Amazon as the largest public cloud provider with 2010 revenue of $500M with Rackspace being second. In his address Dr. Vogels talked about the investments Amazon has made and continues to make around AWS. Rackspace, Salesforce, Microsoft, Google, IBM, and other large companies that want to be providers of public cloud infrastructure and services, are also making huge investments in order to remain price-competitive and offer the broadest possible set of services. Based on what I heard during that week, and despite the fact that investments in cloud companies are increasing (64 investments in 2009 totaling $180M, and 93 investments in 2010 totaling $713M) I think that it will be hard, if not impossible, for a startup to compete effectively with the large public cloud computing providers. Public cloud infrastructure has therefore emerged as the battle of the giants. I continue to maintain that the SaaS application space offers more opportunity to startup companies and their investors, Trident included.

Cloud continues to be defined by its benefits rather than its technology. Cloud computing’s benefits that were only stated by vendors, are now validated by customers that have been using such solutions. Surveyed customers see cloud computing as a way to lower IT costs, increase corporate agility, and provide the foundation for 21^st century architectures with the right levels of abstraction from infrastructure to platform that will result in higher quality systems. Based on these benefits and what was discussed and reported during the conferences, a few of the best practices that may be of use to SaaS application companies include:

The application’s architecture determines the level of success and the overall cost of deploying the solution to a public cloud. Moreover, the successful use of a public cloud by an application provider requires the continuous collaboration between the cloud provider and the application vendor.
Public cloud vendors strive to provide uniform, rather than peak-performance, characteristics across the computing resources they provision. This must be taken into account by the SaaS application vendors as they architect their solutions.
While a public cloud provider could offer a SaaS application vendor with a low cost way to develop and launch a new application, scaling costs continue to be high, often leading the application vendor to create its own public cloud. Of course, companies the size of Zynga and Netflix are able to negotiate special pricing with their public cloud providers, e.g., AWS. However, for private companies that have not yet reached that scale, the options are more limited.

I expect that this year the number of venture investments and the amount invested in cloud computing companies will surpass last year’s numbers. I continue to see investment opportunities the following areas:

Big Data Analytics. Analysis of Big Data is starting to become synonymous with cloud computing. I expect that this trend will continue as public cloud providers offer Hadoop and MapReduce options allowing analysts to send their large workloads to the cloud. Data movement and “accessibility” of such services by business analysts (you shouldn’t need to be a data scientists just so that you can use such a service) will continue to be issues that will need to be addressed.
Enterprise mobile applications. Because of the smartphone proliferation, enterprises are now starting to aggressively adopt mobile applications. As a first step enterprises are looking to create mobile versions of their mission critical applications, as well as develop mobile applications in completely new, innovative areas. Public and hybrid clouds are uniquely suited for the rapid development and deployment of these applications. Therefore, both specific enterprise mobile applications and environments for developing and deploying such applications are of interest for potential investments.
Data and application integration. I have often written about how the proliferation of public and hybrid clouds will increase the need for integrating data to such applications as well as integrating applications. For example, a cloud-based application may need to access data that is behind the firewall, or two cloud-based applications may need to be integrated to effectively automate a business process.
Data marketplaces and API management. As companies expose more of their data for cloud-based application, the data itself and the APIs through which this access is accomplished will need to be managed. While I think that we are still in very early stages of data marketplaces and API management, and it is not clear whether either of these areas will emerge into substantial markets and lead to the creation of large companies, there may exist a few interesting investment opportunities to consider.
Accelerating data movement. Moving large data sets from data centers to the cloud remains a vexing problem particularly for big data analytics applications. While cloud-based processing and storage performance are improving, data movement has not yet made corresponding strides and is thus approaches to address this problem are ripe for investment.

I continue to be excited about the prospects offered by cloud computing and delighted by the increasing usage of all its layers (application to infrastructure) by small and large companies. I don’t feel that we have missed big opportunities by not investing below the cloud’s application layer, but feel that there are at least five areas that represent interesting areas for future investments.

