Recently in Conferences Category

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. 

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:

1. Over the next 5 years, what are the key business technologies that will be the most impactful in, and impacted by, the Cloud?
2. How will the consumerization of IT shape how we interface, interact with and profit from Cloud?
3. 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.

Last week I attended Strata, a conference organized by O’ Reilly and devoted to big data.  I was a large conference (790 attendees) whose content included both technical talks and tutorials about the new generation of big data tools, e.g., Hadoop, Cassandra, visualization, as well presentations on big data business applications.  The diversity and size of the audience and the reported business successes provided a strong indication of how important and popular the area of big data has become. 

Big data is pervasive in many of the companies Trident has funded the last few years.  We have invested in companies that generate and/or process big data, e.g., eXelate, Extole, HomeAway, Sojern, Turn, Xata, as well as companies that provide platforms for storing, managing and analyzing big data, .e.g., Acteea, Host Analytics, Pivotlink.  We recognize that many of the companies we invest in the future will need to have competence in big data.

There is a big difference between big data and data warehousing stemming primarily from the nature of the data.  Data warehousing was all about analyzing transactional data that was captured from enterprise applications such an ERP or POS system.  In addition to the actual transactions, big data is about capturing, storing, managing and analyzing data about the behavior of transactions, i.e., what happens before and after a transaction.  This has several implications.  First it means that the captured data is less structured.  It is easier to analyze a collection of purchasing transactions in order to try to identify a pattern, instead of analyzing a series of selections made across of set of web pages to establish a pattern of behavior.  Second it implies that meaning must be extracted from events, e.g., the browsing activity prior to buying an item.  To be effective in this more open-ended exploratory data analysis one has to break through the data silos that are typically found in enterprises and bring all available data to bear.  It also means that one must be collecting all available data rather than trying to decide a priori which data to collect and keep.

Data science is becoming a field.  Big data is eliminating the segregation between the people who manage the data, the people who analyze the data, and the people who present/visualize the data.  A good data scientist must be able to do all three, though, as I wrote last week, translating business requirements to a data problem and the resulting insights to business actions and value remain largely missing skills in data scientists.  Good data scientists are in high demand, as indicated by the jobs being advertised at the conference and as reported at the conference by LinkedIn.  They are expected to play a significant role on how their companies evolve.  That’s not something we were used to hearing about data analysts who were always considered fixtures of the back office.  I know because I started my career in data analysis.

Corporations have a lot to learn about big data from consumer-oriented companies that generate, manage and analyze big data, e.g., Amazon, eBay, Facebook, Twitter, and LinkedIn to name a few.  This is a reversal of sorts.  In the mid 90s when I was with IBM I was running an organization that was devoted to building data warehouses and providing analytical tools and services to Global 1000 companies.  At that time various companies, including many of the then nascent Internet companies, were trying to learn from the data warehousing and business intelligence practices of Walmart, Citibank, and First Data.  Today such companies will do well by trying to understand and apply the big data techniques being developed by many internet and social media companies.  One big difference is how such companies approach data stores.  Traditional businesses see the enterprise data warehouse as storing the “single version of truth” about the data.  Big data stores are viewed as containing multiple perspectives.  Their contents must be analyzed with the right set of tools in order to gain a perspective about the problem at hand.

Talking to the conference’s attendees I got the impression that more companies than ever before are starting to view data as an invaluable asset and a potential key to their success. They are no longer intimidated by data volumes and are using the new generation of big data management and analysis tools to bring more data under their control. 

Strata was a great conference that brought under one roof the leaders in big data thinking, and doing.  It also showed that, though increasingly important, this is still a small community and in many respects its overall size has not changed since the time I was one of the analysts.  We all need to find ways to accelerate the education and introduction to market of new data scientists.  The ability of many companies to continuously innovate, become leaders, and remain in this position could largely depend on their ability to recruit data scientists who can effectively exploit their big data assets.

