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Minimizing the Cost of SaaS Operations

Posted by Bob Warfield on March 29, 2010

SaaS software is much more dependent on being run by the numbers than conventional on-premises software because the expenses are front loaded and the costs are back loaded.  SAP learned this the hard way with its Business By Design product, for example.  If you run the numbers, there is a high degree of correlation between low-cost of delivering the service and high growth rates among public SaaS companies.  It isn’t hard to understand–every dollar spent delivering the service is a dollar that can’t be spent to find new customers or improve the service.

So how do you lower your cost to deliver a SaaS service? 

At my last gig, Helpstream, we got our cost down to 5 cents per seat per year.  I’ve talked to a lot of SaaS folks and nobody I’ve yet met got even close.  In fact, they largely don’t believe me when I tell them what the figures were.  The camp that is willing to believe immediately wants to know how we did it.  That’s the subject of this “Learnings” blog post.  The formula is relatively complex, so I’ll break it down section by section, and I’ll apologize up front for the long post.

Attitude Matters:  Be Obsessed with Lowering Cost of Service

You get what you expect and inspect.  Never a truer thing said than in this case.  It was a deep-seated part of the Helpstream culture and strategy that Cost of Service had to be incredibly low.  So low that we could exist on an advertising model if we had to.  While we never did, a lot was invested in the critical up front time when it mattered to get the job done.  Does your organization have the religion about cutting service cost, or are there 5 or 6 other things that you consider more important?

Go Multi-tenant, and Probably go Coarse-grained Multi-tenant

Are you betting you can do SaaS well enough with a bunch of virtual machines, or did you build a multi-tenant architecture?  I’m skeptical about your chances if you are in the former camp unless your customers are very very big.  Even so, the peculiar requirements of very big customers (they will insist on doing things their way and you will cave) will drive your costs up.

Multi-tenancy lets you amortize a lot of costs so that they’re paid once and benefit a lot of customers.  It helps smooth loads so that as one customer has a peak load others probably don’t.  It clears the way to massive operations automation which is much harder in a virtual machine scenario.

Multi-tenancy comes in a lot of flavors.  For this discussion, let’s consider fine-grained versus coarse-grained.  Fine grain is the Salesforce model.  You put all the customers together in each table and use a field to extract them out again.  Lots of folks love that model, even to a religious degree that decrees only this model is true multi-tenancy.  I don’t agree.  Fine grained is less efficient.  Whoa!  Sacrilege!  But true, because you’re constantly doing the work of separating one tenant’s records from another.  Even if developers are protected from worrying about it by clever layering of code, it can’t help but require more machine resources to constantly sift records.

Coarse-grained means every customer gets their own database, but these many databases are all on the same instance of the database server.  This is the model we used at Helpstream.  It turns out that a relatively vanilla MySQL architecture can support thousands of tenants per server.  That’s plenty!  Moreover, it requires less machine resources and it scales better.  A thread associated with a tenant gets access to the one database right up front and can quit worrying about the other customers right then.  A server knows that the demands on a table only come from one customer and it can allocate cpus table by table.  Good stuff, relatively easy to build, and very efficient.

The one down side of coarse grain I have discovered is that its hard to analyze all the data across customers because it’s all in separate tables.  Perhaps the answer is a data warehouse constructed especially for the purpose of such analysis that’s fed from the individual tenant schemas.

Go Cloud and Get Out of the Datacenter Business

Helpstream ran in the Amazon Cloud using EC2, EBS, and S3.  We had help from OpSource because you can’t run mail servers in the Amazon Cloud–the IP’s are already largely black listed due to spammers using Amazon.  Hey, spammers want a low-cost of ops too!

Being able to spin up new servers and storage incrementally, nearly instantly (usually way less than 10 minutes for us to create a  new multi-tenant “pod”), and completely from a set of API’s radically cuts costs.  Knowing Amazon is dealing with a lot of the basics like the network infrastructure and replicating storage to multiple physical locations saves costs.  Not having to crawl around cages, unpack servers, or replace things that go bad is priceless. 

Don’t mess around.  Unless your application requires some very special hardware configuration that is unavailable from any Cloud, get out of the data center business.  This is especially true for small startups who can’t afford things like redundant data centers in multiple locations.  Unfortunately, it is a hard to impossible transition for large SaaS vendors that are already thoroughly embedded in their Ops infrastructure.  Larry Dignan wrote a great post capturing how Helpstream managed the transition to Amazon.

Build a Metadata-Driven Architecture

I failed to include this one in my first go-round because I took it for granted people build Metadata-driven architectures when they build Multi-tenancy.  But that’s only partially true, and a metadata-driven architecture is a very important thing to do.

Metadata literally means data about data.  For much of the Enterprise Software world, data is controlled by code, not data.  Want some custom fields?  Somebody has to go write some custom code to create and access the fields.  Want to change the look and feel of a page?  Go modify the HTML or AJAX directly.

Having all that custom code is anathema, because it can break, it has to be maintained, its brittle and inflexible, and it is expensive to create.  At Helpstream, we were metadata happy, and proud of it.  You could get on the web site and provision a new workspace in less than a minute–it was completely automated.  Upgrades for all customers were automated.  A tremendous amount of customization was available through configuration of our business rules platform.  Metadata gives your operations automation a potent place to tie in as well.

Open Source Only:  No License Fees!

I know of SaaS businesses that say over half their operating costs are Oracle licenses.  That stuff is expensive.  Not for us.  Helpstream had not a single license fee to pay anywhere.  Java, MySQL, Lucene, and a host of other components were there to do the job.

