Complexity of Building a SaaS Software Channel Program

Complexity of SaaS Pricing

Complexity of SaaS PricingIn my previous blog entry, I discussed about the complexity of channel development and channel alignment. I recommended for SaaS software vendors to use Business Model Canvas to compare the business model with the assumed business model of its prospective channel partner.

During the past few months I have spent time building a SaaS channel development educational program, a program that I wanted to be not only actionable, but providing information of all of the needed drivers that SaaS software vendors should be thinking about when building its channel strategy.  Call me old fashioned, but my  philosophy is to educate people of things that I have personal experience in. There are lots of consultants that “help” their clients doing things such as channel development, consultants that have never sold anything, but have read about it in books.  My strategy is to build something that is concrete and actionable (not academic) that my audience can use when thinking about their SaaS channels.

The way I initiated the development of the channel development alignment educational program in http://www.tellusacademy.com was to reflect on my own channel development experience (both as channel builder as well as reseller) and list the main things that I felt were crucial in getting channel partners to become excited. The way I started working on it was not from a traditional channel perspective. I asked myself a simple question: how is the channel partner going to make money? Once we identify this, we can worry about the software vendor (ISV) as without a profitable business model for the channel partner, there is no need to invest time and energy to plan something that will not work anyway.

If the financial success of the channel partner should be the foundation for the software vendor to evaluate the channel strategy, it is easy to assume that it is important for both the software vendor and the channel partner to understand how SaaS financial will change the business model and what kind of drivers each party needs to be thinking about. Therefore, I believe that every person working in the SaaS world needs to have a good and solid understanding in how the financial and operational model will change when running a SaaS business. I am sure that the CFO of the ISV and channel partner appreciates this.

I spent considerable time in reviewing the topics that both ISVs and channel partners should be thinking about. Besides having a solid understanding in SaaS financials, any vendor in today’s world has to be thinking about business model innovation and topics around that. How do we stay relevant today, tomorrow and next year? What is happening in our marketplace and what kind of actions do I have to take to ensure that my services or solutions are also appealing in the future? You would not believe how many organizations ignore this….it is amazing.

Another important factor to think about is to understand the expectations from the channel and ISV perspective. What can the ISV expect from the channel and what should the channel expect from the ISV? This is a also something that has changed in the last couple of years as channel partners have a tough time to adjust to the recurring revenue model from the traditional “one big lump sum model”. Besides this, traditional channel partners are not very good at account management and this is a huge issue for SaaS vendors as upselling and ensuring retention is a top priority to any SaaS vendor. The ones that have negative churn can say that they have been successful at least in the upsell to existing clients.

Channel roles and responsibilities is a topic that seems to be very unclear to both software vendors and channel partners. Basic questions such as “who is going to provision the cloud instance” is not clear and questions such as billing is also a question that many struggle with. Should the software vendor manage the billing or should it be the channel partner? What if the end customer does not pay the bills, should the software vendor still bill the channel partner and even take them to court for unpaid balances? In the traditional channel world we can argue that most of these types of questions could be easily sorted out due to known practices, but the SaaS/app world is still a bit unclear who does what.

Part of the channel profitability discussion should be a discussion of channel margins. In my course, I will give examples of a typical channel partner scenario where we will model one sales rep and his/her targets and what it means to the channel partner. This type of exercise is extremely health for any software vendor to see the reality of a channel partner and their desire to build a solid business. If you are a software vendor, have you modeled the channel partner business and how your solution might play in that space?

And finally, any software vendor will either become successful or fail and it is going to be based on the channel program that the organization is going to build and maintain. During my SaaS channel development course, I will also address the main drivers of channel management and key issues that an ISV need to be thinking about.

It was fun to create this course as everything is based on experience either from my own work or the teams that I have worked with for more than 20 years. As said, I do not believe in education of best practices if the person does not have any personal experience. This type of experience comes with blood, sweat and tears.

 

 

 

 

photo by: Sean MacEntee

Business Analytics is on the rise again with Big Data leading the way

It is fun to see how some things will just continue being relevant. Business Analytics, Data Warehousing and lately Big Analytics are topping the charts. Based on my own feelings, Big Data really took off the second half of 2012 and we also included that in our business modeling workshops as one optional extension that software vendors (ISVs) should look at. Harvard Business Review brought Big Data to the forefront in its October 1, 2012 magazine with Andrew McAfee and Erik Brynjolfsson (guru whom I followed when I worked on my PhD) with an article “Big Data: The Management Revolution”. According to the authors, Big Data is far more powerful than analytics of the past, specifically in making predictions.

