SmoothSpan Blog

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

Archive for December 22nd, 2008

Too Much Cash Bad for Internet and Enterprise Innovation?

Posted by Bob Warfield on December 22, 2008

Fascinating post by Larry Dignan where he looks at Bernstein analyst Jeffrey Lindsay’s musings.  Lindsay likens Microsoft, Google, and Yahoo to Ford, GM, and Chrysler.  His premise is that all of their cash is buying up successful Internet plays faster than VC’s are funding new ones, and that this is similar to what happened in the early days of the automobile industry.

Lindsay goes on to say that he thinks having too much cash is causing these big players to do the wrong thing.  Microsoft loses $1.5B a year just to keep their hand in the Internet game, while all three are playing a cut throat price war on advertising.  Meanwhile he thinks Google wastes too much money on inefficient internal product development.  I remember a lot of complaining back in the first dot com bubble by people like Andy Grove about how strange things get when the cost of capital falls to nearly zero.

Adding to the general blight on innovation is Lindsay’s contention that the big players don’t do anything once they’ve acquired the innovative companies and their management teams.  Not only do they not do anything, but they simply copy each other’s strategies.  Lindsay says they’re like yesterday’s unsuccessful media conglomerates, and blames this tendency for AOL and Yahoo’s downfalls.

I tend to agree with what’s been said here.  I’m not completely sure it’s bad for innovation though.  At some point, companies quit innovating as much and just focus on execution.  Provided they are acquired after that point, it may actually benefit innovation.  After all, the creative people who built the company may then go on to do something else innovative.  But it does tend to mean that the particular product, strategy, or niche plateaus and goes nowhere. 

The other thing that struck me about the article is that it applies to Enterprise software just as much as Internet software.  There are big companies like Oracle waiting for their next acquisition fish to grow big enough to be worth hooking.  Meanwhile, there are relatively few new plays being funded by VC’s.  The SaaS crowd is very promising, but the dot com bubbles (there’ve been two now, haven’t there?) have starved the formation of new Enterprise plays.  In fact, the SaaS group is not very far along taking over from the perpetual license companies precisely because there are not yet great SaaS companies in every niche.

One of the things I keep waiting for is for the tech industry to show signs of maturity in understanding how to manage acquisitions.  There are some great models out there like General Electric, Johnson and Johnson, or 3M.  Most Tech Industry acquisition doesn’t have that great “collection of independent companies under one big brand” approach.  Our methods are more about milking companies that have peaked.  This is certainly a lucrative business (Oracle doesn’t do badly at all!), but I’m not sure it is as successful as what we see outside Tech.  The closest thing we have to it so far seems to be Cisco in terms of its ability to keep acquired franchises relatively vital and growing.  Does anyone know of other great examples in the Tech Industry?

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Posted in business, enterprise software, venture, Web 2.0 | 1 Comment »

Interview with RightScale’s Michael Crandell

Posted by Bob Warfield on December 22, 2008

Few things are more fun for me than to hear a CEO speak passionately about their company.  For that reason, I love interviewing them for this blog.  I recently had the opportunity to interview Michael Crandell, CEO of RightScale.  RightScale is a fascinating company that has an automated Cloud Management Platform. 

We use it at my company, Helpstream, to help us manage our virtual cloud IT assets, and like the software.  Evidently we’re not the only ones because RightScale has grown rapidly.  The three founders (Michael, CTO Thorsten von Eicken, and VP of Engineering Rafael Saavedra) started with a seed round of $700K in September 2007.  They took their first full VC round of $4.5M from Benchmark in April 2008.  That was recently followed by a $13.5M round from Index and Benchmark.   It takes a lot of momentum to pry that much capital loose from VC’s in these times!

In terms of customers, they have just under 10,000 free customers and several hundred paid customers.  RightScale’s service is such that you can start out using the free version and getting great value and then graduate to the paid version.

Last part of the profile, Michael and Co. have the wonderful luxury of being based in Santa Barbara, which is a wonderful town to be in. 

With the background out of the way, let’s dive into the interview:

Michael, give me your company’s elevator pitch, what does RightScale do?

RightScale is an automated Cloud Management platform.  It’s a platform in the sense you can control manage and develop IT infrastructure in the Cloud.  It’s your window or portal to your virtual data center.

We offered it to provide 3 points of value:

1.       Automation.  Customers are very interested in making it easy to get on to the cloud.  We provide pre-packaged solutions for common tasks to create an easy on-ramp.  MySQL, Web Site front end, grid.  Also Automation of server admin.

2.       Multi-Cloud Support.  Companies don’t want to be locked in to a single cloud source.  We can provide some portability.

3.       Transparency.  You can get at any level of the stack on your servers, so it’s a true platform.

Why do your customers want to be in the Cloud and on Amazon?

There are two reasons, really:

1.       Cost Savings is compelling.  Driven by capex vs opex.  Variable vs fixed costs.  Pay as you go is less capital intensive.  Elasticity.

2.       Agility.  Get servers quickly, get projects up and running quickly.

<Aside:  I mentioned that Helpstream has saved about 60% of our datacenter costs by switching to Amazon and Michael said this was pretty typical among his customers.>

What’s the neatest thing you’ve seen your customers do with the Cloud?