This mentality extends to using commodity hardware and Linux versus some fancy box and an OS that costs money too.  See for example Salesforce’s switch.

Automate Operations to Death

Whatever your Operations personnel do, let’s hope it is largely automating and not firefighting.  Target key areas of operational flexibility up front.  For us, this was system monitoring, upgrades, new workspace provisioning, and the flexibility to migrate workspaces (our name for a single tenant) to different pods (multi-tenant instances). 

Every time there is a fire to be fought, you have to ask several questions and potentially do more automation:

1.  Did the customer discover the problem and bring it to our attention?  If so, you need more monitoring.  You should always know before your customer does.

2.  Did you know immediately what the problem was, or did you have to do a lot of digging to diagnose?  If you had to do digging, you need to pump up your logging and diagnostics.  BTW, the most common Ops issue is, “Your service is too slow.”  This is painful to diagnose.  It is often an issue with the customer’s own network infrastructure for example.  Make sure to hit this one hard.  You need to know how many milliseconds were needed for each leg of the journey.  We didn’t finish this one, but were actively thinking of implementing capabilities like Google uses to tell with code at the client when a page seems slow.  Our pages all carried a comment that told how long it took at the server side.  By comparing that with a client side measure of time, we would’ve been able to tell whether it was “us” or “them” more easily.

3.  Did you have to perform a manual operation or write code to fix the problem?  If so, you need to automate whatever it was.

This all argues for the skillset needed by your Ops people, BTW.  It also argues to have Ops be a part of Engineering, because you can see how much impact there is on the product’s architecture.

Hit the Highlights of Efficient Architecture

Without going down the rathole of premature optimization, there is a lot of basic stuff that every architecture should have.  Thread pooling.  Good clean multi-threading that isn’t going to deadlock.  Idempotent operations and good use of transactions with rollback in the face of errors.  Idempotency means if the operation fails you can just do it again and everything will be okay.  Smart use of caching, but not too much caching.  How does your client respond to dropped connections?  How many round trips does the client require to do a high traffic page?

We used Java instead of one of the newer slower languages.  Sorry, didn’t mean to be pejorative, and I know this is a religious minefield, but we got value from Java’s innate performance.  PHP or Python are pretty cool, but I’m not sure they are what you want to squeeze every last drop of operations cost out of your system.  The LAMP stack is cheap up front, but SaaS is forever.

Carefully Match Architecture with SLA’s

The Enterprise Software and IT World is obsessed with things like failover.  Can I reach over and unplug this server and automatically failover to another server without the users ever noticing?  That’s the ideal.  But it may be a premature optimization for your particular application.  Donald Knuth says, “97% of the time: premature optimization is the root of all evil.” 

Ask yourself how much is enough?  We settled on 10 minutes with no data loss.  If our system crashed hard and had to be completely restarted, it was good enough if we could do that in less than 10 minutes and no loss of data during that time.  That meant no failover was required, which greatly simplified our architecture. 

To implement this, we ran a second MySQL replicated from the main instance and captured EBS backup snapshots from that second server.  This took the load of snapshotting off the main server and gave us a cheaper alternative to a true full failover.  If the main server died, it could be brought back up again in less than 10 minutes with the EBS volume mounted and away we would go.  The Amazon infrastructures makes this type of architecture easy to build and very successful.  Note that with coarse-grained multi-tenancy, one could even share the backup server across multiple multi-tenant instances.

Don’t Overlook the Tuning!

Tuning is probably the first thing you thought of with respect to cutting costs, right?  Developers love tuning.  It’s so satisfying to make a program run faster or scale better.  That’s probably because it is an abstract measure that doesn’t involve a customer growling about something that’s making them unhappy.

Tuning is important, but it is the last thing we did.  It was almost all MySQL tuning too.  Databases are somewhat the root of all evil in this kind of software, followed closely by networks and the Internet.  We owe a great debt of gratitude to the experts at Percona.  It doesn’t matter how smart you are, if the other guys already know the answer through experience, they win.  Percona has a LOT of experience here, folks.

Conclusion

Long-winded, I know.  Sorry about that, but you have to fit a lot of pieces together to really keep the costs down.  The good news is that a lot of these pieces (metadata-driven architecture, cloud computing, and so on) deliver benefits in all sorts of other ways besides lowering the cost to deliver the service.  Probably the thing I am most proud of about Helpstream was just how much software we delivered with very few developers.  We never had more than 5 while I was there.  Part of the reason for that is our architecture really was a “whole greater than the sum of its parts” sort of thing.  Of course a large part was also that these developers were absolute rock stars too!

Posted in cloud, data center, ec2, enterprise software, platforms, saas, software development | 5 Comments »

Does the Cloud make Single-Tenancy OK for SaaS?

Posted by Bob Warfield on April 15, 2009

Multi-tenancy and all its flavors seems to be on people’s minds lately.  I just finished going back and forth with Phil Wainewright on some of the nuances of multi-tenancy and how it impacts the cost model for SaaS.  Phil’s post was on some of the sophisticated nuances of multi-tenancy as expressed by some of the latest announcements from the SaaS Vatican, Salesforce.com.

More recently, it has come to my attention both through my fellow bloggers of the Enterprise Irregulars as well as via a trackback to my blog post that there are those who are now saying the Cloud has made the world safe for SaaS vendors to forget multi-tenancy and plunge ahead with single-tenancy.

Not so fast! 

Color me skeptical.  If you don’t have a multi-tenant architecture, you’re going to argue it isn’t necessary.  That doesn’t make it right.  Before we get too far along, let me define multi-tenancy:

Multi-tenancy is a software architecture that allows multiple tenants to be hosted on a single box (or cluster of boxes) just as easily and economically as a single tenant could be hosted on the same configuration.

