SmoothSpan Blog

For Executives, Entrepreneurs, and other Digerati who need to know about SaaS and Web 2.0.

Archive for August, 2007

Phil Wainewright On SaaS Costs

Posted by Bob Warfield on August 7, 2007

Phil writes about the cost of sales and marketing, and quotes our blog post on the subject.  He’s correct that the original post did not give the full story on where the perpetual data came from, so I’ve updated it to reflect that it came from all public enterprise software companies with less than $350M revenues most recently reported numbers according to EDGAR filings.

It is surprising how long its taken for the quantitative data to get out on how much cheaper it is for SaaS companies to acquire customers.  There is a clear indication of economic forces at work that will ultimatley move a lot more of the enterprise world to SaaS.  Certainly looking at SandHill.com’s latest posts along these lines shows that Software Co. CEO’s understand what’s at stake and agree the SaaS tidal wave is virtually unstoppable by this time.

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Why Don’t Search Startups Share Data? (aka Open Source Style Web Crawling)

Posted by Bob Warfield on August 7, 2007

New Jersey Search Engine startup Accoona is filing for IPO after just a few short years of operation.  Whether you think they’re a good investment or not (http://www.alleyinsider.com/2007/08/analyzing-accoo.html), there’s definitely some feeling there’s gold left in them thar hills and the Googleplex hasn’t taken it all yet.

At the same time, there is an interesting discussion on Skrentablog that asks if there are 100 alternate seach engines how come only about 11 seem to be crawling the net?  Accoona is one of the 11 actually detected, BTW.  Richard MacManus is similarly perplexed, and his ReadWriteWeb blog post considers some possible explanations, but winds up baffled.

I appreciate the mystery.  Are these niche search engines that just haven’t hit all the sites?  Are they purchasing their index from somewhere?  Do they know some other way  besides crawling to create an index?  Are they really smart about not crawling until a page changes somehow?  And does this deafening silence from crawlers indicate that the Googles and Yahoo’s of the world really have sewn up the search world, that you have to be big to do it, and that others need not apply?

I’m reminded of a novel web crawler I was involved with at a startup I founded called iMiner/PriceRadar.  We had a nifty data mining application that tapped into eBay to optimize listings.  During our early days, we had to crawl eBay and collect all the data.  We discovered early on that their denial of service deflector shields where blocking our IP before we could gather much data.  What to do?  In those days, DSL was just coming on stream, so we bought every employee a DSL connection and built a distributed spider that ran from their homes.  They’d install a little applet on their PC and we collected all the data we wanted because the load was spread over enough IP’s it didn’t trigger eBay’s ire.  Meanwhile, the employees got a great perk.  In effect, nobody could’ve seen we were crawling the web (or eBay in this case) because our presence was too diffuse.

Which brings me to my point about all this web crawling: why aren’t startups sharing the burden?  There are enough of them with enough different spins that they should be able to divide and conquer the web, much as my old distributed algorithm would divide and conquer eBay.  The necessary algorithm can simply be Google’s MapReduce or the Open Source alternative Hadoop.  These algorithms are tailor made for distributed crawlers.  One could even set things up so that the startups could participate to the extent of their needs and funding and would thereby receive only a subset of the collective work.  Come to that, why doesn’t Google or Yahoo sell “Remora Slots” on their own crawlers?  These would be piggyback opportunities to filter the text as it is gathered and build up custom indices of one kind or another.  It’s the Amazon Web Services equivalent for a big Search provider to offer.  They could charge so many cents a terabyte and offer the ability to filter what gets passed on for niche services that don’t need to whole web.  Now that would be an interesting service!

The same principle should be at work throughout a lot of startup activities.  Why don’t startups collaborate more frequently?  We’ve demonstrated code collaboration ala Open Source has tremendous advantages.  The next step is collaboration on data of various kinds.  Many would say the data is even more important than the code (see Open Source and Scratching Itches in the Cloud).  Combine code and data and there isn’t a lot else.  The ability to combine the data likely requires the right sort of platform and api’s to make it happen, but it would be quite an innovation if it came to pass, wouldn’t it?

It’s been a long time since the idea of “Kiretsu” was in favor.