Long gone are the days when Dreamforce was a smallish conference devoted to SaaS; the first conference 10 years ago had fewer than 1000 attendees. This year's conference had over 30k attendees (business users, IT users and vendors) almost 70% higher than last year's. The lines in and around the Moscone, the hotel rates and the jammed restaurants, bars and parking lots around the conference venue provided adequate proof of the high attendance. This was an event of high importance to Salesforce and even to SaaS in general. My impressions:

1. Based on the attendee affiliations (small and large companies, business and IT users, foreign and domestic delegates) the event provided additional proof that SaaS and cloud computing have penetrated the enterprise for good, as several of us have been predicting. Sarah Friar of Goldman Sachs calls it the "unstoppable SaaS wave." Heroku is very significant acquisition for Salesforce. In addition to the development environment it provides, 1m Ruby application developers that are Heroku's community, including developers of mobile applications, can be channeled toward the platform Salesforce is putting in place.
2. The introduction of database.com along with Heroku's Ruby-based development environment now position Salesforce among the premier PaaS providers along with Microsoft, VMWare, and maybe even Red Hat thought its acquisition Makara. This is a significant development since Salesforce's force.com platform and APEX language alone were not adequate to provide a general purpose, world-class PaaS (in a previous post I wrote some initial thoughts on force.com). In addition, because of its applications heritage, Salesforce has a wealth of application know-how that it can reflect to its PaaS, whereas companies like Microsoft and VMWare must rely on their third party application developers to acquire the corresponding know-how. Salesforce needs to work quickly to integrate together all its pieces (Chatter, Jigsaw, force.com, database.com, Heroku tools, etc.), in the process defining and exposing the right APIs. In this way developers will be able to create applications for a variety of tasks and complexity, not just CRM-related applications as was the case with force.com. It was already announced that objects and services (application and platform) will be exposed through SOAP and REST APIs. Developers will not be restricted to program only in Ruby but will be able to use any language like Java, C# and PHP. They will also be able to create their own data models. Moreover, by opening up its PaaS, Salesforce will allow developers to use applications developed in other similar platforms like Azure.
3. The announcements of additional "clouds," such as the one for web site development, prove that Salesforce continues to have a strong vision for where SaaS and cloud computing can go.
4. As we've seen in previously published surveys, security is no longer the top concern for SaaS adoption. Data and application integration have claimed that spot indicating that we are moving to a phase of trying to make on premise systems work well with the cloud-based ones. The presence of several of the major Indian and Chinese IT outsourcing companies all of which had big booths at the show indicates that the they now see a significant opportunity around systems integration that involves SaaS applications.

As investors we are excited particularly about the PaaS announcements. The emergence of another strong PaaS and the competition it is bound to generate among Salesforce, VMWare, Microsoft, Red Hat, and potentially Google, will be beneficial on two fronts. First, the competition will result in further PaaS innovations. This is obviously good for SaaS application developers who will consider more seriously a PaaS as a viable alternative on top of which to develop a new SaaS application. The improved capabilities of PaaS platforms will also accelerate application development resulting in the creation of new, and most likely, innovative packaged SaaS applications; the type we as investors like funding. The competition among PaaS providers will not only good for the continuing penetration of SaaS applications, but also for lowering the operating costs of deploying and supporting a SaaS applications, thus improving the application vendors' margins. While the PaaS pricing announced by Salesforce announced for the PaaS are on the high side, particularly for smaller ISVs, I expect that competition will lead to lower prices. My only concern from Salesforce's PaaS-related announcements is whether the company can develop the right DNA and evolve into an infrastructure company to ultimately implement the world-class PaaS it announced, since at heart it is still an applications company.