The bloggers taking the position that single tenancy is good enough hoist a variety of flags in support of their position, but for me, it boils down to answering one simple question about your SaaS business and its customers:

Fundamentally, do you have an application that can successfully run multiple tenants on a single box or not? 

If a single box has enough horsepower to run multiple customers for your app, the argument for single-tenant is completely (pardon my near-pun) untenable.
 
Salesforce runs 55,000 customers on 1,000 commodity servers.  You just aren’t going to be able to do that with a single tenant architecture no matter how much virtualization you choose to run.  If nothing else, virtualization runs afoul of a fixed cost/variable cost phenomenon very quickly.  A lot of the basic system software allocates fixed overhead, whether we’re talking about your DB server, your app server, your web server, or whatever.  Virtualization does not share the resources required for the fixed overhead, only the the variable costs.  Multitenant shares the fixed overhead too.  Those variable costs put an upper limit on the number of tenants you can shove onto a single box, no matter how small the tenant’s needs may be.
 
The new articles maintain that the Cloud fixes all this through the magic of elasticity.  Really?  That’s hogwash.  The Cloud at best and if you really architected your app to take full advantage of elasticity may help a little bit.  But most of the problem is database, and elasticity and databases so far remain a very hard technical problem to solve.  Try dynamically varying your partitioning and/or federation scheme to really scale up and down in real time in the Cloud.  It’s hard enough to get apps to scale to arbitrary Enterprise needs at all.  Try doing that in real time so you get multitenant cost savings?  Good luck!
 
So if you can’t run an average of 55 customers on each of 1000 servers like Salesforce, how many can you run without multitenant?  3?  5?  10?  What does that do to your cost versus true multitenant?  What does that do to the overhead of maintaining the servers?  What does that do to your cost of delivering the service and to the resultant cost model you have to saddle you customers with?  What does that do to you competively if you’re up against a company that does have the true multitenant cost advantage?
 
One example on the cost subject that I am familiar with:  a lot of the Social Software companies wind up charging by page views or total participant seats.  In many ways, this is anathema to community where you should do everything you can to encourage participation and not penalize it.  This is especially true for outwardly facing communities where the company wants a predictable cost model and can’t imagine being charged by their continually changing customer base or especially the changing usage patterns of that base.
 
In fairness, there are some business model + company + market + architecture combinations where it wouldn’t matter because you can’t run multiples on a single box.  If you’re strictly selling to organizations that can’t run on a single box no matter what, single tenant is fine.  Perhaps this is what these other bloggers are saying, but I’m skeptical any Enterprise 2.0 app would have that requirement, and that’s the kind of software these bloggers are describing.  FWIW, Helpstream will run 150 customers and nearly 400K seats on a single box loaded to about 10% of capacity.  That’s nothing though.  Look to the Googles, Facebooks, Amazons, eBays, Twitters, and similar big web properties to see real capacity.  Now combine that kind of capacity with multiple tenants.  It is a powerful competitive position to be in.

As I say, one can imagine combinations where you couldn’t combine multiple tenants onto a single box.  A honking big transaction processing ERP app might be one.  For another, at Callidus, I had customers using as many as 150 CPU’s to generate all the sales commission calculations for a huge salesforce.  To give an idea, we had telcos paying 20K sales reps and insurance companies paying 250K reps.  That’s a lot of transactions paid to a lot of people!  But those kind of Enteprise deals are very unusual for SaaS companies, and that kind of app is pretty unusual too because of the number of transactions being processed and the complexity of the business logic.  Still, such apps could be successful in those markets with single tenancy.
 
The articles go on to talk about the advantages of being able to customize these multiple instances.  Frankly, that scares me too, because the whole SaaS model really starts to break apart there when you decide to radically customize each instance.  It may be a value add, but it is a radically different value add than SaaS.  In fact, at that point, it’s a hosted ASP model, not SaaS.  Useful for some organizations, but there is a reason that model never achieved broad market appeal. 
 
Lastly, let’s talk about the whole security business.  This is the 800lb Red Herring in the room.  The minute you go SaaS or Cloud, you have outsourced that problem.  You can listen to vendors argue all day long about which architecture is “safer”, but that is an over simplification of the myriad factors that matter to the point it is just marketing and not substance.  It has as much to do with process as code architecture, which is why most of the security related standards like SAS70 and HIPAA don’t spend a lot of time on software architecture so much as the processes that surround that software.  Don’t take my word for it.  Look at what happened to Amazon around the whole AmazonFail incident for lack of process on an area that didn’t even involve any code.  Their problem was due to a data change.

BTW, the multi-tenancy imperative gets stronger constantly due to the multicore crisis.  We no longer get faster cpus (i.e. faster clock speeds) every 18 months according to Moore’s Law.  Instead, we get twice as many cores.  The easiest way to take advantage of more cores?  You guessed it: stack more tenants into the same box. 

For more, read Michael Dunham’s excellent post over on Haut Tec.

Posted in cloud, enterprise software, saas | 12 Comments »

If You Thought SaaS Was Annoying, The Cloud Babies Will Piss You Off!

Posted by Bob Warfield on January 7, 2009

I’ve been enjoying a spirited exchange with some of the Enteprise Irregulars around SaaS and Big Software for the Enterprise.  I won’t bore you with too many of the details, but we wound up in one of the classic cul de sacs these arguments often do.  Big Software was expressing their annoyance that once again incredible magic was being claimed, “Because it was SaaS.”  They were so annoyed at all the hype they percieved SaaS to be, and felt it was duping customers into believing too much in the name of SaaS.  If you read this blog at all (or have had a look at my resume), you will know I am an unabashed SaaS supporter, so when I hear someone shaking their head and bemoaning that SaaS is just a lot of hype, I spring into action.  Like any good evangelista, I launched into a long sermon about the many innovations SaaS has brought about that would be appropriate for any Enterprise (Big Software) Software to adopt regardless of whether they have a SaaS offering.

