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Microhoo Gets its Parts in All the Right Places

Posted by Bob Warfield on July 29, 2009

The Microhoo deal looks good to me because the parts are in the right places.  In other words, the deal maximizes the strengths of each of the two players.  Microsoft is essentially going to be providing technology in the form of the Bing search engine and the Ad Center advertising engine.  Yahoo will provide the traffic.

What does this mean for these two companies and for Google?  Techcrunch has a good transcription of Carol Bartz and Steve Ballmer going over it.  The companies moved away from any big up front payments and have focused on ongoing revenue.  I’m sure that’s a good thing for Bartz, who is probably trying to put as solid a foundation as she can under Yahoo’s revenue. 

These articles all seem to provide a lot less detail about how Microsoft will quantify benefits, however.  I have been feeling for some time that it might be a good plan for Microsoft to divest its consumer web properties to Yahoo.  Unfortunately, Yahoo is in a lousy position to pay up.  In fact, they’re actually planning to move expenses in the form of engineers off their books and onto Microsoft’s.

The deal does, however, give Microsoft a huge shot in the arm in terms of Search share.  It leaves Microsoft and Google neatly splitting most of the remaining search share, although Google continues to have to Lion’s Share of search (about 65%).  In exchange, Microsoft will pay Yahoo a whopping 88% of the search revenue in so-called Traffic Acquisition Costs.  At least they’re simply giving up the incoming revenue rather than paying cash sweeteners.  And, the deal is for 10 years, plenty long enough to cover the tenures of Ms Bartz and Mr Ballmer.

Despite the long term of the deal, the companies have budgeted 2 years of transition just to get it all operating.  That’s a typical Microsoft development timeframe, but it certainly does not reflect living in “Internet Years.”  Hopefully that’s a conservative estimate they can beat.  If it takes 2 years to get this thing up and running there’s no telling what kind of moving target Google will be able to put up between now and then.

All in all, it seems a reasonable deal.  MSFT gets to continuing trying to steal share from GOOG with a big uptick from this deal alone.  They’ll be fighting a guerilla war from here on out.  YHOO gets an immediate revenue boost and some significant Opex relief, making their numbers look better.   There’s nothing too earth shattering here, no big acquisition, and no silver bullet against Google, but it is a credible effort.  Google, meanwhile, is going to find it harder and harder to continue to steal share.  They have regressed to the mean and will now grow at the overall rate of the market, because they are the mean with so much share.  The implication is that they need a new growth engine, and until they get one, they will need to focus on profitability through expense controls. 

As I wrote some time ago, their anti-gravity ray has failed and they are now earthbound.  The same could be said of Yahoo’s share price.  It’s a great pity for shareholders that management didn’t take that big juicy merger offer made lo these many months ago.  In the end, said management got tossed and Yahoo shareholders got a much worse deal.  OTOH, MSFT shareholders are getting most of the value at a much more reasonable price.

Seth Godin writes an interesting post about win, place, or show.  Microhoo is definitely about showing.  They’re a long ways from figuring out how to win.  Larry Dignan is a lot less kind.  He says they’re set up to be the new AOL.

What do you think?

Posted in Marketing, Partnering, strategy | 2 Comments »

Catching Up With 3Tera in the Clouds

Posted by Bob Warfield on March 1, 2009

Recently I had a chance to catch up with 3Tera CEO Barry Lynn and SVP of Sales and Marketing Bert Armijo.  It’s been a little while since I chatted with these guys and they’ve been busy!

It’s now been roughly 3 years since their first beta test.  Incidentally, they claim that beta makes them the first Cloud vendor, since Amazon S3’s beta was 1 month later!  Not sure selling Cloud infrastructure is the same as selling the Cloud like Amazon (that’d be like making the gold pans before the gold is found), but I do applaud their pioneer spirit.  If not the first, they’re certainly among a very small group of original Cloud Thinkers.

Good Catching Up With You Guys.  What’s New Since We Talked?

Our latest version is 2.48, which was recently released.  The big change there is we’ve added support for Solaris and Windows, and there is integrated monitoring.  We now have service on 4 continents, soon to be 5.  And we have customers taking advantage of that.  A customer can get presence on 4 continents in a day with 3Tera.

How Many Customers Do You Have Now?

Several hundred live customers, mostly through partners.

We have a number of hosting partners, and we’re always looking for more.

Tell Us About Your Partnering Strategy

People are starting to realize the need for private clouds.  People are starting to get it.  Federal Government and Large Enterprise want it.  There are legal restrictions on where data can be put.

For a long time partnering was unique to us.  People in the space all wanted to build their own cloud.  Our customers can work with multiple operators from Day 1.  Our customers do this on a daily basis.  It’s routine.  We have a button for it in the GUI to automate it.  Backing up to multiple points of presence, for example.

The product is maturing and we’re starting to see a change in types of customers coming on board.  Don’t know if it’s the economy or the Cloud industry.  A year ago, most customers were web or SaaS.  Now the vast majority are Enterprises.  It is a profitable and stable business though it puts a different kind of requirements on the product.

Why Enterprise?  I’ve Talked to a Lot of SaaS Companies Having Difficulty With Large Deals.

First I haven’t heard SaaS companies are having any particular problem with Enterprise sales.  There’s stress everywhere, but we don’t see the Enterprise as particularly stressed.  When business is good companies want control over price like SaaS offers.  But when business is bad they want economies of scale.

We love this economy.  Everything requires a bit of luck.  Here’s what’s going to happen.  This is the hardest hitting recession we’ve yet seen in the shortest period of time.  Some companies want quick ROI investment, particularly around saving money.  Others get completely frozen and don’t do anything.  There’ll be companies in both of those camps.

<The frozen camp is where I’m hearing the Enterprise problems.  Larger orgs seem more prone to freezing.>

If you look at things like Siebel or other SaaS having a problem, where customers cut back is in discretionary vertical functionality.  Do I have to do it at all?  We greatly lower the cost of almost everything.  We don’t build apps, we build platforms.  So we replace something non-discretionary with something also non-discretionary but cheaper.  Others are making discretionary spending cheaper.

A datacenter upgrade or tech refresh cycle was poised (last one was dotcom).  Now they lost budget for that, so its, “How do I run my business?”

You can’t run a business without IT infrastructure.  I may get rid of my cable TV, but I still have to buy food.  I just want cheaper food.  That’s what we’re out to do.  We can show them the catalyst for cheaper IT infrastructure.  We can even enhance quality while saving. 

People get the same level or more control as when the hardware was in their datacenter.  In fact, it’s more, because they have better tools to abstract large distributed systems.

How do you get the word out?