Yesterday I participated in a panel discussion on how the startup model has changed in the era of open source, Amazon’s cloud infrastructure and SaaS.  The panel was part of the AlwaysOn OnDemand conference.  Three of Trident's SaaS portfolio companies made it to the AlwaysOn OnDemand 100, the list of the top 100 SaaS companies: Host Analytics, Pivotlink, and Tricipher.  Other panelists included Gordon Ritter of Emergence Capital, Ravi Mohan of Shasta Ventures, Mark Gorenberg of Hummer Winblad and Sanjiv Parikh a venture advisor.  Because of the participants the discussion delved primarily on the strengths and staying power of the SaaS model, the characteristics investors are looking for in SaaS companies, and areas of new investment opportunity.  Below are some of the discussion’s highlights:

• In its purest form, cloud computing represents a fundamental platform shift in that allows everything to be offered over the internet as a service, elastically/dynamically, and paid ratably.  Many companies (mostly large vendors of on-premise software solutions), are either trying to marginalize this shift by calling it a fad, e.g., Oracle, or are trying to leverage the recent hype around cloud computing to position their products as cloud-based because they feel that in this way they will remain relevant.  At Trident we have a well-defined set of criteria that allow us to determine whether a company has a true SaaS product and the associated business model and practices.  The other investors participating in the discussion have similar criteria

• The panelists agreed that corporations are adopting SaaS applications because they provide a) their employees with universal access to the solution (anytime, anywhere), b) quicker time to value, c) reduced Total Cost of Ownership (TCO), compared to equivalent on-premise applications, and d) unique and needed functionality that is enabled only by the cloud, most importantly collaboration.  These adoption factors were most recently also validated through a survey conducted by InformationWeek.  To continue providing superior TCO, SaaS companies must continue to rapidly evolve their products, business models and distribution models.  Customers must feel that they are getting something of value immediately (even if they are just testing the free version of a SaaS product) thus creating the right conditions for future upselling opportunities.  Cloud-based infrastructures enable the rapid iteration through product offerings and models.

• Strong teams with knowledge of the SaaS the model is a top characteristic of the SaaS companies seeking investment.  Technological and business model innovation is another top characteristic.  What type of technological and business model innovation does the cloud enable, other than a delivery mechanism, that will cause a customer or a partner adopt a SaaS solution? By understanding the target customer’s pain-points investors are also trying to determine whether a SaaS company is trying to automate an important business process that can be uniquely automated through a cloud-based solution or whether the SaaS solution will just replace an existing on-premise solution by introducing additional efficiency.  Understanding of the target market (as investors we don’t want to hear that a SaaS company is targeting the generic SMB market; instead we expect a more sophisticated segmentation of a company’s target market since the purchasing and adoption criteria of a mid-size enterprise are completely different than those of a small company).  Finally, there was a brief discussion regarding the metrics a company must have achieved to be considered an ideal candidate investment, such as MRR, LTV, and CAC.

• Regarding new areas of investment interest we mentioned vertical SaaS applications particularly in industries such as health care and pharma even though security and compliance of data were identified as potential impediments to broad and quick adoption of such solutions.  I mentioned that my personal investment interests are around SaaS applications that automate Internet process in the areas of online advertising and e-commerce as well as in analytic applications and cloud-based infrastructure that address big data problems.  Identifying applications that utilize the data captured by SaaS applications was mentioned as another promising investment opportunity.  The panel touched upon the investment opportunity for a new generation of SaaS applications and cloud-based infrastructure created by smart phones and the new generation of tablets.

Last Friday I attended SDForum’s The Analytics Revolution Conference.  The presenters were startup public and private company executives and investors.  The presentations were mostly around real-time analytics.  For the past few years Gartner analysts have been writing and talking about the Real Time Enterprise.  Gartner sees the analysis of the data that is generated by various enterprise applications such as an ERP and residing behind the corporate firewall and an important ingredient to achieving the Real Time Enterprise.  However, Friday’s presentations brought to focus that the impetus for real-time analytics is not the faster analysis of enterprise data, but of the Big Data captured on the Web (structured and unstructured social data, activity logs, data coming from mobile applications, geolocation data, data mashups, the interactions during the lifecycle of the captured data, etc).  This data is orders of magnitude larger and more complex than the data currently stored in the enterprise data warehouses.  I had written that Internet SaaS applications will drive the SaaS innovation agenda.  Friday’s presentations provided more examples and additional justification for this conviction.

Companies like Facebook, eBay, LinkedIn and Zynga that presented at the conference are interested in making analytics-driven decisions in Internet speed and cheaper than it is currently possible with the existing data warehousing and analytics technologies. They want to use their data to continuously optimize their businesses, simulate the effect of decisions on business processes, and forecast the impact of actions.  Making decisions based on reports that summarize and find trends in data that is a week or a month old simply won’t do.