As it was happening, I was surprised myself at how it was coming out.  I’m not sure I ever heard anyone say SaaS had innovations that should be copied back into on-prem software before, but as I was waxing forth on the topic, I realized it was one of those things that had been germinating in the back of my mind for quite some while.  Let’s talk about that for a minute and then I’ll get into the whole Cloud Babies thing. 

What innovations has SaaS created that others would do well to adopt?  I’m talking about product architecture and functionality here.  Largely, it boils down to the idea of making software that is flexible without requiring expensive custom SI work.  Big ERP is legendary for the amount of expensive SI work that is required to install it.  The cost of such work is extraordinary, and the price tag when that work goes awry has created some legendary scandals in the Big ERP history books.  Getting away from all that is one of the promises of SaaS, and as I was quick to point out in that debate, it’s not just hype.  The economics of SaaS won’t support the expensive SI customization work. 

So how do SaaS vendors deal with the problem?  First, let me be the first to admit that a lot of them don’t.  They just restrict the scope of their offering and you live with that.  Sometimes that means the offering can only be successful for Small or Medium sized businesses and Big Enterprises can’t make use of it.  But that’s not the best answer.  The best answer is to find a way to deliver the flexibility in a way that doesn’t require expensive custom work.  There are two ways the SaaS world tackles this–for some problems metadata is the answer, and for other problems end user-approachable self-service customization works.  Let me give some examples of each.

Metadata is literally “data about data“.  As such, it is a beautiful thing.  Let’s consider the database.  It is very common for different organizations to want to be able to customize the database to their own purposes.  Let’s say you have a record that keeps information about your customers.  A lot of this information will be common, and could be standardized.  We all want the customer’s name, their address, phone number, and perhaps a few other things.  But then there will also be a lot of things that differ from one organization to the next.  Perhaps one wants to assign a specific sales person to each customer.  Another wants to record that customer’s birthday (obviously this is a much smaller organization than the first!).  And so on.  Without metadata, each database has to be customized and changed.  With metadata, rather than changing each database, you build the idea of custom fields in, and then you can just tell the database what the custom fields will be in each case but the structure needn’t change.  Metadata is not unique to SaaS, but it is an important part of the “multitenant” concept.  It makes it possible for all those tenants to live in the same database, but still get to have all their custom fields.

Metadata can also make it possible to enable that second method for flexibility.  Customizing a database without metadata is going to require someone to get into the database, modify the schema, make sure reports are modified to deal with the new schema, make sure the schema changes don’t break the product, and on and on.  Such work is definitely the province of expensive and highly technical experts.  However, once we have metadata, we can create a simple user interface that lets almost anyone add new fields, and that handles all the rest of it automatically.  Suddenly we have made what had been a difficult and expensive technical task approachable in a self-service way by non-technical customers.  Not only that, but they can make these changes quickly and easily, and they can even iterate on them until they get it just right.

Hopefully you can see why making expensive “flexibility customization” easy like this is essential to SaaS.  It makes no sense to sign up for cheap monthly Software as a Service and then have to spend millions to get it customized before you can use it.  Salesforce.com and others have done a fabulous job figuring out how to deliver this kind of thing.  There were a few non-SaaS companies doing this earlier, but nobody had made it an end-to-end requirement for the whole application install experience before the SaaS world came along and its economics made it imperative.  One example of a company that did this sort of thing to good effect was Business Objects.  It’s essential BI innovation was to make it possible to have the DB experts define the metadata needed to make querying the objects easy.  My old alma mater Callidus Software was another.  Our software computed Sales Compensation, which requires a lot of complex business logic.  Most of the players required expensive custom work to create comp plans, but we offered a product where business analysts could create the comp plans using formulas a lot like what you’d find in Excel.

The time is ripe, I would argue, for Big Software to be examined for opportunities to apply the same lessons.  Much Big Sofware is a couple generations older than the SaaS products of our time, so it isn’t suprising there should be some innovations worth looking at.  And in fact, Big Software are no dummies either.  See for example this discussion with Henning Kagerman of SAP’s changes in thinking about how to customize business processes.  Their Business By Design offering is not only a SaaS offering, but also a new generation concept for On-premises, and it is ripe with these sorts of ideas.  SAP has long been one of the customization heavyweights, but the pendulum seems to be swinging to the idea that next generation architectures might need to find ways to maintain flexibility while reducing the cost of customization. 

Adoption of these new ideas by the mainstream even outside of SaaS will be a good thing for all concerned.  But such adoption usually signals the maturation of an area, and this triggered little warning bells in my head.  If Big Software is upset and annoyed at the SaaS upstarts, who will upset and annoy the SaaS guys?  Who will unleash not just all the hype and disruption, but like SaaS, a set of innovations that SaaS, Big Software, and others will want to adopt too.  We’ve got a billion dollar SaaS leader in Salesforce, a gaggle of successful SaaS public companies still growing rapidly, an economic climate set to magnify the SaaS advantage further, and a number of exciting SaaS startups such as my own Helpstream.  The other thing is I’ve noted that when bubbles burst and everyone is wringing their hands in anguish, just as the hype from the last binge is dying down and consolidation is setting in, that’s usually when the next cycle is being born.  You just have to look around for it and it’s probably right there in plain sight.  Enter the Cloud Babies.