We look more like a web company there.  We don’t have a big field sales force.  We don’t have big Enterprise software contracts.  What we’ve done is to simplify and create a small incremental purchasing decision.  Even multinationals can start for a few hundred dollars a month, increasing spend as they see value.  That eliminates long eval cycles and the committee sale.  We’re more efficient and we pass that along to the customer.  We’re more focused on value instead of artificial billings like services and support. 

<This incremental pay-as-you-go cost is what I love about the Clouds.  We’ve seen it at my own company Helpstream when using Amazon.>

So we use telemarketing, or what a lot of people call Sales 2.0.  A lot of sales are Webex.  We only go visit customers who have an established footprint with us.

We minimize the onboarding cost and eliminate the lock in.  We avoid API’s that people have to write code to—that creates lock in which worries customers.  This minimizes the perception of risk.

We have a full blown disruptive product.  It is subscription based.  It’s incremental.  You can try it out slowly and then move quickly when you’re convinced.  That helps a lot in this economy. 

Customers save the capex because they don’t have to own the software.  They save personnel costs because people don’t manage servers, they just manage applications using our platform.  Saving thoses costs together with faster time to market really is a cheaper and better proposition. 

We use a combination of methods to attack the marketing problem.  We are voracious practitioners of PR.  PR offers so much more value than any ad we can place ever would, whether that’s a Google ad or a print ad.  Having some writing and putting their intelligence into it creates value. 

We also do some Google ads, though we have cut back on that a little bit.  It is valuable because it brings new people into the space.  It causes them to go find the PR.  We also do a few conferences.  We don’t go to big trade shows, but there are some decent focused small conferences.  We like conferences with a few hundred people because we can spend time educating someone there.

Often these conferences are vertical or geographic.  For example, there are Cloud Conferences for Government people.

Most of our leads are inbound.  Soon, we want to look at more outbound techniques, but without spending a huge fortune.  For example, we’ll be at the Web 2.0 show in SF.  We’re also doing the Sitcom Cloud Event in NY.  We’re doing Forrester’s Cloud Event.  We actively participate in Cloud Camp.

Tell Us More About Your Partner Strategy

When we started, it wasn’t clear this was the right path.  We got a lot of pushback, but we stayed committed to it.  Cloud is not going to be a one size fits all market.  There’s a lot of different purchasers and a lot of different requirements.  Banks want their systems of record in their data center.  Healthcare likewise.  Europe has a lot of laws about this.  There are many geographical issues, even involving physical limitations of the speed of light.

The level of service customers need and can afford is also all over the map.  One company can’t build a data center that meets all of those requirements.  We see a Federation of Clouds where users can take their workload to where their requirements are met.

It’s very popular to have developer systems in a different area than production.  The latter has geography, redundancy, and other requirements.  We transfer the workload seamlessly from one to the other, which is powerful.

We have a tiny little startup that has facilities and points of presence in three continents.  Startups couldn’t begin to do that in the past.  We have customers on military contracts that have very special security requirements. 

Only by partnering could we meet all of these requirements.  Our job is to build the best possible enabling platform.

We’re very conscious of our partners and want to make sure they make money.  We don’t charge them up front or make them sign up for huge commitments.  Its win-win, customers save money, but partners make even more money with us than on their own.

The real strategic value is there will be an evolution over the next couple of years.  Many companies are just not in the infrastructure business.  Yes, they spend billions, but at some point they’re going to stop building that infrastructure and start using the Cloud.  It’ll start slow, they’ll move bits and pieces, but at some point, they won’t need to own datacenters.  There is a whole industry growing up to service this.

What About Amazon, Google, Microsoft, et al?

Cloud computing will be a federation of many many clouds.  There are thousands of telcos in the world.  We see cloud computing playing out the same way.  Of course we see Amazon, Google, and the others playing in that game.

There should be standards to increase the interoperability and make it better for all.  Networking is a very successful example of this today.  Telephones with rotary dials still work today.  Other industries struggle to get to that point.

Why Not Amazon Today?

What does that mean? 

<Bob laughing, “I want your graphical management tool working for me in the Amazon Cloud!”>

We set out to do a particular thing.  Amazon didn’t exist back then.  We set out to make it easy to deal with large systems.  We built an underlying infrastructure to support the user interface that you see.  AppLogic’s Cloudware infrastructure identifies pieces that can be broken out as services.  We are starting to see how to do that.

There’s the UI, there’s a grid OS, we look at heartbeats, failures, etc.  We have a catalog system, we have a metering system, and we generate billing information.  Each could’ve been a company.  But we built it all together as a seamless whole.

Now that we understand how this all fits together, we can look and see how to do it on systems that have fewer services.  EC2 is one of those targets.  We’ve been open about that.  It won’t happen in a month or two, but it’s something we’d like to do.  Amazon is one of several.

We don’t want to be seen as a front end for a cloud. 

Thanks Guys, Great Discussion!

<3Tera remains one of the Cloud Leaders that I like to keep an eye on.  They’re enabling the hosting world to build their own Clouds using 3Tera’s platform.  That ensures a lot more Clouds will be available with lots of interesting features and distinctions.  It’s all good for the end users!>

 

Posted in amazon, business, cloud, data center, Marketing, Partnering, saas, strategy | Leave a Comment »

Did Amazon Just Damage Their Ecosystem?

Posted by Bob Warfield on January 10, 2009

There’s a lot of back and forth over whether Amazon has just damaged some of their ecosystem partners by launching the AWS Console, which provides an easy way to control your Amazon Cloud usage from a web browser. 

Elastic Vapor trumpets, “Amazon Crushes Ecosystem.” 

GigaOm says the new offering competes with RightScale, Elastra, and Enomoly, but doesn’t crush them out of existence.

This is not the first time this has happened.  Elastra and others were queing up to solve EC2’s persistence problem and Amazon delivered Elastic Block Store and made the whole issue moot.

So what’s the deal?  Is Amazon doing evil to its ecosystem?  Have they violated my oft-repeated dictum that platform vendors have to act like Switzerland?  Is this good for the competition, as Paul Lancaster Business Development Manager at GoGrid says:

“Better opportunities for other cloud vendors as AWS console de-values partners who build business on the platform. Good news for the competition.”

I don’t think Amazon has done evil and I do think ecosystem players need to position themselves to expect this sort of thing.  Amazon needs to do whatever is necessary to make adoption of its platform easy.  Ultimately, that will grow the ecosystem too.  Yes, there was some pretty low hanging fruit out there in the form of gaps in Amazon’s initial offering.  EC2 persistence was one.  Having only a command line interface and no web client (addressed by this AWS Console announcement) is another.  It’s fine for the ecosystem to be nimble about nailing such opportunities early on, but they can’t very well expect Amazon to let them hold on to franchises that are pivotal to Amazon’s own success as a platform.  As such, I don’t see Amazon’s actions as evil.  I think the ecosystem has to expect this sort of thing. 