To take advantage of emerging opportunity of real-time analytics of big data, we are considering investments in the following three areas:

1. Infrastructures of next-generation data management systems, including open source systems like Hadoop and derivatives, and systems for creating OLAP cubes in real time.
2. Horizontal and vertical analytic applications, examples of which are listed here.  Additionally, these applications will need to find a way to monetize on the data they capture, not only on the data they process.  See, for example, how internet data exchanges like BlueKai are able to monetize the cookie data they capture.
3. Analytic services offered around the captured big data, e.g., the services offered around big mobile data by companies like Ground Truth, and Flurry.

My underlying hypothesis (driving one of my investment theses, and shared by several of the investors present at the conference) is that cloud computing will make big data analysis faster and cheaper.

I am convinced that over the next few years, investments in each of these three areas will result in several strong exits.  I don’t believe that the established on-premise data warehousing, BI and analytics vendors will be able to create adequate technological and business model innovations around real-time analytics.  The results of a survey conducted by InformationWeek and published on March 27, 2010 make it clear that more enterprises are looking to cloud computing to address the perceived shortcomings of on-premise applications, with SaaS BI being one of the top areas of interest.  Finally, as stated here, incumbent on-premise software vendors will continue to face the innovator’s dilemma that won’t allow them to move fast to offer the novel solutions for real-time analytics that the market needs and is starting to demand. 

Another busy week attending conferences.  Goldman Sachs held its annual 3-day Technology and Internet conference.  That was following by Pacific Crest’s Emerging Technology Summit that had a SaaS, Mobility and Cleantech tracks. 

Highlights from the Goldman conference:

1. More large software companies are embracing SaaS. I sat through a few of the public company presentations and noted that Adobe, and Intuit are starting to talk more about their SaaS initiatives.  In addition SAP talked about its SaaS initiatives, i.e., the next version of Business by Design that is due next summery and the recent introduction of on-demand BI through Business Objects.
2. Increasing interest for acquisitions.  Several companies mentioned their intent to be active acquirers particularly around software.  There is appetite for both large acquisitions as well as smaller technology-driven acquisitions.
3. Improving IT spending environment.  Overall IT spending in the Global 2000 is stabilizing and there is more confident talk about the PC and server refresh cycle (noted by both Intel and Microsoft).  There is also increased IT spending from China and India whose companies are trying to upgrade their infrastructures to be compete internationally.  Companies are also starting to use services more extensively to catch up with projects they had put on hold during the past 12 months (research reported by Goldman Sachs).  New software initiatives (with the exception of server virtualization) not a top priority during 2010. 
4. Social networking panel.  No significant increase in budgets around social initiatives yet.  Investments are campaign based.  Companies are trying to figure out how to get hold of the collected data and use it for marketing.  The panelists expect significant market consolidation to take place during the next 5 years.  Data privacy is a big concern and the panelists all recommended that the industry starts self-regulating on this issue.  Email continues to be a big channel for driving new users to social networks. 
5. CIO panel.  IT budgets will be moderately up in 2010.  The consensus is around 5% but this will not be uniform.  In some industries the IT budgets may remain flat while others may have higher than 5% increases.  The panelists also indicated that while the larger companies will increase their budgets, the SMB will lag behind.  In terms of spending priorities
1. Infrastructure optimization around areas such as high availability and redundancy.
2. Migration of more business processes online.
3. ERP implementations.
4. Server virtualization.

The CIOs agreed that it will be easier adopting SaaS applications than cloud-based infrastructure.  They are aggressively moving low risk applications to the cloud (both by re-implementing on-premise applications to their on-demand equivalent, and by acquiring packaged SaaS applications).  Use of the cloud to address demand spikes (to address processing needs or storage needs) is of great interest to the CIOs.  Cloud portability of workloads is an issue.