I call them Cloud Babies not out of any desire to denegrate, but because the Cloud is still in its infancy.  I am intentionally distinguishing SaaS from the Cloud too.  I mean the Cloud in the sense of Amazon, and perhaps Force.com.  The Cloud as a platform and a datacenter that is not only not the customer’s datacenter, but not even the software vendor’s datacenter.  I mean utility computing and everything that implies.

The Cloud Babies will be just as annoying to those not yet on the Cloud as SaaS is for those not yet selling (or buying) SaaS.  It’s going to seem ridiculously over hyped.  It’s going to seem like it isn’t real, that it won’t last, and that it will only matter to certain market segments or to small businesses but never large enterprises.  In fact, you can already ready most of that out there.  But I have already seen enough of the Cloud (Helpstream moved to Amazon recently) to know that there is a lot more to it than that.  There is a kernel of hard reality to it.  The Cloud is disruptive.  It will lead to innovation.  It will lead to architecture changes that give fundamental advantages.  If you thought the Sequoia memo of doom about what startups should do in this economy was serious, they missed an important point.  Any startup running their own datacenter today is at a huge disadvantage to those who are already in the Cloud.

I saw on Twitter earlier today that Fred Wilson means to sell GOOG and AAPL tomorrow and buy AMZN.  I agree.  If the SaaS Guys were annoying, you ain’t seen nothing yet.  The Cloud Babies are really gonna piss you off!

Posted in amazon, cloud, data center, enterprise software, platforms, saas | 5 Comments »

IT is the Big Consolidator, but SaaS and Cloud Computing Could Be Equalizers

Posted by Bob Warfield on January 5, 2009

After sifting through the blizzard of Monday morning blog posts in Google Reader without finding much of interest (glad to hear Jobs looks to be in reasonable health), I turned to Twitter and immediately vectored onto some more interesting stuff.  The best yet was Andrew McAfee’s post on the impact of IT capital spending as a barrier to entry.  Conventional B-school wisdom is that industries mature in proportion to their capital spending.  Businesses that require a lot of capital spending have a barrier to entry, and so relatively few smaller firms can afford to play in those industries.  He gives oil exploration as one example.   But apparently IT capital spending runs completely counter to this.  The more an industry spends on IT, the more likely more businesses are going to be able to get in:

IT capital, in other words, appears to be unique in that it lowers barriers to entry rather than raising them.

What a great story for IT and our industry!  Interestingly, this study specifically excluded companies and industries that make or sell IT hardware or software, so this is the real economy, and not just the High Tech industry.  The theory for why this is so is that IT capital spending increases the efficiency of other parts of the business far in excess of the cost of the IT.   Hence overall, it makes things easier for the business.

Here is another interesting tidbit from the study:  it has been an established maxim that IT evens up the playing field for small companies versus large companies.  In other words, the right IT can make a smaller company very competitive with a larger one.  But this particular study appears to dispute that.  The more IT capital spending there is, the more the concentration of players is shifted towards big companies.  Interestingly, other kinds of capital spending favor fragmentation between large and small companies, albeit fewer of either due to the increased barriers to entry.

McAfee’s theory on this is that:

I believe that this is because modern IT increases the scope, the precision, and the fidelity with which a business innovation can be propagated throughout a company. To put it as tersely as possible, good ideas and good execution separate winners from losers, and IT helps companies execute on their good ideas (technology also helps companies generate good ideas, but that’s a subject for other posts).

I would put that another way, which is to say that IT reduces friction in an organization if well implemented, and allows a large organization to “think small” in nimbly and efficiently implementing smart strategies while growing to a larger scale.  ERP and other Enterprise Software makes it possible for Big Companys to “bottle” their Best Practices discoveries, and ensure consistent implementation of these practices through business process automation.  Another of McAfee’s great posts shows that the variation in profitability for industries that make outsized investments in IT is much greater than industries that don’t.  Put another way, there is a bigger spread in lowest to highest profitability where large IT investments are being made.  This tends to reinforce the idea that IT spending lowers the friction and enables the winners to rise more quickly over the losers.

If that’s all true, I think I see the problem for smaller companies.  Implementing the level of IT available to larger companies still becomes a barrier to entry for companies lacking the scale to undertake such expensive projects.  There is still friction there that keeps the little guys from competing effectively.  That’s where SaaS and Cloud Computing can still come in as equalizers that give the little guys a chance.

Forrester’s TEI (Total Economic Impact) ROI analysis makes the advantage of SaaS for smaller businesses more apparent.  For example, they state that for small business, with 100-249 employees and 50 users, SaaS has a better TEI throughout a 10 year life cycle, as well as lower cumulative costs.  Medium businesses with 250-499 employees and 100 users this advantage falls to 7 years, largely due to a need to handle more integration and other more specialized requirements.  Somehwat larger businesses with 500-999 employees and 250 users have an advantage for 6 years in SaaS.  The largest business category in the report is businesses with 2500 employees and 500 users still show an advantage for SaaS out to 6 years, but it’s a pretty muddled picture where you have to look closely after about year 3 to see that advantage.

I find Forrester’s data to be a pretty convincing reason for why larger businesses have had an advantage in deploying IT technology, but also for why SaaS changes that picture to make it easier for smaller businesses to enjoy some of the same advantages.

Posted in business, cloud, enterprise software, saas | 2 Comments »

Helpstream in the News

Posted by Bob Warfield on December 24, 2008

There’s been a lot of great blogging activity around my company, Helpstream, lately. 