Understanding General-Purpose, Cloud-Based Data Marketplaces

2011-05-22T20:20:38Z

Last October I wrote about emerging data analytic services that could be offered under the term Insight as a Service. More recently Mark Suster wrote about the need for data as a service, and Gordon Ritter in his post added his thoughts on Insight as a Service. In my post I had proposed three types of data that can be used for the creation of such insights: internal company data, web usage data, and third party syndicated data. That same month I invested in Exelate, a company that provides a marketplace for online data and a Data Management Platform (DMP) that can both be used to improve the targeting effectiveness of display advertising. Online advertising and financial analytics are two areas where data marketplaces are succeeding. Exelate and other marketplaces demonstrate that significant companies can be built in this area. Companies like Thompson/Reuters and Bloomberg, and startups like cloud-based Xignite, have also been successful in selling financial data to application vendors. More recently we are seeing the emergence of startups like Gnip, Factual, Infochimps, WebServius, as well as Microsoft's Azure DataMarket introduced cloud-based marketplaces offering a broad variety of commercial and open source data sets. The success of data-driven application companies such as Zillow, Recorded Future Payscale and a few others provide proof that innovative solutions can be developed from third-party data. But, the cost of the base data on top of which these solutions are developed, is miniscule compared to the cost of processing and augmenting the data to provide unique value to the user of these solutions. So, outside the online marketing and financial services areas, under what conditions can venture investors make money investing in companies that offer data marketplaces?

Large quantities of data are made available daily. Even though Hadoop and other emerging open source Big Data management technologies are significantly reducing the cost of storing, managing and processing such data, I claim that creating a data marketplace from scratch is still an expensive proposition. For data offered through a marketplace to be valuable it must be unique, and complete. For the marketplace to be successful in addition to having data with such characteristics it must solve the data distribution and monetization problem. This is actually a chicken-and-egg problem. The marketplace must contain enough variety of unique and complete data to attract buyers, but it needs data buyers to attract such data sources. Companies like Factual and Infochimps solve this problem by investing heavily on marketing, offering free onboarding of data, regardless of the data’s revenue potential, and focusing primarily to open source data that is typically coming from governments.

Uniqueness is often created by augmenting a data set in a variety of ways. For example, Zillow processes Google Earth data. Exelate’s analytics group does the same to data contributed by online publishers increasing its value and information content for the DSPs that use it, by identifying trends, attributes that are predictive of specific desired outcomes, etc. It is not clear whether general purpose data marketplaces will be able to provide such augmentation because it will imply that they become experts in several different application areas. This kind of processing costs money and is proprietary, along with the resulting data. As a result, the processed data many never find its way to a data marketplace.

Completeness of a data set is also very important. For example, if I want to compare the room prices of major hotel chains across the US in order to determine whether one chain is consistently more expensive than the others, I will need to obtain prices from every US city where the hotel chains being compared have properties. If I want to be comprehensive I can’t be satisfied having prices for only 60% of the cities, and 50% of the properties of the hotel chain. I need a complete set.

In addition to distribution, monetization, uniqueness and completeness, privacy, data ownership and data location are a few of the other issues data marketplaces must address. The marketplace must have clearly articulated policies about who owns the data and what operations can be performed on the licensed data. For example, I give my data to Facebook and feel relatively comfortable with their data privacy policies or at least the setting I can control. We are now seeing applications being built on top of Facebook with completely undefined privacy policies, (Examples: What data are these applications capturing in addition to what is provided by Facebook? How are they using it? Are they selling the data they capture?). Contributors to data marketplaces must also understand where their data is stored and what can be done on the data. For example, is their data stored in a country where it can be easily subpoenaed, or distributed with no control?

If these are indeed the necessary conditions for creating a financially-viable data marketplace, then rather than focusing on open source data, marketplaces must focus on licensing and distributing premium data that may be coming from companies like Zillow, Experian, Nielsen, etc. However, focusing on such premium data providers could imply a vertical, industry-specific approach to building marketplaces rather than a horizontal, general-purpose approach.

We are generating ever increasing quantities of data that can be used in a new generation of innovative solutions. In the presence of all this data, data marketplaces offer to the data owners an attractive model for distributing and monetizing on such data. However, early indications from companies that have built valuable data-driven solutions, as well as from application-specific data marketplaces show that the type of processing and augmentation that needs to be performed on data before it can be effectively used by such solutions necessitates a vertical marketplace approach rather than a horizontal one.

WhereScape Launches new 3D Product

2011-05-20T18:30:00Z

WhereScape launched their new WhereScape 3D product, with Michael Whitehead (CEO), Jason Laws (Product Marketing), Raphael Klebanov (Consulting) & Scott Humphrey (Fisherman). WhereScape has briefed BBBT previously in November 2009. Read this blog here for background on the company and earlier .

They have two products: WhereScape 3D, data warehouse planning tool and WhereScape RED, integrated development environment for building, deploying, managing and renovating data warehouses. Note 3D means "Data Driven Design"! Major partners are Microsoft and Teradata.

WhereScape 3D was launched at our BBBT session - complete with T-shirts and cake! I downloaded the beta version from here. The download is 75MB as an EXE with version is 0.9.0. It requires Java Runtime and has many JDBC/ODBC drivers, plus the Teradata JDBC driver, which requires an extra license.