Highlights from the Pacific Crest conference:

1. SaaS survey results.  Pacific Crest regularly conducts a survey on the usage of SaaS applications.
1. Over 50 of the survey participants expect that SaaS usage within their organizations will increase over the next 12 months. 
2. Sentiment on SaaS is improving with close to 40% of those surveyed indicating that they are anywhere from satisfied to very satisfied with the SaaS solutions they are using and are therefore likely to recommend the use of SaaS applications to other organizations.
3. Over 25% of the survey participants indicated that they will spend around 30% of their IT budgets on SaaS applications and that number is projected to grow to over 30% in 2011.
4. Close to 30% of those surveyed indicated that they expect to realize 10-20% cost savings from the use of a SaaS application compared to its on-premise equivalent with the savings being almost equally distributed across hardware, software installation, software maintenance, upgrades and services.
5. Top benefits of SaaS: faster implementation, lower TCO, better system reliability, lower internal IT costs, and better scalability.
2. SaaS BI panel. All companies represented in the panel (Pivotlink, Cloud9, Jaspersoft, and Adaptive Planning) are growing well indicating that SaaS BI is catching on.  Pivotlink and Jaspersoft spoke about how their customers are coming from across the corporate spectrum (Global 2000 and SMBs).  Pervasive use, viral adoption, and collaboration are three areas that clearly distinguish SaaS BI from on-premise BI.  Vendors are starting to focus on creating new paradigms for extracting data from operational systems (cloud-based or behind the firewall) and moving it to the cloud.  They agreed that the traditional ETL paradigm cannot work in SaaS BI.  All panelists agreed that the way to successful adoption of SaaS BI is to offer more solutions and applications rather than just platforms.  Offering platforms will limit them to selling to IT organizations (something which nobody appears to want) with cost and personnel reduction as their primary value propositions (which everybody admitted are tough sells).
3. Benioff’s presentation.  Marc Benioff, CEO of Salesforce.com, gave one of the keynotes. Using Chatter as an example, his company’s latest product, Benioff talked about the next evolution of SaaS applications that will be driven by real-time collaboration and social networking functionality which in turn is expected to result in better communication among employees and higher productivity.  The demo, that was part of his presentation, showed the integration of social applications and social data around Salesforce’s platform.

This was the first SaaS conference I attended where I heard application vendors talking about, or in the case of Salesforce demonstrating, functionality that can only be delivered because these applications are cloud-based.  In other conferences, SaaS was justified as a superior model for delivering software.  Now we are starting to hear about applications whose “cloudness” enables them to have unique functionality making SaaS giving more reasons for customers to be attracted to SaaS.

This week I’ll be attending the Morgan Stanley technology conference and the SMX West conference.

Last Wednesday I presented at an event organized by IBM and FordhamUniversity ’s business school, around the launch of a new business analytics curriculum sponsored by IBM.  Earlier in the fall, IBM announced the establishment of a NY-based analytics center with 400 consultants.  Through its collaboration with Fordham’s business school, as well as through a similar collaboration with North Carolina State University ’s computer science department, IBM is hoping to gain access to qualified and well-educated candidates to staff its analytics services organization that will grow to 4000 consultants. 

Through surveys that were recently completed by business and IT leaders around the world, IBM has determined that the corporate interest in business analytics and information-based (rather than gut-based) decisions is increasing, while the number of qualified candidates who can help such organizations remains small.  Similar conclusions have been reached by researchers at Villanova University's School of Business in a study found here.  The Fordham program will educate individuals on how to blend business with quantitative analysis skills.  Today universities graduate “pure quants” that find their way to many corporations from Wall Street investment banks, to internet social networks like Facebook.  Pure quants have obviously strong quantitative analysis skills but relatively weak business skills.

I was asked to talk about the drivers for business analytics and their impact on investments in new analytics companies.  For several years Trident realized the importance of analytics in business decisions and has invested in several software companies that either develop applications and platforms to support the creation of business intelligence and analytics or their business is mainly driven by analytics.  Today almost 20% of our active portfolio companies belong to these two categories.  Moreover, we continue to look for additional investment opportunities in these areas here and abroad.