In fact, all indications are that companies like RightScale were in the loop that the announcement was coming.  That’s a pretty clear indication Amazon didn’t mean to do evil to them, but wanted them to have a chance to prepare themselves and respond. 

When you’re riding the wave that is someone else’s ecosystem, it behooves you to stay well informed about their direction, anticipate they’ll fill in their functionality, and keep pushing the envelope to stay ahead of them.  If your ecosystem addition was built by a small team in record time to solve an obvious need, keep the thought in the back of your mind that it may just have been a little too easy and start looking for something harder to do to add value.

Posted in amazon, cloud, Partnering | 2 Comments »

Cloud Computing Keiretsu: VMWare + Elastra, Amazon + RightScale + EngineYard

Posted by Bob Warfield on December 31, 2008

A keiretsu (系列? lit. system or series) is a set of companies with interlocking business relationships and shareholdings.   So says Wikipedia.

As the competitive landscape for the Cloud Computing World begins to take shape, forming Keiretsus is one of the most important things for the players to be doing at this time.  Most of them do not have enough technology they can call their own to create a total solution for their brand.  Even mighty Amazon, which comes closest, benefits from software like RightScale’s asset management suite (see my interview of RightScale’s CEO, Michael Crandell). 

As such, there will be a rush to round out complete suites in these early days through partnerships.  This is a normal business pattern and its good news for both the partners and customers.  It will lead to more complete solutions, better integration between the components, greater standardization, and it signals the legitimization of the market and the beginnings of a shift from early adopters to the mainstream.  In short, it is a sign of great health in momentum for Cloud Computing.

The latest news of the impending Keiretsu was the joint announcement that Elastra will partner with VMWare.  I saw that one on Twitter this morning, BTW.  It made me think of the various Keiretsu as revolving around 3 different major markets, each of which corresponds somewhat to an equivalent market in the conventional world:

cloudkeiretsu1

The Pure Cloud is the Amazon-style market.  It offers generic Cloud Infrastructure to all comers.  It’s Cloud as a Service, and is analagous to the Software as a Service world.  This world keeps costs extremely low and relies mostly on Open Source software (e.g. Xen Hypervisor) and internally developed software (S3 or Elastic Block Store) to keep the costs low.  The model works great at delivering very low costs.  My company, Helpstream, saved a bundle recently by switching.

The VMWare/Elastra combination is also interesting.  In my (so far cloudy) framework of different Cloud models, I put VMWare in the same category as 3Tera (another great company I’ve interviewed).  These companies are charging for software that Amazon has built or Open Sourced (not precisely, but the software is analagous to Amazon’s Xen Hypervisor and the Elastic Block Store they built).  Presumably the customers for this type of Keiretsu will be hosting providers that want to play in the Cloud but do not have enough software development capability themselves to get there.  There is also a market for corporations that want to create private data centers that take advantage of Cloud technology, or that are Cloud compatible so they can build composite apps that span the Cloud and the private data center.  This is an interesting market, to be sure, it’s just different than the “mainstream” (if I can use that word this early in the Cloud cycle) Cloud Market that companies like Amazon or Google represent.  It most closely resembles the perpetual license software market, with its vendors selling licenses for infrastructure.  In fact it isn’t an exact analog because a lot of this stuff is services, but metaphorically, it’s pretty close. 

The last analagous market is what I call the Vertical Cloud.  Seems like there is always a vertical opportunity to be had in any megamarket, and this can be quite a lucrative field to play in.  In the Cloud world, the verticals are represented by Google and Intuit, who have created special-purpose cloud platforms that cater to particular desires.  One could even view things like Facebook applications as existing in the Vertical Cloud market.

Next we have the crossover players.  RightScale is both a useful component for the Amazon world, and the company is also offering to deliver their service on clouds more like the Infrastructure Sellers operate in.  There are many reasons why this is a valuable niche.  To learn more, check out my interview of RightScale CEO Michael Crandell.  Elastra is another product available now in two of the Cloud markets.  Shifting over to the other side we see Ruby On Rails as a specialized vertical being delivered on the Amazon Cloud by EngineYard and Heroku, hence they’re in the crossover space between the two types of markets. 

There are a lot of other players I”ve left off the diagram just to keep it clean and obvious at a glance what’s happening.  For example, Force.com is trying to be both a Vertical, where it is ideal for creating add-ons to the Salesforce ecosystem, and a true Cloud as a Service where any generic application could be built there.  To make it even more interesting, Force.com connects to both Amazon and Google.  This framework provides a way of thinking about possible future combinations or products.  What are other vertical crossover opportunities between the generic cloud and the verticals?  What will be the crossover opportunities between the infrastructure and vertical worlds?  Will there be more than just the 3 big markets, or are the analogs to conventional software markets convincing enough to tell us this is probably all there is?

It’ll be interesting to watch the Clouds continue to evolve and see what unfolds!

Posted in cloud, data center, Partnering, platforms | 2 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!

Related Articles

VARGuy says the acquisition means Sun finally matters again.  $1B is cheap to “finally matter again!”

Posted in business, enterprise software, Open Source, Partnering, platforms, saas, soa, strategy, Web 2.0 | 9 Comments »

Lack of Good Platforms is Stunting SaaS and Business Web 2.0

Posted by Bob Warfield on October 18, 2007

There is a misperception out in the world that 3 developers can build a 1.0 web product and get it to market for a few hundred thousand dollars.  It’s a story that’s been true for a variety of consumer web products, the Twitter, Facebook, and MySpace gang, but it is most assuredly not true for business web products.  Why not?

Because businesses require all sorts of things in their software that consumers don’t care about or think about.  Security, configuration to fit business processes, and the desire to actually produce a measurable ROI and not just play around and have fun are all part of it.  Robustness, scalability, and the desire to make sure that when you pay for a service you will actually receive that service are another.

Chris Cabrera, CEO of two and a half year old SaaS provider Xactly, has 40 engineers on his payroll last I talked to him.  I know Chris and I know his VP of Engineering Satish.  These guys are smart, pragmatic people.  They know you can’t wastefully put 40 on one product, so they break it up into modules and infrastructure subsystems.  They wouldn’t hire 40 unless they had to build a lot of darned difficult software.  It is hard to build business web software.

But here is the rub:  there is huge duplication of effort across the ISV’s laboring to build these business web applications.  The reason is that so many of the features business demands are generic.  The list of things you have to build under the heading security is pretty much the same for every SaaS business software vendor. 

This brings me to another advantage the consumer folks have that drives their costs way down: they have platforms.  The LAMP stack is a platform for creating consumer web software.  RSS is part of a platform.  There are many others.  Some carry across to the business world, but not too many.  Not enough.