The install process create a local metadata repository using Apache Derby. After install, click on Help ->Tutorial->(one of the 3 tutorials). Follow instructions closely! The tutorials are concise and well-written.

I tried the first tutorial that explores the use case of designing a star-schema data warehouse. I did my first discovery! ...and generate the ER diagram at the right. Click to view full image. This was so cool! It would take hours otherwise!

Also, the properties for a certain column in the CUSTOMERS table are shown at the left.

My brief hands-on experience was very positive. It was a similar experience to the first time I played with Adobe Photoshop. You actually need to know about DW design concepts and techniques, which is a tribute to the WhereScape team that designed this product.

Try it! You might learn some DW design!

Trident Capital's Annual LP Meeting

2011-05-19T15:58:29Z

A few days ago our firm held its annual meeting. We regularly meet with our investors (LPs) individually to update them on the progress of the funds where they have invested. On a quarterly basis we send them reports detailing each portfolio company’s financial performance. However, during the annual meeting we bring it all together. We review the macroeconomic environment in the geographic regions we invest and discuss its impact on the venture investment environment, review the new investments we made and the follow-on financings we completed during the previous 12 months, detail our investment strategy for the next 12 months and invite portfolio company CEOs to present their companies and meet with our LPs.

This year’s meeting was particularly important for Trident. It was the first annual meeting since closing our most recent fund; our 7^th. Moreover, the last 12 months have been some of the most active in recent investment history with valuations in certain sectors rising to unprecedented levels and fierce competition among VCs for certain deals. So our LPs were particularly interested to hear our perspective on what transpired during the year and what lies ahead. We have already made eight investments under our 7^th fund (8thbridge, Acclaris, Appia, Exelate, Extole, Jiwire, Jobvite, Solera) and lost a few more opportunities to competitors. We also completed 10 follow-on financings in existing portfolio companies, all up-rounds. During the meeting we stated the investment thesis for each of these new investment, discussed the competitive environment and detailed our plans for helping each new portfolio company.

We invest in early-, expansion- and late-stage North American, Indian and Chinese companies that focus on software, internet and technology-enabled services. In North America we see a slowly improving economy but with uneven regional growth. In our focus sectors several of our portfolio companies (particularly the early stage ones) continue to see their customers hesitating to invest in new initiatives, particularly when these involve early stage companies. IT budgets are still on track to grow by 5% over last year, even though we are starting to hear of decreasing confidence by CIOs despite the fact that corporate profits continue to increase. Internet advertising budgets are projected to grow by more than 10% over last year’s numbers. The business environment is much better for the more mature of our portfolio companies with several seeing 50-100% year over year growth. The Indian and Chinese economies are obviously growing faster which is reflected in the progress our relevant portfolio companies have made over the past 12 months.

We see technology and business model disruption occurring around cloud computing, social web, local services, and mobile computing. We also see transformational opportunities in sectors such as enterprise security, healthcare IT, and energy IT. We expect to see accelerating adoption of these technologies by both consumers and enterprises. This adoption will lead to the emergence of new winners. For this reason we have been aggressively investing in earlier stage companies that provide solutions using these technologies. Unfortunately other VCs see exactly the same opportunity. This has created the emergence of an extremely competitive venture investing environment. We find that in this environment we compete with the same small group of top-tier VCs. Our LPs, who attend the annual meetings of several other venture firms, indicated that they are hearing exactly the same story regarding the investment competition from these firms. They claim to be witnessing the creation of a two-tier ecosystem with the firms that have been able to raise new funds recently occupying the top tier and being able to compete for the better investment opportunities, i.e., the companies with the better management teams, the innovative business models, the breakthrough solutions, and the best market traction. So while several venture firms are not able to raise new funds and are going out of business, the remaining VCs create a fiercely competitive environment.

The competition among VCs is causing valuation prices to rise to levels not seen in several years; some say to levels last seen in 1996-1999. We are still trying to figure out whether such valuations are justified. In addition to the competition among VCs, higher valuations are aided by an increasing appetite for acquisitions by larger companies and the opening of the IPO market. While the prices paid for smaller, less mature companies working on cloud computing, social, local and mobile solutions are not particularly high, they still provide very attractive returns to their early investors. However, the multiples paid for larger companies with strong growth and significant revenues are high. We predict this acquisition and IPO environment continuing for the next 12 months.