I see three drivers for today’s growing investor and corporate interest around business analytics:

1. Big data.  Data is becoming strategically important to enterprises of any size and type.  It is also being generated in unprecedented volumes. This is particularly the case with Internet companies.  Yahoo, Fox, AOL and some of the larger ad networks routinely generate upwards of 100 TB of data per year each.  Facebook is generating an order of magnitude more data than that.  Once prepared for analysis, the size of each such data set can triple in size.  By comparison, in the 90s, when I was running IBM’s BI Solutions organization and later when I was the CEO of Customer Analytics, we were dealing with data warehouses that contained, at most, a few terabytes of data and most frequently only a several hundreds of gigabytes.  To analyze big data in an impactful and timely manner, we need new data management paradigms (e.g., we are starting to see the broad use of column-based databases, and the emerging use of Hadoop by a variety of organizations across several industries) and new analysis paradigms that efficiently combine solid analytic techniques with business/industry knowledge, practices, etc.
2. The quest for performance-driven decisions.  Corporations are moving from report-driven decisions (where business intelligence was used only to passively present historical data so that a business executive can make decisions) to performance-driven decisions where analytics are used to, oftentimes automatically make decisions that impact corporate performance.  For example, ad networks combine sophisticated analytics with novel data management to determine within a few milliseconds which ad to show an Internet user.  Sophisticated optimization techniques are used by ecommerce companies to determine the price of keywords used in search advertising or the price they will pay for a new customer lead.
3. The need for broadening the corporate use of analytics.  In their quest to achieve analytics-driven decision-making, corporations are accelerating the use SaaS BI and cloud-based analytic solutions because of their lower total cost of ownership, speedier implementation compared to their on-premise equivalent solutions, and support of community-based and collaborative problem-solving.

Realizing the impact of analytics-driven decision-making, corporations are now thinking about analytics while designing new business processes and the associated applications, rather than after the fact, as was happening to date.  By comparison, we used to build data warehouses and BI applications by extracting and reporting on data from systems that had been around and were never designed for analytics-driven decision-making, e.g., ERP systems, or supply chain management systems.  Today, most state of the art applications are designed with an analytics component instead of being fitted with one. 

Over the next couple of years we will be able to assess whether Fordham’s business analytics curriculum will have the desired impact and provide IBM with a rich pipeline of analysts that combine the right mix of the business and quantitative skills needed to satisfy the corporate demand for analytics-driven decision-making.

Last week I attended IBM’s Smarter Cities event in NY.  This invitation-only event was the second in a series of high-level gatherings that IBM organized to emphasize the importance of data and analytics in addressing big problems such as healthcare, energy and transportation. The first such event was held last June in Berlin.

IBM is focusing on analytics these days.  Selecting “smarter cities” as a topic for these meetings is interesting.  IBM is very good at complex system thinking.  By focusing at the city level, IBM attempts to apply their system thinking and problem-solving prowess at an interesting set of issues where analytics can move the needle.  IBM views cities as settings that are complex yet manageable.  The company is also very good at bringing together individuals who can make an impact.  Attending the NY event were four state governors and lieutenant governors, several city mayors, including the mayor of New York, CEOs of small and large companies, academics, etc.  In all, the event had over 500 attendees from 25 countries and 180 cities.  So, there is a good probability that in the near future IBM will be able to test several of the hypotheses about how to use data and analytics to address problems at the city level that were raised during the 2-day event.

Not only because of the diversity of the event’s attendees but this was one of the first genuine cross industry and cross border demonstrations of appreciation in the importance of data for decision-making.  In speeches and hallway conversations attendees talked about how our existence in an increasingly instrumented, interconnected and intelligent world will require advances in data storage, management and analysis.  Interesting example mentioned in one talk: the new bridge on I35 in Minneapolis (that replaced the one that collapsed in 2007) has over 10K sensors.  The one it replaced had none.