One of the key reasons for the sudden explosion if Big Data has to do with the urge to achieve competitiveness by getting a better understanding of your customer, its behavior and the only way to do this is to enable massive analysis of data and in the past, this has not been possible with on-premise environments due to scalability issues. With new cloud technology such as Azure Big Data, ISVs and end user organizations can scale up the analytics/calculations based on the need (in bursts) and scale down when the calculation is done. There are quite a few new interesting startups in the Big-data-as-a-service domain (Zoomdata, Bidgely, Ginger.io, AgilOne, Continuuity). I expect this trend to continue specifically as cloud platforms enable startups to innovate without having to invest huge amount of capital in hardware and use the elasticity of the cloud instead.

What I expect to happen during 2013 is that you will hear more about real cases of Big Data use and conferences such as BigData TECHCON appear on your radar screen. Big Data is no longer about if there is technology to do it, it is more about finding the people that understand it and how to utilize it. According to McKinsey & Company, there will be a shortage of 140,000 to 190,000 people with deep analytical skills as well as 1.5 million managers and analysts with the know-how to use the data to make effective decisions”. The McKinsey article breaks down the importance of Big Data very nicely, including things such as dealing with policies around privacy, security, intellectual property and even liability. There is a full report that can be downloaded from McKinsey web-site.

How does all this rely back to software vendors that I work with on a daily basis? If you are an ISV that deal with lots of data, you have to have a game plan for Big Data. Even if you do not care about it, your customers will be asking for it going forward. It is the same what has happened with the Cloud. Three years ago, the question about cloud was almost non-existent in many domains and today an ISV can’t really survive without the cloud. How about that as being a guiding factor for Big Data.

Personally I feel this is very exciting to me as Analytics, Data Warehousing, Business Intelligence has been my core domain for more than 20 years. Even my doctoral dissertation Evaluation of a Product Platform Strategy fro Analytical Application Software from 2004 is still relevant and explains the drivers that a software vendors should be looking at from a software product platform and software product line perspective. The link will download the dissertation (in English) and it is in PDF format.

Expect to hear more about Big Data from me during 2013 as it will be even more relevant than during 2012.

Why software is still relevant and even more so going forward

When I reflect my past more than 20 years, I have been fortunate enough to be part of the software industry on a global level. First 10 years I spent in Europe working for software companies and the past 15 years I have lived and worked in the US as entrepreneur helping out software companies both domestically and internationally to expand their business.

I happened to run into a blog entry from TechCrunch by Jon Evans where he reflects on Journalism and how everything has become tech. The reference he makes is to a blog entry with the topic Software is eating the world  and is written by  Marc Andreessen whom most of us know already from the Netscape time. Marc Andreesseen is co-founder and general partner in a very well known venture capital company Andreeseen Horowitz with investments in many well known companies such as Facebook, Groupon, Twitter and many more

When you read the article from Andreessen, there are a few things that confirms some of the things that I have pondering on and also telling my software vendor clients in discussions. Software has not only become a necessity, it has become a must even for traditional hardware companies that one would not think that they need to ponder about software. This trend has been going on for a few years and we see this happening in the for example auto industry and what makes things even more exciting is that cloud technology is now part of this formula of success. Some mature industries are using new cloud technologies to achieve competitive edge towards the rest of the industry.

There are software companies such as MetaCase that will benefit of this trend. This software development tools company is the leading domain-specific modeling software company in the world that has very impressive clients working on embedded software solutions in different industries, including mobility and auto industry. The development environment MetaEdit+ enables organizations to create software product lines more effectively and also with higher quality.

Andreessen claims that we are in the midst of a huge and dramatic technological and economic shift where software companies are poised to take over a large part of the economy. It is easy to see this happening for real. Just think about how insurance companies and financial industry are able to use the cloud to execute heavy-duty risk calculations by submitting the request to the cloud and the only question that the cloud will ask is how much time it can take. Following picture shows pretty nicely how a company with pre-existing infrastructure investment (Datacenter) should view when considering a PaaS environment (Platform-as-a-Service) and in the figure we are referring to Windows Azure.

Azure vs. datacenter

The more capacity is allocated for the calculation, the more it will cost but this cost could easily be justified by opportunities to make more money due to time savings. In the picture above, it is easy to see that there will be a point in time when your own datacenter just does not scale where it needs to scale and that is why solutions/platforms such as Windows Azure will come to the play. This is also why we have to understand that new technologies such as cloud will bring new innovations to the market and this will definitely reflect on the valuations of these companies.