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Posted in amazon, grid, multicore, Partnering, software development, venture, Web 2.0 | 4 Comments »

What Will SaaS Partnerships Look Like Going Forward and How Will Platforms Play?

Posted by Bob Warfield on August 6, 2007

There’s some interesting commentary over on Apprenda’s SaaS Blogs about creating vital roles for VARS and hardware vendors in the SaaS world.  The discussion started out particular on the impacts SaaS might have on hardware vendors.  General agreement was reached pretty quickly that SaaS leads to further consolidation of data centers and increasing server utilization.  I want to talk mostly about the more software related end of the discussion, but before doing so, there’s one comment I had about the hardware piece.

Companies like HP have realized that increasing centralization is inevitable, and they’re making acquisitions and adjusting their strategy to position themselves for the change.  A great example is HP’s M&A activity around software related to managing complex data centers.  OpsWare was the latest acquired component of HP’s strategy in this space, and a canny move on HP’s part to cash in on centralization and the ever increasing complexity of managing such data centers.  The big storage vendors such as EMC are already well positioned, and it is interesting to note EMC also had the foresight to target virtualization—another helpful component in the brave new world of increasing centralization.  For the right product/market mix, virtualization can stand in for true multi-tenancy, at least for a little while.

Returning to the software piece, one of the more interesting observations was that SaaS mashups are an opportunity for VARs to add value.  The focus in this case was integration mashups.  To the extent the VAR can become an expert at creating such mashups, it’s a great starting point.  The SaaS customers already have to deliver their data to the cloud, so the job of transforming and preprocessing it so it is useful feedstock to a particular SaaS application can also be performed in the cloud and it can be done by a different vendor.  VARs frequently deal with this sort of data massaging in the perpetual world anyway, so they clearly have the expertise.  Astadia, currently the leading Salesforce.com partner, has partnered with Pervasive to do exactly this kind of thing.  It’s no coincidence they’re showing this kind of forward thinking and are the number one partner for arguably the number one SaaS vendor.

Beyond Mashups, there are almost always opportunities to create additional modules in the ecosystem surrounding the immediate niche the SaaS “parent” lives in.  This is ideal for VARs for several reasons:

  It creates distinctive IP they can call their own, which has a higher valuation that just being a body shop.  All good VARs know their space as well as the ISV, sometimes better.  Being able to package some of that expertise as a new module is the best possible outcome.

  Creating the module in the SaaS form factor, leads to a win-win for VAR and customer.  The VAR gets recurring revenue from its IP, and the customer gets all the advantages of SaaS.

The best VARs have been creating add-on modules since the software game began.  There are a couple of challenges to be overcome.  First, writing software is often difficult for services companies.  The gestation period can result in a lot of non-billable time from their very best consultants.  The traditional solution is to get a customer to pay for the development for their own use and leave the VAR with the IP for resale.  That’s still workable here, but the point is that the economics and costs of software development do not favor the VAR’s normal tendencies.  SaaS makes this worse as it is harder to write SaaS software than on-premise software. 

Second, the SaaS world itself is still in its infancy, particularly with respect to connectivity and platforms.  These two are related, but the overlap is not 100% because connectivity is only one of the services a platform may provide.  Just as the Web 2.0 world is in the process of evolving platforms, so too is the SaaS world.  There are even some similarities between the initial entrants: Facebook for Web 2.0 and Salesforce’s App Exchange for SaaS.  Neither is a particularly effective platform for all purposes: they have many disadvantages for their users.  Both are a great leap ahead from no platform whatsoever. 

We haven’t seen the last of this by any means, and platforms for both worlds will evolve for a number of years before stabilizing.  It’s worthwhile in the meantime to follow both worlds closely.  I believe Web 2.0 and SaaS will eventually enjoy far greater overlap than they do today, and this will be to the good of all concerned.  The lack of overlap continues to show that the SaaS world has yet to leverage the collaborative community aspects of the Web that should give them an even greater advantage over old-school on premises software.

For the VARs out there, getting some IP in the SaaS game seems a critical differentiator.  Companies will be trying to lock up various niches, and it becomes important that one’s competitors don’t steal too much of a lead lest it become insurmountable.  Now is the time for VARs to be experimenting and gaining expertise in these areas!

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Posted in business, Partnering, saas, venture, Web 2.0 | 1 Comment »

 
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