The lack of available platforms is radically slowing the availability of new SaaS and Business Web 2.0 offerings.  Companies that want to play in these arenas have to raise a lot more capital and take a lot longer to build their first release than their consumer brethren.

What should such a platform offer?  Let me give you my wish list that is not exhaustive, but focuses on some items of particular interest:

Security and the Rest of the IT Check Offs

There is a long list of items around this area that are frankly very boring and time consuming to build.  They add no differentiation to your offering, they are just the price of admission for even being considered.  Customers want to know how to incorporate your offering into their single-sign on portals.  How to implement their password policies on your SaaS offering.  How to implement their data backup and retention policies.  And all the rest.  The Business Web Platform has to make this dead easy and require almost no coding to use.

Multitenancy and Version Control

This is a complex and inter-related issue.  I want to run many tenants as efficiently as possible.  I want a metadata-based approach to configure the minor differences in the tenants.  I want to manage patches and updates so I can test them out on a few tenants, and if all is well, rapidly roll them out to all tenants as automatically as possible.  I want to write my software as though it only knows about one tenant, except when the software needs to see all the tenants.  I want a whole lot of something for almost nothing in terms of effort on my part. 

Scalability and a Head Start on the Database

Business software needs slightly different scalability.  Most business “seats” use more resources than a consumer “seat” in these apps.  A cheap mySQL backed by memcached may not work well at all for this model.  At the same time, Oracle license fees are extremely cost prohibitive.  Most of my web pages are dynamic and they have to be right.  I can’t sacrifice accuracy for availability as much as consumer sites do.  My accounts payable clerk can’t see we owe $10,000 if the real number is $100,000.  All this points to some sophisticated database capabilities the likes of which are just not out there at the moment.  Companies are either living with the pain of Oracle, or building fancy partitioning and other layers on top of mySQL. 

Let’s don’t even get started on ad hoc reporting, which is another database layer the platform needs as well as metadata to let end users add fields or new objects and so on.

Customization and Configurability 

I’ve talked about customization and configurability before as a stumbling block for many types of business web software.  This is hard stuff.  Many enterprise categories have been non-starters on SaaS because they require too much customization.  Anything the platform can do to help is welcome.  I break customization into three categories:

  1. Presentation Logic:  Can I change all the text on any screen for localizaton or to accomodate my company’s terminology?  Can I change workflows?  Can I completely change the layout of the screens, which fields are presented, sort orders, and all the rest?
  2. Data Model:  Can I add new objects and fields at will?  Do I have an easy way to populate from my other systems?
  3. Business Logic:  This is the hardest and most open ended piece.

Lowers My Service Delivery Costs

SaaS vendors have a cost to deliver their service.  It directly affects their margins in a profound way.  Let’s take an average of 3 public SaaS vendors:  Salesforce, Concur, and RightNow.  On average, these three pay about 23% of revenue to deliver their services.  That’s actually quite low for SaaS companies, and the numbers range much higher for young companies that haven’t had a chance to work on this area.

Now suppose you wanted to use a platform like Force.com, which charges $25 seat/month.  Let’s be generous and say your business model allows your cost of service to be 25%.  Using Force, you must charge your customers $100 or you have an uncompetitive offering from a margin standpoint.  That’s a total non-starter for most.  Suppose you have a nifty service that’s worth $20 seat/month.  Can you get everything delivered for $5 cost?

Some of the cost comes from hosting.  Some comes from IT overhead associated with the care and feeding of the software.  The secret to driving these costs down is relentless automation.  This is another area where a good platform should help, not hinder.  Which delivery costs does your platform automate?

Open Source + Friendly Ecosystem + PaaS

Delivery cost leads me to think of Platform as a Service (PaaS).   Customers buy SaaS because ultimately TCO is much lower.  The same will be true for this platform.  There are economies of scale and other refinements that will make it cheaper when delivered as a service in the cloud.

SaaSWeek says PaaS may be a passing fad.  The author says this not for technology reasons but for political reasons.  It boils down to the fear your platform can turn against you at some point.  This is a risk for any platform (DOS and Windows?), BTW, and not just PaaS.  I’ve said before I don’t like platform vendors building apps, they should be like Switzerland.

But there is an antidote to the potential bad behaviour that boils down to creating a friendly ecosystem that counterbalances the vendor.  I’d look for a platform that has been Open Sourced like mySQL.  There is a limit to how much bad mySQL can do before people take their Open Source and go elsewhere.

Final Thoughts

UnreasonableMen have some interesting thoughts on the PaaS issue as well that I want to comment on briefly.

On the issue of scale, I don’t think a good PaaS has to have huge scale to be of benefit.  The reason I say this is that there are fixed costs to small business web projects.  You need at least one IT guy to manage the servers.  You need something like 8 servers on average.  Yada, yada.  If you pool all that, 1 IT guy can be responsible for a lot more than 8 servers.  Industry averages say twice that without automation, and companies like 3Tera claim 1 guy can manage a hundred servers.  A small PaaS provider can pass along those savings to a lot of startups, and it will achieve scale pretty quickly in that way.  What the small provider needs to do is offer load tests and other proofs that it will be able to scale its infrastructure over time, but that’s very doable.  If you have the open source ecosystem underway, the fear of what to do if the small vendor folds (or is acquired by an unfriendly) is greatly reduced.

Unreasonable is willing to see vendors who are quasi-Switzerlands.  He feels Salesforce will isolate CRM and Force in their quest for a bigger market.  He also gives the example of Telcos as platforms.   I’m queasy about these examples.  Yes, telcos carry data for the Internet which becomes a platform and they don’t interfere (much) with that.  However, it took a fantastic amount of regulatory wrangling and competition from other infrastructures like cable to keep the telcos reasonable.   Their progress innovating was poor in retrospect, and we still have “last mile” issues with infrastructure.  WiFi access is a mess as well.

I think the closer analogs to “disinterested” quasi-Switzerlands are companies like mySQL.  There’s kind of a fine line between mySQL and Oracle.  The latter is very much not Switzerland and leaves their bootprints all over the Enterprise landscape.  I’ll stick to my guns on the Open Source as I think it keeps platform vendors honest.

Related Articles 

Zuckerberg just said, “We reserve the right to build anything and compete with any of our applications.”  Facebook is no Switzerland!

Dare Obasanjo throws some interesting platform criteria into the pot.  I like the following:

  • Platform reach.  Many have said Force.com is a better platform for generating sales leads than anything else.  Certainly Facebook gets a lot of traffic. 
  • Applications shield from the winner’s curse:  This is basically scalability tied with making it easy to scale up/down on a utility grid so you can pay as you go but respond in real time.  Argues strongly for PaaS.