Tough question.  One of the great aspects of my job is that it’s fun to see all the neat solutions.  Here are some examples:

          Animoto:  A cool service that creates photo slide shows set to music.  <I agree and love Animoto!>

          Playfish: British educational games.  They needed scalability and geographical distribution.  <Amazon has worldwide datacenters and makes it easy for small companies to deliver a service worldwide.>

          TC3 Health:  Health insurance claim fraud analytics.  They use Rightscale to spin up 100’s or 1000’s of servers to go through millions of transactions in order to weed out the fraudulent ones.

          A large pharma company:  Has a program where a drug researcher can spin up a grid for protein analysis.  <Protein analysis is very compute intensive!>

Why does RightScale support multiple clouds?  Why would a customer look at another cloud?

It’s all about avoiding lock-in.

For example, a big media company we’re working with <you’d recognize the name!> has an outbound media site and wanted to do fan profiles.  They wanted to do it in the cloud because traffic is unpredictable.  But, they have an internal policy that prohibits any single source solution.  So we worked with them to do a non-cloud solution (at the time that’s all that was available) so they could prove their solution wasn’t single sourced to Amazon.

Today we support Flexiscale and GoGrid.  We’re adding Rackspace in the future, as well as others. 

We also support Eucalyptus, which is an open source solution that lets you build an EC2 compliant cloud on your own hardware.

Don’t most customers use Amazon? 

This is more a matter of keeping the door open for the future.  Amazon has a big lead as a first mover.  They established the category by making it so easy to rent servers with a credit card in a way that’s no harder than buying a book.

<Translation:  RightScale gets more Amazon companies to buy their product as an insurance policy should they need or want to use other Cloud infrastructure.>

Tell us about the impact of the economy on Clouds, SaaS, and RightScale?

I’ve never seen anything like it.  We’re in unprecedented times.  It’s tough to predict, but we believe Cloud Computing is really strong in the downturn.  There’s tremendous demand for cost savings coupled with the benefits of outsourcing. 

People running datacenters in house often don’t look at fully burdened costs.  If you really look at it straight up, Amazon is a lot cheaper.  <I agree and have seen the numbers from Helpstream that leave no doubt. It’s funny, you constantly read people trying to do back of envelope math and concluding Amazon is expensive, but they aren’t adding up the full datacenter costs!>

That big pharma company I mentioned told me, “If we can avoid buying another blade server ever, we’re going to.”  There’s a lot of companies that feel that way.

It won’t be every workload and it won’t be tomorrow, but there is a lot of pent up demand for that.

How are you going about getting your leads in this market?

We have a particular market approach.  Our Benchmark Board Member, Kevin Harvey, calls it “advantaged customer acquisition.”  No advertising.  We grow via word of mouth and PR.  We also have a free edition that is an engine of growth from the start.  It will be permanently free and it has a lot of utility.  We do well with Webinars, including a series on best practices.  We try to deliver content.  If we provide value and information, the business will come.

We don’t argue or educate about the Cloud, it’s rather about how we can help.

Is there anything special about the Amazon ecosystem you can rely on to help?

Two answers.  Amazon has been a good partner since the beginning, but at arm’s length.  There are no special favors.  Within the limits of the fact that companies drive business to them.

Selfishly we’d like them to favor some of the larger players because we think that serves customers. 

We cooperate on specific tractionable engagements.  They refer customers to vendors who ask how to solve a problem to the right vendor to help.  Conversely, we help them with startup camp speakers and such.  We’re also on their developer advisory committee, so we give them a lot of feedback to help bring out new Amazon functionality.

Let’s talk about social media and community for RightScale.

We love that world.  It’s helped drive RightScale’s growth and success to date via our Advantaged Customer Acquisition.  It’s part of our plan to expand that to do an even better job to encourage a developer and ISV community.  We’d like to develop our own ecosystem.

It’s also a fact that there are a lot of Web 2.0 companies in our customer base.  We see more complex web sites with database backends==complex multi-tenant web scale operations.

<At this point I took the opportunity to point out that Helpstream has an integrated solution combining community and customer service that’s right up his alley.>


Great interview with Michael.  I learned a lot and had a lot of things I suspected about the Cloud world and marketing in this economy confirmed.  RightScale certainly has the numbers that show them gaining tremendous traction despite the tough times.  I love their approach to selling by using a content-rich and social outreach program.  Heavy on PR, light on advertising.  This is a lot like what the folks at Rally Development use too.

Posted in amazon, cloud, data center, Marketing, platforms, saas, Web 2.0 | 2 Comments »

Who Will Build the Next iPhone?

Posted by Bob Warfield on December 22, 2008

There is clearly an opportunity.  Nature abhors a monopoly, and the iPhone is swiftly building to one.  Every carrier that doesn’t have the iPhone or a real iPhone-killer would give their right arm to get one.  Likewise the handset makers are in the same bind.

So who is it going to be?  Palm just got another $100M.  They have the money.  Do they have the vision?  There’s a poll on that link and when I looked, the pollers don’t think it’ll be Palm.

Someone will build one, and it’ll be big.  It may not unseat the iPhone (avoid that Western “only one must win!” tendency), but it will be very big.

Posted in saas | 1 Comment »

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