This year we invited the CEO of Turn (www.turn.com) to talk about developments in the online advertising industry and how his company’s Demand Side Platform is becoming the standard platform for Real Time Bidding. We also invited the CEO of Teladoc (www.teladoc.com) to talk about how telehealth can be used to control health care costs. Finally, we hosted a panel on Social/Local/Mobile (SoLoMo as is often now called) with the CEOs of four of our relevant portfolio companies: Extole, 8thbridge, JiWire and Appia. SoLoMo is succeeding because:

We are becoming increasingly connected.
Smartphone and tablet shipments will overtake PC shipments for the first time during 2011.
Social networking is replacing email as the communication platform and Facebook is emerging as the next internet platform. Many innovative applications will be developed on top of this platform.
Revenues opportunities through the use of local services are increasing with a projected CAGR of 17%.

SoLoMo is:

Enabled by cloud computing
Monetized through online advertising
Accelerated by the consumerization of the enterprise
Changes shopping/commerce behavior
Drives the creation and utilization of Big Data

Trident is well-positioned to take advantage of this opportunity because these are all areas where we have strong experience.

This was a particularly positive meeting with lively discussions and beneficial feedback. We always look forward to the interactions with our LPs, as every investor should. They provide us with the fuel that makes possible what we do on a daily basis.

Saugatuck Technology’s Cloud Business Summit

2011-05-16T12:10:42Z

Last Tuesday I was on a panel discussion that focused on cloud computing innovations. The panel was part of Saugatuck Technology’s Cloud Business Summit that was held in NY. A brief write-up of the entire conference can be found here. The panel was asked to address several questions such as:

Over the next 5 years, what are the key business technologies that will be the most impactful in, and impacted by, the Cloud?
How will the consumerization of IT shape how we interface, interact with and profit from Cloud?
Who will be the next big Cloud players – where will they come from and how will they change what we already do?

In my remarks I indicated that through our SaaS portfolio companies we are seeing increasing and accelerating adoption of cloud computing. Companies of different sizes, during the last year increasingly from the Fortune 500, and from different industries are already rolling out or seriously considering SaaS applications to address their business needs. The drivers for this adoption include a need to reduce the total cost of application ownership, and the need to push sophisticated tools to every part of the enterprise. It is becoming clear that enterprises want deployment options for the SaaS applications they adopt. In the next 2-5 years SaaS applications will be deployed in public, private and hybrid clouds. The use of cloud computing, commodity hardware and of standards-based IT stacks will contribute to decreasing data center operating costs, estimated to drop by 5-25% over the next 5 years.

In the same period we also expect an increasing number of SaaS applications to be developed and tested on top of a PaaS such as Azure, and other applications to be deployed on top of IaaS platforms such as Amazon’s or Rackspace’s. There will also be increasing use of Amazon’s AWS service to test application functionality and configurability, and in order to address spikes in application usage. Finally, we expect that corporate IT and third-party application vendors will increase their focus on integration between on-premise and on-demand applications by building more around standards, data security and privacy, as well as on SaaS application adherence to corporate risk and compliance policies.

During the initial phase of investing in SaaS (which lasted roughly until 2008) we focused on companies whose cloud-based applications implemented well-understood business processes, such as sales force automation, employee management, spend management, inventory management, etc. More recently we have been investing in companies that develop applications combining aspects of cloud computing, the social web (we view Facebook emerging as the next web platform in the same way Google emerged as such a platform 8 years ago) and mobile computing to address novel business process. For example, we invested in Extole that has developed a SaaS application for social marketing, 8thbridge that has developed a SaaS application for social commerce, and Turn, Exelate, and JiWire that have developed SaaS applications that address various processes in online advertising. We have also been considering investments in companies that develop solutions managing, utilizing or analyzing data from the Internet of Things.

We are paying particular attention to mobile devices and mobile computing. During 2011 for the first time the shipment of mobile devices (smartphones and tablets) will surpass that of PCs. Consumer use of these devices has altered irrevocably the way we discover (app marketplaces, friend recommendations, user testimonials in social networks), buy (app stores), interact and use applications (touch and gesture-based user interfaces). It is for this reason that we have invested in Appia that provides a platform for building application marketplaces. Applications have morphed from large pieces of software with intricate functionality most of which is never used by the average user, to bite-size codes that perform a well-defined important functions extremely well. Consumers have embraced this transformation, are starting to reflect it in the applications they choose to use on their mobile devices to address their corporate needs, e.g., Evernote, Dropbox, and are now demanding to see the same characteristics and user experience from corporate applications developed by corporate IT groups and incumbent third-party application vendors. All these trends are accelerating the consumerization of the enterprise. The next cloud application leaders will come from the companies that are able to embrace and capitalize on these trends.