Posted in business, Partnering, saas, Web 2.0 | 14 Comments »

Platform Vendors Have to Be Switzerland

Posted by Bob Warfield on October 1, 2007

Platforms are big news these days.  Everyone wants to be a platform:  becoming a platform is even part of Yahoo’s plans to turn the company around. 

What do you look for in a platform vendor?  Yes, the features and functionality provided by the platform are important.  And yes, the community that is already there is also important.  But what about how a platform conducts itself?  Think of a platform like the popular notion of a Swiss Bank:  an extremely safe place to put your faith and assets.  A place that has no interest whatsoever in anything but safeguarding those assets.  Most platforms are not like Swiss Banks.  They are bent on World Domination.  They get confused about their loyalties when greed sets in.  They start to compete with those who placed their trust in them.  Those are the platforms you want to think twice about betting on.  Consider what it will be like to try to make a living on that platform, or to commit your data and energy to using the platform. 

Platforms often come about because a great application started a frenzy that others wanted to be part of.  Facebook is in that category.  We’ve yet to see whether Facebook will be a friendly platform owner, or predatory, but it’s something folks wonder about for obvious reasons.  Zuckerberg is saying some of the right things, at least, when he suggests that widgets should have a life both on and off Facebook.  That implies he doesn’t insist on total domination.  On the other hand, some are afraid that at least other Social Networks like LinkedIn have reason to fear.  Yet, the other Social Networks are direct competitors, not consumers of Facebook’s platform, so isn’t it kosher to fire a shot or two in their direction.  It’s still too early to tell if Herr Zuckerberg will be a taciturn Swiss Banker, or whether he’s bent on World Domination.  I am cautiously optimistic about the early signs.

The Apple iPhone is another great-application-begets-platform story, and one that seems to have gone bad.  Clearly, Apple is not acting as Switzerland here.  They are bent on world domination.  In fact, their weapon of choice, “bricking” of iPhones, has sparked a startling backlash where once there was nothing but raves.  Steve Jobs does not want to nurture you on his platform, he wants to control your every thought and action.  I’m sure he feels it’s for your own good, but is this what we want from our platform vendor?  I should say not, and its been a long time since a killer app came to roost on Apple’s platform as its first and only hunting grounds.

Still other companies are in the odd role that their admirers beg them to be platforms, but they have no intention of sharing any part of their pie.  eBay has always had the view that they owned every penny of opportunity surrounding their platform.  Many have tried to join on, but eBay itself makes that all but impossible.  It isn’t surprising, their Disney executives grew up on the idea that Mickey was a franchise, not a platform, and nobody was entitled to a piece of Mickey’s pie.  Apple is very similar, particularly in view of the latest iPhone shenanigans.  In Apple’s case, they’re control freaks for the sake of their conceptual integrity, whereas with eBay, it’s just business.

Microsoft gives us an abject lesson on platform owners who are not Switzerland.  It started innocently enough with things like BASIC and DOS, but soon, Microsoft wanted to compete with everyone, taking full advantage of their platform in every way they could to do so.  For a while in Silicon Valley every VC pitch had to include a discussion of why Microsoft wouldn’t just take your business away when they wanted it.  Arguably the strategy worked well for a time, but they seem to have reached the limits of it.  I see the last gasp as their abandonment of all things Java in a tiff with Sun over who could own the platform.  Microsoft will say they had little choice, but they’ve pursued it as a bit of a scorched earth policy by working overtime to ensure that the Java web and the .NET web are as incompatible as can be and still call it the web.  Consequently, they lost the hearts and minds of many who would embrace platforms.  Arguably, very little of the current cloud computing renaissance involves Microsoft as a result.

In the land of Marc Andreesen’s 3 kinds of platforms post, he mentions several of the third kind including Ning, Salesforce, and Second Life.  FWIW, I find Andreesen and Ning fit the Swiss Banker profile pretty well.  As we look back over Andreesen’s history, he seems to have done a good job nurturing platforms along the way.  Ning has no particular Social Network of their own, except to help other Social Networkers to use Ning more effectively. 

Salesforce is an interesting case.  Clearly, the other Marc (Benioff), is bent on world domination.  The question is to what degree he would compromise his platform aspirations to do so.  Perhaps he can turn into the Swiss Banker over time, but it seems an unlikely role at the moment.  He came up through the ranks of Oracle, which is not typically a breeding ground for the Swiss Banker mentality.  Still, we should watch closely and reserve judgement for a bit.  There are signs of life around Force, but it remains to be seen whether they’re higher forms of life, or just people looking to siphon off the halo effect of Salesforce’s community and greatness. 

Adobe has been a platform owner for some time with pdf and Flash.  But they’re also an application company as we were reminded by the announcements surrounding their acquisition of Web 2.0 word processor BuzzWord.  As Scoble says, they’re going for Microsoft’s throat.  But does this mean they might one day go for their platform user’s throats too?  I suspect not.  Adobe has always been very deliberate in their actions and they’ve done a good job nurturing their platforms.  BuzzWord is happening at a time when Microsoft essentially owns the document world.  Choosing to go after one of the giant platform monopolists doesn’t seem to me like bad behaviour for a platform vendor.

The ultimate Swiss Banker is of course Open Source.  How can you go wrong here?  The platform you’re depending on has been placed in the Open Source community and so how bad can things get in terms of the owner/creator being the Anti-Swiss?  Hence we see why so many prefer Open Source.  Perhaps Open Source is a way for Marc Benioff to gain full trust, though I have a terrible time seeing Force ever being an Open Source platform.  It just doesn’t seem like their style.

The next time you’re shopping for a platform, remember that platforms involve a big investment.  Try thinking of it in terms of Swiss Bankers.  Which one fits the profile?

Posted in Open Source, Partnering, platforms, saas, strategy, venture, Web 2.0 | 12 Comments »

SAP’s A1S Brings Competition to SaaS for the First Time

Posted by Bob Warfield on September 15, 2007

On September 19, SAP will bring competition to the SaaS world for the first time.  Everyone else in Enterprise Software will be affected. 

Seasoned SaaS executives will dislike my conjecture that there’s been little competition prior to A1S, but I don’t think its far from the truth.  There has been some choice in the SaaS market, but its largely been a green field opportunity where choice between SaaS offerings didn’t matter as much as choosing SaaS over On-Premises.  Just to underscore the point that A1S is all about competition, SAP has chosen to launch their product during Salesforce.com’s Dreamforce week.  Nothing like the stranger walking out onto the street at high noon to call the hometown guy out!

What does it mean?  Well for starters, it means SaaS has come of age and its here to stay.  SAP doesn’t choose its moves at random.  It’s an extremely deliberate company that puts a lot of power behind each stroke.  It will execute relentlessly until it achieves its goals, which may take quite some time.  That’s okay, because SAP has been a very patient company in the past.  Having this stamp of approval on the market, not to mention having a big player begin to invest in growing the market further should accelerate the SaaS market’s growth.  More importantly, it means that the chasm has shifted.  SaaS is mainstream, and that means this announcement affects everyone involved with Enterprise Software.