It’s not about collecting data but about effectively using data to create results. NY Mayor Bloomberg gave a couple of examples on new crime analysis systems being used in the city and the contributions they are making as well as his initiatives to make more of the city’s data available over the web.  Dr. Denis Cortese, Mayo Clinic’s CEO, talked about his clinic’s efforts to analyze customer data to identify the best value a patient can get while receiving the best care.  One of his points I particularly liked was “don’t take pride on analysis but work on being rewarded for outcomes.”  Dr. José Armando Ahued Ortega, Mexico’s Secretary of Health talked about data-driven decision-making around the H1N1 virus in Mexico City.

The speeches I listened and the conversations I participated, once again reinforced my conviction that we can’t continue operating under the prevailing paradigm of “store data first and analyze it later,” even if the physical storage costs go to $0.  We are collecting so much data that in most cases we don’t have time to catalog it properly so that we can decide how and where to store it.  As a result, we lose track of the data we collect before we even have the opportunity to analyze it and benefit from it.  But, even if we could convince ourselves that we will analyze the data at a later time, because of the amount of data we collect, the cost of managing the data we store is starting to become prohibitive (energy costs, data administration costs, data maintenance costs).  Since collection is cheap, and becoming cheaper, we need to start making real time decisions on what to keep and what to throw away, where to keep it, and when and how to analyze it.  While I’ll continue looking for investments in companies that deal with data analysis (more on that in another post), I came out of IBM’s event more bullish than ever about companies that address data classification.

Interestingly enough while the Smarter Cities event was going on Columbus Circle, the Hadoop Summit was taking place in another part of NY where some very interesting ideas were presented on how to deal with the data volumes we generate.  IBM presented at that event as well.

Videos of the Smarter Cities presentations can be found here.

Last week Pacific Crest held its annual technology conference in Vail.  Pacific Crest always manages to bring a strong collection of public and private companies, particularly companies offering SaaS applications and internet solutions.  Of particular personal interest was the SaaS workshop that was held during the conference’s second day and which this year attracted over 50 participants.  From my notes:

• While the 2001 recession was a boon to the outsource companies that came to prominence by addressing the Y2K problem, the 2008 recession will prove to be a boon to the SaaS companies as many corporations are moving to SaaS applications as the cut costs and demand faster ROI from their software investments.
• Interesting numbers from a survey conducted by Pacific Crest
  • 60% of surveyed CIOs are deploying SaaS applications but there was still a sense among the participating SaaS company executives that, by and large, CIOs still don’t understand the true benefit of SaaS.
  • User satisfaction with SaaS applications at 49% (YTD 2009) up from 40% during 2008. 
  • Renewal rates holding steady at 80% Y/Y.
  • 60% of SMB customers self-implement the SaaS application they license. For those customers who use system integrators to help with the deployment of SaaS applications, the implementation services are 1:1 of the SaaS license costs.  The implementation services costs for on-premise enterprise software stand at 3:1 of the corresponding license costs.
  • SaaS initiatives will consume 25% of IT budgets in 2009 (vs 16% in 2008) and 28% of the 2010 budgets.  Pacific Crest is expecting roughly flat IT budgets for 2009 and a 5% increase during 2010.
  • Revenue growth and bookings growth among public SaaS companies are slipping (Y/Y revenue growth at 16% for the current quarter, as opposed to 28% for 3Q08, and Y/Y bookings growth at -4% for the current quarter, as opposed to 28% for 3Q08).  However, the smoothness of the revenue numbers, even during the deteriorating economy, further validate why the markets and investors are so taken by the SaaS model.
• During the current economic climate SaaS companies are aggressively establishing “farmer” sales teams to better deal with renewals, i.e., to try to ensure that the renewals will happen.
• Reasons customers use SaaS (in priority order): faster implementation, immediate access to the most recent version of the software, lower TCO, lower IT costs, reliability (very interesting), security (even more interesting since in the past security had been listed as one of the inhibitors to SaaS adoption), ease of integration with existing infrastructure, and ability to quickly customize the software (another interesting response since again customization was perceived as a weak point for SaaS applications).
• Top application areas for SaaS (in priority order): CRM (including industry-specific CRM applications), collaboration (seen as a battle between Webex/Cisco and Microsoft), BI (including web analytics), e-procurement, other enterprise applications.