The latest is Paul Greenberg’s write up on CRM 2009 where he tells what really sets Helpstream apart:

Each of them is a genuine gem – in the case of Helpstream, I can’t even find a flaw. 

and:

This is my paradigm company for a CRM 2.0 feature set.  Para-digm.  They seem to have it all together.  They are the ones that I use as the example of the difference between CRM 2.0 and Web 2.0.  They are my numero uno for explaining the difference between CRM 2.0 and Web 2.0.

Thanks for the kind words, Paul!  This is exactly the kind of discussion we have with our partner Oracle, which is extremely interested in the whole “Social CRM” phenomenon.  Helpstream is, as Paul suggests, a really unique combination of traditional Customer Service technologies with some new Web 2.0 technologies that really rocks the house with new levels of ROI.

Also on deck are a couple of fabulous articles about Helpstream’s recent move to the Amazon Cloud.   Larry Dignan says we are “the blueprint” for how others can move to the cloud.  Thomas Foydell says Helpstream “moved up a whole other level” relative to other SaaS vendors like Salesforce and Netsuite by moving its datacenter into the cloud. 

They’re both great articles if you want to know more about the company that is my day job.

Posted in amazon, business, cloud, enterprise software, saas, Web 2.0 | Leave a Comment »

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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The Race for Internet Single Sign On

Posted by Bob Warfield on December 9, 2008

Single Sign On is a facility common in Enterprise Software that let’s you sign in once (or at least use the same userid and credentials) to gain access to every piece of software, even though they may come from many different vendors.  It’s a nice time saving convenience.  There is currently a big move afoot to provide SiSO (the usual abbreviation for Single Sign On) for the web itself.  Google has OpenID, Facebook has recently delivered Facebook Connect, and now there is MySpaceID.  

Who will be next?  The browser owners such as Mozilla?  SalesforceID?  Why not?  SFDC is cozying up to Google in various ways and it isn’t hard to implement SSO with the Salesforce platform.  My own company, Helpstream, supports Salesforce and OpenID (e.g. Google) SSO.  It’s a great convenience to our customers, and more importantly to our customers customer’s who use our application for Customer Service.  When it comes to security issues, why should credit card issuers or some such get into the fray?

In the end, I can’t think of a good reason for any of these to be the dominant winner in the near future, so application vendors should support as many of them as they can.  Eventually businesses will insist on SSO.  They already have it for on-premises applications.  Who knows, maybe business will insist on it for security reasons.  That’s another factor in Enterprise use where businesses want an API that lets them rapidly shut off all the accounts for a particular user, for example, a terminated employee.  None of the current Internet SSO options support that, but we saw such functionality added to the iPhone not long ago.

Dave Weiner, as channelled by Dare Obasanjo, says these standards are too complex and that points the way to a new generation.  I disagree.  It’s been easy to implement OpenID and Salesforce credentials at Helpstream, and we’re going to do Facebook next.  This is just wishful thinking from Weiner and Obasanjo who abhor the idea that SSO might be locked up by one of these big players.  The lockup isn’t going to happen precisely because it is pretty easy to support more than one.  Dare also points out some good examples where you may not want a single ID identifying who you are in every web situation lest things become embarrassingly co mingled.  OTOH, advertisers will love having yet another way to see whose footprints on various web pages are whose.

Keep watching the drama, and ask you software vendors to support the standards you want to use.  It’s all part of the growth and maturation process for Cloud Computing.  And be careful if you think your online presence is anonymous!

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One Week Later on Amazon Web Services

Posted by Bob Warfield on December 8, 2008

Well it’s official.  My company, Helpstream, has now been running our application entirely on Amazon Web Services for a week and we’re very happy with the result–it’s better, faster, and cheaper.  We’ve gotten a more robust system for our multitenant SaaS application that’s actually cheaper and easier for us.  Customers are reporting that the application even seems faster than it had been.  The effort involved was not too bad, though we did go through a multi-stage process before committing everything to Amazon.  I’ve chronicled that process on our corporate blog if you’re interested in seeing how such transitions are done.

Meanwhile, I can’t imagine why startups are fooling around with their own data centers.  Easy for me to say, we were too just one short week ago!  But seriously folks, given the current economy and the fact that you can deliver a better service more easily and cheaply with Amazon, why wouldn’t you make that a high priority?

I remember sitting in our weekly staff meeting with my Products organization discussing how to phase the transition.  We’ve got quite a lot of business activity on the horizon, as well as over 120 customers using the service at present.  I was arguing for more baby steps and my fear that we might screw something up.  My Director of Operations made the statement that when he looked at Amazon versus the sort of datacenter a startup can run, he couldn’t understand how we could afford to wait any longer than we had to.   What he meant was that the capabilities of AWS were not something we could even begin to approach any time soon.  When we took a careful look at what we were afraid of happening in a move, it turned out there was a strategy to mitigate every single risk.  So, we put together our migration plan and got on with it.  Boy were we happy we did!

Posted in amazon, cloud, ec2, enterprise software, platforms, saas | 6 Comments »

What is Twitter Good For in the Enterprise? 3 Key Use Cases

Posted by Bob Warfield on December 5, 2008

Some rumblngs among the Enterprise Irregulars about Twitter this morning.  The usual discussion broke out between the Twitter-lovers and the I-don’t-get-Twitterers.  Being a group of Enterprise types, it was a little more focused on informed opinions and less on inflamed passions that this conversation often is, and it reminded me to write a bit about this topic which I had internalized, taken for granted, and then stopped worrying about.  Let’s just run through some uses for Twitter in the Enterprise and some reasons not to ignore it.