At the 800lb gorilla end of the market, SAP has stolen a march on arch-rival Oracle’s Fusion efforts, which has got to feel good to SAP loyalists.  The description of Fusion as being heavily SOA and SaaS enabled sounds much like A1S.  Oracle can’t be counted out, but it is interesting to watch the pendulum swing back and forth between these two companies as they struggle for dominance at the top of the heap.  Time will tell whether A1S and more importantly SaaS form the next major competitive axis for the pendulum to swing on.

For those Enterprise vendors that still haven’t figured out the SaaS conundrum, the window where you could bury your heads in the sand has just officially closed.  You need to have a SaaS strategy now.  There’s no more time for stalling.  If you’re public, the pain of a switch will be massive.  Lack of a SaaS game plan will start to show up in the form of pointed questions from analysts and investors.  You will need a good story, and they’ll be monitoring closely how well you execute on it.  If you’re private, perhaps part of a leveraged buyout consortium, you’d better be reinventing yourself as SaaS and not just fiddling with the numbers.  If you’re planning on being acquired, you would do well to have a story about how you help the acquirer’s SaaS strategy.

The A1S launch and subsequent scrambling affects the technology landscape as well.  It puts considerably more teeth into the whole SOA thing than we’ve seen in the past.  It’s more urgent to implement it, rather than just talk about it because it is the central nervous system behind A1S and a critical enabler for SaaS.  This opens the door to a domino scenario:  as more and more companies open their Enterprise fabric with SOA, it becomes easier to contemplate more SaaS projects.  This is a spiralling positive feedback loop that will help accelerate SaaS adoption further.

Adoption of SaaS overseas has been slow.  But this will change, particularly in Europe where SAP is very strong.  If a European company blesses the trend, it can accelerate in Europe.  Europe and the rest of the world represent incredible market growth opportunity for the SaaS world if it starts firing on all cylinders, as well as insulation from short term economy woes that may only affect the US.

As more and more computing moves into the cloud, the industry that serves hosting and data centers will have to look on that trend and decide how to succeed.  SaaS needs a different offering than a lot of hosting providers are used to.  Investments in complex data center management such as HP’s Opsware acquisition are likely a good move.  Products aimed at IT’s internal data centers or departmental data centers are moving into difficult territory.  Internet technology will stay hot or get hotter.  Cisco can regard all of this as good news.

These developments are extremely positive for the SaaS world, but there will be pitfalls and pain for both SAP and the other old school players as they try to execute a move to SaaS.  Some of it will be real, some just positioning games spun by the new kids on the block.  I’ve written a two-part series on the problems SaaS brings for On-Premises companies.  It’s an extremely disruptive game for the Old School because it forces them to choose which way a customer will be sold up front, and it sharply defines short term and long term benefits in a way that brings short term pain to the On-premises company in exchange for long term benefits.  As if to underscore how touch this tension between models can be, Hasso Platner had to backpedal a bit on whether A1S would cannibalize the installed base recently because of exactly these concerns.  SAP is heavily positioning A1S as a mid-market solution.  Part of that may be the reality of whether Big Enterprise is quite ready to embrace SaaS yet, and part of that may be SAP trying to construct a Protected Game Preserve for their SaaS offering that protects the core business.

It’s interesting to contemplate just how much new business SAP is getting anyway.  Like Oracle, they’ve got a raft of maintenance and professional services engagements that make up the bulk of their revenues.  It’s unlikely an existing customer would rip out a successful solution in order to switch it over to SaaS.  Therefore, swapping an increasing percentage of their new business to SaaS may not have quite the same negative effects on revenue deferral as it would for a less mature company.  It seems that even when it comes to something as disruptive as SaaS, scale still makes it easier for the big guys.

The SaaS world will be watching carefully how well A1S delivers on the SaaS formula.  As ZDNet puts it, SAP is known for being liquid concrete poured into the organization.  That doesn’t sound too much like the nimble experience we’ve come to expect from SaaS vendors.  Oracle has had a SaaS-like offering of its products for a long time, and they’d tell you they’re in the SaaS business, but they aren’t really according to folks like NetSuite and others I’ve heard from.  If A1S turns out to be almost-SaaS, it won’t make much more of a difference than Oracle has, other than to futher legitimize the markets.  As so many have pointed out, SaaS is about Service, but more importantly, it’s about an experience that can only be achieved by a thorough combination of the right software and service.  Otherwise hosting would’ve succeeded.  SaaS is a lot more than just hosting.

This move by SAP also represents a big splash in the partner world.  As I look over the Google Blog Search results for “A1S” in the last week, a lot of it is focused around discussions on the impact it will have on partners and the SAP job market for consultants.  Barbara Darrow puts it well when she says, “SaaS is still viewed by many in the channel as the ultimate in disintermediation.”  This is one of those deep dark secrets that shows another disruptive nature of SaaS.  I’ve written about it on a couple of occassions starting with my post Is SaaS Toxic for Partners. 

To a large extent, partners are in just as bad or a worse position than On-premises ISV’s.  They are a part of the shrinking trailing edge that is the province of very late adotpers.  The problem for partners, VARs, SI’s, and consultants with SaaS is twofold.  First, SaaS commoditizes a lot of the heavy lifting partners used to do around deploying a new On-premises application.  A properly delivered SaaS application radically reduces the workload there and has historically shifted a lot of the work to the SaaS vendor inside their data center.  That’s probably not going to change with A1S if its a first class SaaS offering.

Second, SaaS doesn’t afford partners a lot of opportunity to create IP.  SaaS tends to be a set of isolated islands in the big sea that is the Cloud.  Traditionally, IT has had a large arsenal of tools they could bring in to augment their On-premises software.  Call them bandaids or extensions, but they formed an ecosystem around the Enterprise Software.  Business Intelligence, ETL tools, security products, and a whole raft of other businesses were built on this promise.  For the most part, it was the promise of being able to tie directly into the fabric underlying the Enterprise Software.  Direct access to database tables was one of the most common mechanisms this ecosystem operated on.  That’s no longer possible as computing moves to the cloud.  It will affect those secondary ISV’s that live around the databases of these big Enterprise apps, and it will also affect partners who often created IP around their access to the rich soup of that ecosystem.  

All of these partner/ecosystem businesses now have to reinvent themselves.  They need to find new ways of differentiating and providing value within the confines of what the cloud has to offer.  Several writers chide Salesforce that their announcement of minor repositioning and small extensions to their application platform business can’t compete with the A1S announcement.  And yet, Salesforce is struggling to show us what a viable ecosystem in the SaaS world might look like.