We also focus on the new generation of tools and applications that manage and analyze the big structured and unstructured data being generated by applications. At the top of our list is Hadoop and the associated technology ecosystem. Many of the CIOs we talk to acknowledge that they are testing Hadoop-based solutions to address the rapidly increasing data volumes that must be managed and analyzed. In the process they recognize the steep learning curve their people have to climb in order to work with Hadoop and Hadoop-based solutions, and are looking for assistance.

This was a lively panel that capped the proceedings of a great conference.

Full360 and elasticBI BI in the Cloud

2011-05-13T17:52:24Z

Today, Friday the 13th of May, 2011, the Boulder BI Brain Trust heard from Larry Hill [find @lkhill1 onTwitter] and Rohit Amarnath [find @ramarnat on Twitter] of Full360 [find @full360 on Twitter] about the company's elasticBI™ offering.

Serving up business intelligence in the Cloud has gone through the general hype cycles of all other software applications, from early application service providers (ASP), through the software as a service (SaaS) pitches to the current Cloud hype, including infrastructure and platform as a service (IaaS and PaaS). All the early efforts have failed. To my mind, there have been three reasons for these failures.

Security concerns on the part of customers
Logistics difficulties in bringing large amounts of data into the cloud
Operational problems in scaling single-tenant instances of the BI stack to large number of customers

Full360, a 15-year-old system integrator & consultancy, with a clientele ranging from startups to the top ten global financial institutions, has come up with a compelling Cloud BI story in elasticBI™, using a combination of open source and proprietary software to build a full BI stack from ETL [Talend OpenStudio as available through Jaspersoft] to the data mart/warehouse [Vertica] to BI reporting, dashboards and data mining [Jaspersoft partnered with Revolution Analytics], all available through Amazon Web Services (AWS). Full360 is building upon their success as Jaspersoft's primary cloud partner, and their involvement in the Rightscale Cloud Management stack, which was a 2010 winner of the SIIA CODiE award, with essentially the same stack as elasticBI.

Full360 has an excellent price point for medium size businesses, or departments within larger organizations. Initial deployment, covering set-up, engineering time and the first month's subscription, comes to less than a proof of concept might cost for a single piece of their stack. The entry level monthly subscription extended out for one year, is far less than an annual subscription or licensing costs for similar software, considering depreciation on the hardware, and the cost of personnel to maintain the system, especially considering that the monthly fee includes operations management and a small amount of consulting time, this is a great deal for medium size businesses.

The stack being offered is full-featured. Jaspersoft has, arguably, the best open source reporting tool available. Talend Open Studio is a very competitive data integration tool, with options for master data management, data quality and even an enterprise service bus for complete data integration from internal and external data sources and web services. Vertica is a very robust and high-performance column-store Analytic Database Management System (ADBMS) with "big data" capabilities that was recently purchased by HP.

All of this is wonderful, but none of it is really new, nor a differentiator from the failed BI services of the past, nor the on-going competition today. Where Full360 may win however, is in how they answer the three challenges that caused the failure of those past efforts.

Security

Full360's elasticBI™ handles the security question with the answer that they're using AWS security. More importantly, they recognized the security concerns as one of their presentation sections today stated, "Hurdles for Cloud BI" being cloud security, data security and application security. All three of these being handled by AWS standard security practices. Whether or not this is suficient, especially in the eyes of customers, is uncertain.

Operations

Operations and maintenance is one area where Full360 is taking great advantage of the evolution of current Cloud services best known methods and "devops" by using Chef opscode recipes for handling deployment, maintenance, ELT and upgrades. However, whether or not this level of automation will be sufficient to counter the lack of a multi-tenant architecture remains to be seen. There are those that argue that true Cloud or even the older SaaS differentiators and ability to scale profitably at their price-points, depends on multi-tenancy, which causes all customers to be at the same version of the stack. The heart of providing multi-tenancy is in the database, and this is the point where most SaaS vendors, other than salesforce-dot-com (SFDC), fail. However, Jaspersoft does claim support for multi-tenant architecture. It may be that Full360 will be able to maintain the balance between security/privacy and scalability with their use of devops, and without creating a new multi-tenant architecture. Also, the point of Cloud services isn't the cloud at all. That is, the fact that the hardware, software, platform, what-have-you is in a remote or distributed data center isn't the point. The point is the elastic self-provisioning. The ability of the customer to add resources on their own, and being charged accordingly.

Data Volume

The entry-level data volume for elacticBI™ is the size of a departmental data mart today. But even today, successfully loading into the Cloud, that much data in a nightly ETL run, simply isn't feasible. Full360 is leveraging Aspera's technology for high-speed data transfer, and AWS does support a form of good ol' fashioned "sneaker net", allowing customers to mail in hard drives. In addition, current customers with larger data volumes, are drawing that data from the cloud, with the source being in AWS already, or from SFDC. This is a problem that will continue to be an "arms race" into the future, with data volumes, source location and bandwidth being in a three-way pile-up.