Parts of the Conversation Take Place on Twitter Because Some Prefer It

Whether you’re a Twitter lover or not, be aware that there is a group that wants to have their conversation there.  If you don’t connect with Twitter at all, you are going to miss out on that conversation.  Don’t assume the only thing being discussed is which fast food people had for lunch each day.  Why do people like Twitter for this conversation instead of blogs, forums, or social networks?  First, let’s just drop the “instead of”.  For many, it’s “in addition too”.  Second, I’ve written before about the idea that Learning Styles can influence how people like to consume or create content on the web.  Here is my diagram for a sort of “Myers Briggs” of the web:

If you think about the matrix, you’ll see why a lot of things on the web invite such a polarized love/hate relationship. It’s all about how people communicate and which type of web experience maps best to those preferences. It’s well understood through examples like the Myers-Briggs test that everyone doesn’t learn and communicate in the same way. If you’ve ever tried a system like Myers-Briggs, you’ll understand how much light it can shed on why two people are having a hard time communicating successfully in business. Keep in mind that the same thing can happen on the web and if you want to be sure you are successfully communicating with, or at least listening to, every group, you have to cover every learning style.

Eventually business will realize this and they’ll create a superior web presence that checks all of the boxes on the matrix. Some are trying and getting close already.

Twitter Forces Short Responses: Ideal for Purposes Where Brevity Focuses

Getting back to the language of the Enterprise and it’s practitioners, have you ever heard about or employed some of the principles that can be used to make meetings or other inter-personal processes (offsites, budget planning, etc.) more efficient?  Consider messaging exercises of various kinds like creating mission statements, or key messages on a web page.  Don’t these exercises benefit when restricted to brevity?

Twitter falls into this category too.  By only allowing 140 words, it changes the nature of the conversation that takes place.  Ask yourself what kinds of conversations are better served by only allowing 140 characters?  As a quick, special purpose brainstorming tool, I suspect there are a number of “Twitter Games” one could come up with that would be ideal.  How about the exercise of naming a product?  That seems ideal for a Twitter exchange.  Or how about working on an elevator pitch?

What about forcing brevity to summarize?  This transitions to the idea of Twitter as telemetry or news feed.  If you can scan a list in Twitter and see tinyurl clickthroughs for those that need more attention you’re being more efficient than dealing with the information in situ with the full mass of words.  That’s got to be valuable for a number of enterprise processes.

Twitter as Telemetry or News Feed

There are certain kinds of information where it is important to tell at a glance what the current status is, but to be able to go back over time and see how that has changed as well.  Think of the old-style stock tickers and news feeds.  Twitter is ideal for that purpose.  For example, I use TwitterFeed to update my Twitter stream every time I post to this blog, for example.  That way, anyone following me sees there is a new post, sees the title, and can check it out with a tinyurl click if they like.

There are plenty of enterprise applications for an information stream that talks about what’s happening right now.   The reason I use the term “telemetry” is that Twitter can literally be viewed as a component of some larger system.  You can feed it messages (as I do with TwitterFeed, but it could be almost any corporate information source), and you can also pull the messages off Twitter via apis to use in various ways.  Maybe you are a busy sales manager just trying to keep certain messages top of mind for your sales reps, but the messages change constantly.  They’re promotions or some such.  Build a quick and easy Twitter telemetry system where you can type the messages of the day in as needed and they appear on a window that the sales reps monitor.  At my day job (no, I don’t blog for a living!) for Helpstream, we have built Twitter into the business rule fabric of our Customer Service application.  You can use it in this telemetry fashion as you see fit for your business.  For example, it’s trivial to create a Twitter stream that would reflect every new idea submitted to our Idea Storm facility.

Conclusion

I hope I’ve given you some ideas for why Twitter could be useful in the enterprise.  There’s a lot more potential in Twitter than what I’ve covered.  What are your ideas for how to put it to work in your business?

Posted in enterprise software, strategy, user interface, Web 2.0 | 8 Comments »

MySQL and BEA: Oracle and Sun Will Be At Each Other’s Throats!

Posted by Bob Warfield on January 16, 2008

Big news today is that Sun is buying MySQL and Oracle is buying BEA. This creates a couple of strange bedfellows to say the least. BEA is inextricably wrapped up in Sun’s Java business (is it really a business or just a hobby given the revenues it doesn’t produce?) which gives a reason for the two to get closer together. On the other hand, there is hardly a bigger threat to Oracles core database server business imaginable than MySQL, which has got to push the two companies further apart. What a tangled web!  Is Sun leaving Oracle to its own devices in order to pursue cloud computing?  Sure looks like it!

Let’s analyze these moves a bit. I want to start with BEA and Oracle.

As we all know, Oracle started that courtship dance not long ago and was rebuffed for not offering enough.  Amusingly, they closed almost exactly at the midpoint of the prices the two argued were “fair” at the outset.  Meanwhile, the recession is really setting in, stock prices are falling, and Oracle’s offer went up.  Since Cisco’s John Chambers mused about IT spending will slowing, it has become a widely accepted article that this will happen. So shall it be said, so shall it be written, Mr. Chambers. That’s a very bad thing for BEA, which is primarily selling to that market. The corporate IT market is their bread and butter for a number of reasons. Many ISV’s and web companies will look to Open Source solutions like Tomcat or JBoss with which to reduce costs. Corporate IT wants to superior support of a big player like BEA. The darker truth is that big Java seems to be falling out of favor among the bleeding edge crowd. Java itself gets a lot of criticism, but is strong enough to take it. J2EE is another matter, though there is still a huge amount of it going on. There is also the matter of the steady ascendency of RESTful acrchitecture while BEA is one of the lynchpins of Big SOA.  There is already posturing about the importance of BEA to Oracle Fusion.  If it is so important, Fusion may be born with an obsolete architecture from day one. 