It’s going to be exciting to watch all of this unfold.  Every Enterprise software company should be assembling their best and brightest to map out their position and strategy with respect to SaaS and A1S.  SaaS is here today and if you don’t heed that, you’ll be gone tomorrow.

Related Articles:

Great post over on the Lucid Era blog about the challenges conventional ISV’s face in moving to SaaS.  I’ve written about the same challenges before and suggested a “protected game preserve” strategy to help overcome them.

Zoli echoes many of the same sentiments over at his blog.

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Posted in business, data center, Partnering, saas, soa, strategy | 10 Comments »

Amazon Startup Project Report

Posted by Bob Warfield on September 13, 2007

I attended the Silicon Valley edition of the Amazon Startup Project today.  This is their second such event, the first having been hosted in home-town Seattle.  The event took place at the Stanford University Faculty and was well attended: they basically filled the hall.  The agenda included an opening by Andy Jassy, Sr VP for Amazon Web Services, a discussion on the services themselves by Amazon Evangelist Mike Culver, a series of discussions by various startups using the services, a conversation with Kleiner Perkins VC Randy Komisar, and closing remarks by Jassy again.  Let me walk through what I picked up from the various segments.

First up were the two talks by Amazon folk, Jassy and Mike Culver.  Jassy kept it pretty light, didn’t show slides, and generally set a good tone for what Amazon is trying to accomplish.  The message from him is they’re in it for the long haul, they’ve been doing API’s for years, and the world should expect this to be a cash generating business for Amazon relatively shortly.  That’s good news as I have sometimes heard folks wonder whether this is just remaindering infrastructure they can’t use or whether they are in fact serious.  The volumes of data and cpu they’re selling via these services are enormous and growing rapidly.

Mike Culver’s presentation basically walked through the different Amazon Web Services and tried to give a brief overview of what they were, why you’d want such a thing, and examples of who was using them.  I had several takeaways from Mike’s presentation.  First, his segment on EC2 (Elastic Compute Cloud–the service that sells CPU’s) was the best.  His discussion of how hard it can be to estimate and prepare for the volumes and scaling you may encounter was spot on.  Some of the pithier bullets included:

  • Be prepared to scale down as well as up.
  • Queue everything and scale out the servicing of the queues.

He showed a series of Alexa traffic slides that were particularly good.  First he showed CNN’s traffic:

CNN Traffic

As you can see, there are some significant peaks and valleys.  In theory, you’d need to build for the peaks and eat the cost of overcapacity for the valleys if you build your own data center.  With a utility computing fabric like Amazon’s you can scale up and down to deal with the demand.  He next overlaid Flickr onto this data:

Flickr Traffic

Flickr’s problem is a little different.  They went along for a while and then hit a huge spike in Q206.  Imagine having to deal with that sort of spike by installing a bunch of new physical hardware.  Imagine how unhappy your customers would be while you did it and how close you would come to killing your staff.  Spikes like that are nearly impossible to anticipate.  CNN has bigger spikes, but they go away pretty rapidly.  Flickr had a sustained uptick. 

The last view overlaid Facebook onto the graph:

Facebook Traffic

Here we see yet another curve shape: exponential growth that winds up dwarfing the other two in a relatively short time.  Amazon’s point is that unless you have a utility computing fabric to draw on, you’re at the mercy of trying to chase one of these unpredictable curves, and you’re stuck between two ugly choices:  be behind the curve and making your customers and staff miserable with a series of painful firedrills, or be ahead of the curve and spend the money to handle spikes that may not be sustained, thereby wasting valuable capital.  Scaling is not just a multicore problem, it’s a crisis of creating a flexible enough infrastructure that you can tweak on a short time scale and pay for it as you need it.

One of the things Mike slid in was the idea that Amazon’s paid for images were a form of SaaS.  To use EC2, you first come up with a machine image.  The image is a snapshot of the machine’s disk that you want to boot.  Amazon now has a service where you can put these images up and people pay you money to use them, while Amazon gets a cut.  The idea that these things are like SaaS is a bit far fetched.  By themselves they would be Software without much Service.  However, the thought I had was that they’re really more like Web Appliances.  Some folks have tried to compare SaaS and Appliance software–I still think it doesn’t wash for lack of Service in the appliance, but this Amazon thing is a lot cleaner way to deliver an appliance than having to ship a box.  Mike should change his preso to push it more like appliances!

All of the presentations were good, but the best ones for me were by the startup users of the services.  What was great about them was that they pulled no punches.  The startups got to talk about both the good and bad points of the service, and it wasn’t too salesy about either Amazon or what the startups were doing.  It was more like, “Here’s what you need to know as you’re thinking about using this thing.”  I’ll give a brief summary of each:

Jon Boutelle, CTO, Slideshare

The Slideshare application is used to share slideshows on the web, SaaS-style.  Of course Jon’s preso was done using slideware.  His catchy title was “How to use S3 to avoid VC.”  His firm bootstrapped with minimum capital, and his point is not that you have to get the lowest possible price per GB (Amazon isn’t that), but that the way the price is charged matters a lot more to a bootstrapping firm.  In his firm’s case, they get the value out of S3 about 45 days before they have to pay for it.  In fact, they get their revenue from Google AdSense in advance of their billing from Amazon, so cash flow is good!

He talked about how they got “TechCrunched” and the service just scaled up without a problem.  Many startups have been “TechCrunched” and found it brought the service to its knees because they got slammed by a wall of traffic, but not here.

Joyce Park, CTO, Renkoo/BoozeMail

Joyce was next up and had a cool app/widget called BoozeMail.  It’s a fun service that you can use whether or not you’re on Facebook to send a friend a “virtual drink”.  Joyce gave a great overview of what was great and what was bad about Amazon Web Services.  The good is that it has scaled extremely well for them.  She ran through some of their numbers that I didn’t write down, but they were very large.  The bad is that there have been some outages, and its pretty hard to run things like mySQL on AWS (more about that later).

BoozeMail is using a Federated Database Architecture that tracks the senders and receivers on multiple DB servers.  The sender/receiver lists are broken down into groups, and they will not necessarily wind up on the same server.  At one point, they lost all of their Amazon machines simultaneously because they were all part of the same rack.  This obviously makes failover hard and they were not too happy about it. 

Persistence problems with Amazon are one of the thorniest issues to work through.  Your S3 data is safe, but an EC2 instance could fall over at any time without much warning.  Apparently Renkoo is beta testing under non-disclosure some technology that makes this better, although Joyce couldn’t talk about it.  More later.

Something she mentioned that the others echoed is that disk access for EC2 is very slow.  Trying to get your data into memory cache is essential, and writes are particularly slow.  Again, more on the database aspects in a minute, but help is on the way.