In conclusion, Full360 has developed an excellent BI Service to suplement their professional services offerings. Larger organizations are still wary of allowing their data out of their control, or may be afraid of the target web services provide for hackers, as exemplified by the recent bank & retailer email spammers, er marketing, and Sony break-ins. Smaller companies, which might find the price attractive enough to offset security concerns, haven't seen the need for BI. So, the question remains as to whether or not the market is interested in BI in the Cloud.

Mixed Results during 1Q11 for our SaaS Portfolio

2011-04-27T18:59:24Z

Back in January I had read some reports indicating that after a strong 4Q10, the US economy was showing the signs of a slowdown. During January and February in particular businesses slowed their investment activities. These sobering reports were counterbalanced with more upbeat reports that small and larger enterprises continue their switch to SaaS solutions with CIOs looking to invest in new SaaS applications. This trend was reflected in the sales pipelines of our SaaS portfolio companies that continued to show strong growth during the quarter. However, ultimately our SaaS portfolio performance was ordinary, more reminiscent of the performance during 2Q10 rather than that of 4Q10. In other words, about 40% of our SaaS portfolio companies made or exceeded their quarterly financial targets, with over 70% coming to within 80% of their targets. By comparison, over 80% of our SaaS companies made or exceeded their financial targets during 4Q10.

The public SaaS companies are starting to present a more hopeful story. As these companies are starting to report their quarterly results, e.g., Success Factors, RightNow, netsuite, Constant Contact, SPS Commerce, Vocus, we are seeing bookings and revenue growth that meets or exceeds the guidance they had provided. This growth is coming from multiple industries and particularly from the mid-upper enterprise segment. We are also seeing the public SaaS companies accelerating their M&A activity (see Salesforce, Success Factors, VMWare) as they try to expand the functionality of their core solutions. Such moves of course will likely have a negative impact on margins.

Over the past couple of weeks my partners and I attended several board meetings to review the 1Q11 performance of our SaaS companies. As I mentioned above, the great momentum our SaaS companies achieved during 4Q10 was not carried during 1Q11 resulting in an OK quarter. Our analysis of their performance is leading us to the following conclusions:

Companies of different sizes and from several different industries are considering SaaS applications to address their business needs. This is reflected in the overall size of the sales pipelines of each of our SaaS portfolio companies by number of opportunities and the size of each opportunity. In general we are seeing
- the size of the average opportunity increasing,
- the age of each opportunity remains small, i.e., few opportunities are over 3-4 months old,
- the distribution of contract duration has remained steady, i.e., the distribution among one-, two- and three-year contracts has remained the same as in the previous two quarters,
- the distribution among the size of the prospects, i.e., among small, mid-size and larger enterprise companies, has remained the same as in the past two quarters, and
- while the geographic distribution of the deals continues to be US-centric, the number of foreign companies in the pipelines is increasing.
Analysis of the deals that were won and lost during the quarter indicates that while companies are accelerating their adoption of SaaS applications, in this economic environment they tend to prefer to sign deals with larger, public SaaS vendors rather that smaller, private ones. Many other companies decided to push their purchase decisions out by 1-2 quarters presumably in order to see how the economy will do during this time.
Regardless of the customer size, and similar to 3Q10 and 4Q10, the majority of the sales closed during the last 2-3 weeks of the quarter.
Customer churn remained 7-10%.

During the past two weeks I have also had the opportunity to talk with other investors with significant SaaS portfolios and heard that their companies reported similar quarterly performance.

Our management teams feel rather upbeat about 2Q11. They are basing their optimism on the discussions they are having with the prospects that didn’t buy during last quarter but have indicated that they will make a decision in the very near future, as well as the overall size of their sales pipelines which have continued to grow with consistent regularity. Finally, as investors we hope that the problems with Amazon’s AWS service that impacted many SaaS companies last week will not have any negative material impact in the 2Q11 revenue and bookings of these companies. It was fortuitous that it happened relatively early in the quarter.

Hadoop is Many Things Including the Ideal ETL Tool for Big Data Analytics

2011-04-04T16:51:06Z

The success of the recent Strata and Structure conferences (conclusions from last year’s conference and resulting trends can be found here) reinforced the accelerating corporate interest in big data and the specific need for applications and techniques that take advantage of Hadoop. Based on the presentations I attended or read about, it appears that more companies are getting comfortable collecting Petabyte scale data sets from sensor networks, social applications, IT log files, and online advertising applications. However, many of the companies collecting these data sets appear to have been struggling with the analysis of the collected data, primarily because of its volume and its complexity (reflected in both the number of unique attributes but also in the fact that data relevant for a particular type of analysis may be spread among several data sets that need to be brought together). Larger corporations that have already developed data warehousing and analytic infrastructures must understand how to use Hadoop in order to deal with the data volumes being collected in the context of their existing infrastructures. Smaller private companies, on the other hand, are trying to establish such infrastructures for the first time and trying to determine what role Hadoop can ultimately play.

