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:
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.
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:
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.
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.
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.
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
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
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
of next-generation data management systems, including open source systems
like Hadoop and derivatives, and systems for creating OLAP cubes in real
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.
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:
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.
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
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
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
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.
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
optimization around areas such as high availability and redundancy.
of more business processes online.
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:
survey results.Pacific Crest
regularly conducts a survey on the usage of SaaS applications.
50 of the survey participants expect that SaaS usage within their
organizations will increase over the next 12 months.
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.
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.
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
benefits of SaaS: faster implementation, lower TCO, better system
reliability, lower internal IT costs, and better scalability.
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).
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:
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,
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.
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
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
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
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
Videos of the Smarter
Cities presentations can be found here.
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
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