Sean Knapp, President of Technology, Ooyala

Ooyala is a cool service that let’s you select objects on high quality video.  The demo given at Startup Day was clicking on a football player who was about to make a touchdown to learn more about him.  Sean spent most of his preso showing what Ooyala is.  It is clearly an extremely impressive app, and it makes deep use of Amazon Web Services to virtually eliminate any need for doing their own hosting.  The message seemed to be if these guys can make their wild product work on Amazon, you certainly can too.

Don MacAskill, CEO, Smugmug

I’ve been reading Don’s blog for a while now, so I was pleased to get a chance to meet him finally.  Smugmug is a high end photo sharing service.  It charges for use SaaS-style, and is not an advertising supported model.  As I overheard Don telling someone, “You can offer a lot more when people actually pay you something than you can if you’re just getting ad revenue.”  Consequently, his customer base includes some tens of thousands of professional photographers who are really picky about their online photo experience.

Smugmug has been through several generations of Amazon architectures, and may be the oldest customer I’ve come across.  They started out viewing Amazon as backup and morphed until today Amazon is their system of record and source of data that doesn’t have to be served too fast.  They use their own data center for the highest traffic items.  The architecture makes extensive use of caching, and apparently their caches get a 95% hit rate.

Don talked about an area he has blogged on in the past, which is how Amazon saves him money that goes right to the bottom line.

Don’s summary on Amazon:

  • A startup can’t go wrong using it initially
  • Great for “store a lot” + “serve a little”
  • More problematic for “serve a lot”

There are performance issues with the architecture around serve a lot and Don feels they charge a bit too much (though not egregiously) for bandwidth.  His view is that if you use more than a Gigabit connection, Amazon may be too expensive, but that they’re fine up to that usage level.

His top feature requests:

–  Better DB support/persistence

–  Control over where physically your data winds up to avoid the “my whole rack died” problem that Joyce Park talked about.

The Juicy Stuff and Other Observations

At the end of the startup presentations, they opened up the startup folks to questions from the audience.  Without a doubt, the biggest source of questions surrounded database functionality:

–  How do we make it persist?

–  How do we make it fast?

–  Can we run Oracle?  Hmmm…

It’s so clear that this is the biggest obstacle to greater Amazon adoption.  Fortunately, its also clear it will be fixed.  I overheard one of the Amazon bigwigs telling someone to expect at least 3 end of year announcements to address the problem.  What is less clear is whether the announcements would be:

a)  Some sort of mySQL service all bundled up neatly

b)  Machine configurations better suited to DB use:  more spindles and memory was mentioned as desireable

c)  Some solution to machines just going poof!  In other words, persistence at least at a level where the machine can reboot, access the data on its disk, and take off again without being reimaged.

d)  Some or all of the above.

Time will tell, but these guys know they need a solution.

The other observation I will make is one that echoes Don’s observation on Smugmug:  I’m sure seeing a lot of Mac laptops out in the world.  3 of the 4 presenters were sporting Macs, and 2 of them had been customized with their company logos on the cover.  Kewl!

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Posted in amazon, data center, ec2, grid, multicore, Partnering, platforms, saas, software development, strategy, venture, Web 2.0 | 12 Comments »

Is a Social Graph Without the Social Objects Worth Anything? (Musings on Lock-In)

Posted by Bob Warfield on September 12, 2007

There has been a huge amount of activity on the web having to do with creating Open Social Networks.  A good set of links to give a deep overview of where this stands would be:

I’ve been following it all, and generally really liking what I’ve read.  I like it because I hate the idea that there can only be one or two social networks, be they MySpace or Facebook.  I’ve nothing against either one, by the way, but as soon as the world settles down to the One Monopoly, innovation tends to stop.  Even that can be a good thing if we’re truly done innovating, but I don’t think we’re even close to being done on the Internet.

Moreover, there is something strangely wrong about all these Dark Web Walled Gardens.  The great thing about the web is that is it an integrated community.  It’s cool to have speakeasies where you have to utter a password to the big gorilla behind the viewslot to get in, but we need to make sure there can be as many of these speakeasies as people want to create, because the other cool thing about the web is you shouldn’t have to have an already established monopoly to be able to create a cool web property.

Open Social Graphs mitigate the network effects that can deliver and sustain a monopoly.  Two posts this morning really made me sit up and take notice.  First, Scoble was commenting on how there’s no possible way he can switch blog readers because he has too much information locked up in Google reader to ever start over.  That’s a classic case of lock-in.  Then I read Joshua Porter’s thoughtful post The Social Graph and Objects of Sociality where he makes the point that the graph isn’t worth a whole lot without all the objects that created interaction between the friends on the graph.  Spinning it around the other way, the value of a Social Network has as much to do with the content and other activities being shared as it does with the exact people and who they say their friends are.

In retrospect, this should not be so surprising, so I thought I’d walk through a quick example of how this would all work.  Think of an Open Identity system and Open Social Graphs system as creating a form of proxy.  Suppose I belong to 3 different social networks that are all based on the same open standards (or at least standards that interoperate).  For the sake of example, let’s use names of real services even though they’re not currently architected that way:

  • Facebook:  I have a casual social presence on Facebook
  • LinkedIn:  My professional persona is on LinkedIn, and BTW, I don’t let many people know the relationship between my LinkedIn and other personas.
  • Flickr:  I’ve got a bunch of photos on Flickr.  Some are public, but a lot of them are private photos of family and personal interests

I meet someone on LinkedIn who I want to give access to my Facebook and Flickr personas.  They’re currently not a member of Facebook, and they have no desire to join.  They do belong to Flickr.  I want to orchestrate all of this within LinkedIn, and I want to do so without my new friend having to go through a lot of pain to join a sevice they don’t to join, yada, yada.

So, I add New Friend to my friends list in LinkedIn.  Part of the capability there is that because this functionality is based on the open standard that cuts across sites, I have the ability to grant my New Friend access to more than just LinkedIn.  He’s a member of Flickr, but not Facebook.  But that doesn’t really matter.  What matters is he has an identity that is part of the Open Social Network standard that all three sites respect.  Therefore, he actually is a member of Facebook even though he didn’t go to all the trouble of signing up for it and building a friend graph on it.  Now isn’t that a cool thing?

It’s a classic single sign on Federated Identity Model at work.  Since lock-in around media created is going to be a forgone conclusion, making it easy for folks to gain these proxy styles of access to the media is essential to achieving the goals the Open Social Networking crowd want to get to.  It also makes it a lot better for you to play around in sites that are amenable to the open standard.  You’ll be expending effort like Scoble did that will ultimately lock you in.  Why not make sure that the place you’re locked into is open so there are no regrets later?

Posted in Partnering, strategy, Web 2.0 | Leave a Comment »

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