Companies analyze data either through interactive queries or by creating models. Such models can predict the outcome of future actions or automatically describe characteristics of data sets. Examples of emerging analytic big data applications include social media sentiment analysis, and analysis of various forms of data logs for online advertising, computer security, etc. Hadoop’s MapReduce batch processing programming model has proven effective for model creation. One may even say that for model creation Hadoop could further benefit by interfacing with open source modeling tools such as those offered by Revolution Analytics. But for applications that require the generation of real time decisions using such models, e.g., deciding which online ad to display in a particular web page, or determining the likelihood that a credit card transaction is fraudulent before authorizing it, Hadoop’s batch model is inappropriate. Similarly, Hadoop’s batch processing model is inappropriate for applications that are driven by interactive analytic queries, e.g., identifying the effectiveness of particular price discounts in increasing the unit sales of a product in a specific geographic region. Hadoop’s strengths make it the ideal “preprocessor” for big data; essentially, the ETL tool for big data analytic infrastructures.

Let me elaborate. Users of analytic applications that are driven by interactive queries can use Hadoop to select the right data to query (which often involves testing the information content of various data sources before deciding which ones to use), determine whether data from the selected sources needs to be merged into a new source, or transform the data in some other way, (for example, by creating new derived attributes). In other words, a lot of what commercial ETL tools do today. In a company with a pre-existing data warehousing infrastructure, analysts can import (load) the preprocessed data into the commercial analytic database, e.g., Teradata, Netezza, Greenplum, or the in-memory database, e.g., Qliktech, and start interacting with it through queries. In a company without such infrastructure, as is the case with most startups that make heavy use of big data analytics, the preprocessed data can be subsequently loaded in a NoSQL database for further analysis.

Where does this leave big data analytic workbenches like those offered by companies such as Karmasphere and Datameer? To reach the big data analytic mainstream such workbenches must be part of the Hadoop ecosystem as they have the potential to make it easy for users to set up analytic tasks and perform analyses. However, their ultimate success will depend on whether Hadoop continues to be viewed as an important component for big data analytics, the approach big data stack vendors, e.g., Cloudera, decide to take regarding the end user/analyst, i.e., will they support such a user directly or through partners, and how well these workbenches become integrated with each big data stack.

eXelate’s DMP

2011-03-28T12:55:20Z

A few days ago eXelate (www.exelate.com), one of my portfolio companies, announced the latest release of its Data Management Platform (DMP). A DMP is software that centralizes the management of online audience data. It enables marketers to manage pixels, control data access and latency, package and segment data, gain insight into audience activity through the use of analytics, and control privacy. Similar to Demand Side Platforms (DSP) that enable Real Time Bidding (RTB) and are radically transforming online display advertising, Data Management Platforms are becoming an essential and important component of the emerging display advertising technology stack.

Because of the DMP’s importance to display advertising, over the past year several companies have announced such solutions. I organize these solutions into three categories: a) pureplay technology offerings, b) solutions aimed at the advertiser, and c) solutions aimed at the publisher. The best example of the first category is Demdex (www.demdex.com) that was recently acquired by Adobe. The best examples in the second category are the DMPs offered by BlueKai and by our own portfolio company Turn. In my opinion, the best example of the final category is eXelate’s DMP, with Rubicon having a potential competitor.

eXelate’s DMP enables publishers and data owners to manage access to their data through a system of configurable connectors. As publisher websites are increasingly pixelated, eXelate’s DMP helps reduce the impact of these pixels by monitoring site latency and leveraging pixel-free integrations. eXelate’s DMP also helps publishers leverage data on their own ad inventory and through media extensions. It enables publishers to build direct relationships with data buyers, set pricing and prioritize their data buying queue, and get visibility into how much revenue audience data is generating including analytics on historical trends relating to pricing and volume.

A major concern for publishers today is data theft. They want to control audience access by detecting and monitoring third party trackers running on their websites. However, today they are challenged in determining who is accessing data on their sites and what the associated monetary and privacy risk may be. eXelate’s DMP allows them to gain the appropriate visibility. By also incorporating the latest consumer privacy policies it allows audiences to control what information a publisher’s site can collect on them and provides an easy opt-out of all third party cookie activity. In this way, publishers learn more about their audience. Publishers can then incorporate eXelate’s data about their visitors in order to serve them more relevant ads.