The long and the short is that any competent tea leaf reader (is there any such thing?) would conclude that this was a good move for BEA to let themselves be bought before their curve has crested too much more. For Oracle’s part, its a further opportunity to consolidate their Big Corporate IT Hedgemony and to feed their acquisition-based growth machine. I am not qualified to say whether they paid too much or not, but if I do think the value curve for BEA is falling and will continue to fall post-acquisition. They are way late on the innovation curve, which looks to me like it has already fallen.  In short, BEA is a pure bean counting exercise: milk the revenue tail as efficiently as possible and then move on.  For this Oracle paid $8.5B.  Not surprisingly, even though it is a much bigger transaction, there is much less about it on the blogosphere as I write this than about the other transaction.

Speaking of which, let’s turn to the Sun+MySQL combination.  Jonathan Schwartz gets a bit artsy with his blog post introducing the introduction, which he calls “Teach dolphins to fly.”  The metaphor is apropos.  Schwartz says that MySQL is the biggest database up and comer news in the world of network computing (that’s how we say cloud computing without offending the dolphins that haven’t figured out how to fly yet).  What Sun will bring to the table is credibility, solidity, and support.  He talks about Fortune 500 needing all that in the guise of:

Global Enterprise Support for MySQL – so that traditional enterprises looking for the same mission critical support they’ve come to expect with proprietary databases can have that peace of mind with MySQL, as well.

That business of “proprietary databases” means Oracle.  Jonathan just fired a good sized projectile across your bow Mr. Ellison.  What do you think of that? 

I know what I think.  Getting my tea leaf reading union card back out, I compare these two big acquisitions and walk away with a view that Oracle paid $8.5B to carve up an older steer and have a BBQ while Sun paid $1B to buy the most promising race horse to win the Kentucky Derby.  What a brilliant move for Sun!  Now they’ve united a couple of the big elements out there, Java being one and MySQL the other.  They could stand to add a decent scripting language, but unlike Microsoft’s typical tactics, they’ve learned not to ply a scorched earth policy towards other platforms, so they are peacefully coexisting until a better cohabitation arrangement comes along. 

We talked a little about the Oracle transaction being a good deal for BEA:  it’s a lucrative exit from declining fortunes.  What about mySQL?  Zack Urlocker comments about the rumor everyone knew, that MySQL had been poised to go public.  Let me tell you: this is a far better move.  Savvy private companies get right to the IPO alter, and then they find someone to buy them for a premium over what they would go out at.  What they gain in return is potentially huge.  The best possible example of this was VMWare.  Now look where they are.  I will argue that would not have been possible without the springboard of EMC.  At least not this quickly.   Sun offers the same potential for MySQL.  It is truly the biggest open source deal in history.  It’s also a watershed liquidity event for a highly technical platform based offering from a sea of consumer web offerings.  The VC’s have been pretty tepid about new deals like MySQL.  Perhaps this will help more innovations to get funded.

What do others have to say about the deal?

 – Tim O’Reilly echoes the big open source and importance of database to platform themes.

 – Larry Dignan picks up on my rather combative title theme by pointing out that it puts Sun at war with the major DB vendors:  Microsoft, IBM and Oracle.  Personally, I think any overt combat will hurt those three.  The Open Source movement holds the higher moral ground and it just won’t be good PR to buck that too publicly.  Dignan sounds like he is making a little light of Schwartz’s conference call remark that it is the most important acquisition in Sun’s history, but I think that is no exaggeration on Jonathan’s part.  This is a hugely strategic move that affects every aspect of how Sun interfaces with the world computing ecosystem including its customers, many partners, and its future.  When Dignan asks what else Sun needs, I would argue a decent scripting language.  Since Google already has Python in hand, what about buying a company like Zend to get a leg up on PHP?  Last point from Larry is he asks, “If Sun makes MySQL more enterprise acceptable does that diminish its mojo with startups? Does it matter?”  Bottom line: improvements for the Enterprise in no way diminish what makes MySQL attractive to startups, providing Sun minds its manners.  So far it has been a good citizen.  With regards to, “Does it matter?”  Yes, it matters hugely.  MySQL is tapped into all the megatrends that lead to the future.  Startups are a part of that.  Of course that matters.

One other thought I’ve had:  what if Sun decides to build the ultimate database appliance?  I’m talking about order it, plug your CAT5 cable in, and forget about it.  Do for dabases what disk arrays did for storage.  That seems to me a powerful combination.  Database servers require a painful amount of care and feeding to install and administer properly.  If Sun can convert them to appliances, it kills two birds with one stone.  First, it becomes a powerful incentive to buy more Sun hardware.  This will even help more fully monetize MySQL, which apparently only gets revenue from 1 in 10,000 users.  Second, it could radically simplify and commoditze a piece of the software and cloud computing fabric that is currently expensive and painful.  Such a move would be a radical revolution that would perforce drive a huge revenue opportunity for Sun.  They have enough smart people between Sun and MySQL to pull it off if they have the will. 

Conclusion

Sun has made an uncannily good move in acquiring MySQL.  As Wired points out:

One company that won’t be thrilled by the news is Oracle, makers of the Oracle database which has managed to seduce a large segment of the enterprise market into the proprietary Oracle on the basis that the open source options lacked support.

With Sun backing the free MySQL option (and offering paid support) Oracle suddenly looks a bit expensive.

How else can you simultaneously lay a bet on owning a substantial piece of the computing fabric that all future roads are pointing to and send a big chill down Larry Ellison’s spine for the low low price of just $1B?  Awesome move, Jonathan!

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