Exelate offers both a data marketplace and a DMP. The work the company is doing to support its data marketplace customers has provided particularly useful know-how that has been directly reflected in the DMP’s functionality. For example, the marketplace is already interfacing with hundreds of publishers and has server to server integration with many DSPs. Making these integrations successful in a way that enables RTB has provided valuable knowledge that is reflected in the DMP’s configurable connectors and has resulted in improving its performance, thus reducing latency. Pureplay DMPs don’t have extensive knowledge in this area unless their customers choose to share their relevant experiences with them and even then one would assume that it will take some time before these are reflected as appropriate DMP characteristics. Similarly, eXelate has been working for the past couple of years on defining analytics that help its publisher customer analyzing the big data that is transacted in eXelate’s marketplace in order to understand their audience. Determine which of these analytics need to be supported by the DMP only comes from having such experiences.

Over the next 12-18 months I expect that Data Management Platforms will be a very active technology area with new offerings specialized by intended user (publisher or advertiser) entering the market, and with several startups being acquired by larger companies, e.g., software providers, data providers, ad agencies, that are in the process of creating complete RTB systems.

Social Commerce and Our Investment in 8thbridge

2011-03-21T12:42:50Z

Today we are announcing our investment in 8thbridge (www.8thbridge.com), a company that provides social commerce solutions to mid- and upper-enterprise customers. Following our successful investment in Extole (www.extole.com), a company that provides social marketing solutions to the same market segment, we had been looking for an investment in social commerce to round out or portfolio. The meteoric success of social commerce companies like Groupon, LivingSocial, Gilt, Rue La La, and Haute Look convinced that there will be a need for integrated solutions that enable companies to participate in social commerce. Brands are aggressively building their Facebook presence to take advantage of where consumers spend their time. For this reason we believe that they will invest in solutions which enable social interaction on Facebook and use it as an important sales channel. Over the past two years 8thbridge’s team led by Wade Gerten has developed an innovative social commerce application and has signed up a significant number of large customers including companies such as Delta Airlines, Haute Look, Brooks Brothers, and Mark Avon’s fastest-growing division.

Consumers connect to a brand on Facebook for three reasons: 1) to stay current on available new products, 2) to receive coupons and discount offers, and 3) to let their friends know about the products they support. Corporations like Coca Cola, Starbucks, P&G, and Disney have come to realize that consumers are engaging around their brands on Facebook and during the past year they have started investing heavily on marketing programs that to facilitate and enhance this type of engagement. Social commerce may be a key to demonstrating ROI to brands on Facebook. Companies use 8thbridge’s solution to enable in-stream shopping in Facebook’s brand’s pages, essentially the equivalent of natural search for a brand. A recent report published by Booz& Co puts social commerce of hard goods (apparel, tickets, etc.) at $5B during 2011 and projects it to grow to $30B by 2015 split almost evenly between US and the rest of the world, for a growth rate of 56%.

During a relatively short time we’ve seen social commerce solutions evolve in three phases. The solutions of the first phase offered stores built on the tabs of a brand’s fan page. The solutions of the second phase offered shopping in the news feed. Brands can market to consumers who opt-in and they in turn market to their friends. The most recent solutions are able to utilize the power of the Open Graph enabling consumers to engage their friends, participate in a truly social shopping experience and in the process get better deals. Several of 8thbridge’s customers, with Delta Airlines being the leading one, have already implemented such third-phase social commerce programs using the company’s solution.

We view social commerce as an extension and complement to ecommerce; certainly not a replacement. Whereas consumers go to ecommerce sites seeking needed items, they engage in social commerce more for impromptu purchases. Ecommerce is fueled by paid search, SEO programs. Social commerce on the other hand is fueled by fans and their friends, paid Facebook ads, and social marketing programs driven by ecommerce sites. Finally, whereas ecommerce sites use affiliates to drive traffic and sales, social commerce uses affiliates to drive sales within social networks.

Social commerce is still in its infancy. We expect that during 2011 brands will continue experimenting with both social marketing solutions as they look to expand their presence on Facebook as well as with social commerce solutions such as those provided by 8thbridge as they try to determine how to best sell to consumers without distracting from the overall Facebook social experience. We also anticipate that around the 2011 Christmas holiday season companies will start looking for hard ROI metrics for these solutions. In addition, merchants are also waiting for Facebook’s approach to commerce and how parallel it will be to its approach towards social games. We look forward to working together with 8thbridge’s team to build a great company around this exciting opportunity.