Andreessen gives lots of software related examples from different industries and I have had the luxury to work with many new an innovative (small and large) software companies that are now making this change in a very rapid pace. There will be lots of losers in this game as well. These will be the ones that feel that they already “own” the market and suddenly realize that smaller and more nimble players suddenly take the market and run with it.

The message that I want to send with this blog entry is to really emphasize that ignoring the change that is happening due to multiple factors such as mobility and cloud is probably one of the biggest mistakes that one can make as software leader. I encourage each one of you to do some due diligence in your own operations and answer to this simple question: “ will I still be relevant in 5 years”. If the answer is no, then you might have bigger issues on your hands than just the cloud transformation.

ISV wakeup call: Cloud and mobility will surge in 2012 according to IDC

I run a seminar in Finland at Microsoft Finland office 23rd of November for Microsoft ISVs about the transition to the cloud and what it means for software vendors overall. One of the key things in my messaging for ISVs is that they have to look at the cloud together with mobility going forward. This morning I run into an article in Information Management web-site where IDC predicts that mobility and cloud will surge in 2012.

It is easy to agree to this based on what we have seen in our work and research specifically in the US continent. IDC predictions are based on 1000 IDC analysts and according to this study, cloud spending will top $36 billion next year which is four-times the overall IT industry rate of growth.

Another interesting statement from IDC chief analyst Frank Gens is that there will be a “generational shift in the tech platform adoption and innovation” which could according to him lead to a worldwide IT spending of $5 trillion by 2020 and all of this based on mobile tech and the cloud.

Based on hundreds of discussions with independent software vendors (ISVs) around the world we have seen a clear shift in the urgency of many ISVs to ensure that they are on the right bandwagon concerning the cloud. My colleague, Juha Harkonen has been analyzing the trends for quite a while and the observations that he has made are very interesting. You might want to check some of his observations from his excellent blog.

 

 

 

SaaS companies are better valued when compared with traditional software companies according to latest research

Now it is in the open. According to a recent article from Gigaom.com and research from Martin Wolf M&A Advisors, SaaS companies are getting much higher valuation when compared with legacy software vendors. The chart from Wolf M&A Advisors tells it all:

I knew we would get to this sooner or later as the move is definitely towards the cloud and ISVs that are resisting this move, will eventually run into issues if they do not re-architect their legacy solution as clients will require a true SaaS solution and not a solution that is “running in the cloud” but without really taking advantage of things such as scalability etc.

The Gigacom.com article concludes that it is not a surprise that enterprise vendors acquire smaller SaaS players such as the acquisition of RightNow Technologies by Oracle (1.5 billion). I work with ISVs around the world and I have seen many different types of organizations, some of them being start-ups and some making the transition from legacy business to SaaS business. One very popular way for traditional ISVs to make inroads to SaaS game is to build some type of an extension to the legacy solution to get experience what it is to build for the cloud and this also gives a more evolutionary way of creating something that can be sold to existing customers as add-on service.

I think each and every software executive should contemplate on the message from Gigaom and Martin Wolf especially if the company is in the game of getting sold in the future. The times of high license revenue with maintenance and support is gone and will be sooner or later replaced by monthly/quarterly recurring revenue where the software vendor has to create a solution that is not only used but loved by its users. Gone are the times where a software was sold that was both unfriendly to use but as the software vendor got its money, there was no incentive (other than getting the annual maintenance and support fee paid after first year) to ensure that the software was something that the buyer really liked. In the old-fashioned model, the company paid a large lump sum for the software and this was almost always a lock-in from the software vendor as the end user organization is always fully invested in the solution and is almost forced to pay the maintenance fee in the end. I do remember vividly when I was CEO for a business intelligence company when I was always worried whether our largest clients would pay the support/maintenance fee in the beginning of each year.

 

Cloud ISV: make sure you understand your ecosystem play – example of Intuit and Microsoft collaboration on software platforms to create a foundation for solution developers

I have written several times in my blogs about ecosystems and the role that ecosystems play. I recently run into an interesting article in the Redmond ChannelPartner with the header “Intuit Extends Cloud Pact with Microsoft”. As I am working with Microsoft ecosystem every single working day, I became interested what the article was all about. Intuit has been building a Partner Platform (IPP) that was reported by Mary-Jo Foley already back in January 2010. I am a longtime QuickBooks Online user so I have a pretty good picture of Intuit’s SaaS delivery model at least from 2003. I believe Intuit was one of the first software companies to introduce a full-blown accounting solution for the SMB market and my company still uses it every single day.

In January 2010 Jeffrey Schwartz reported that Microsoft and Intuit stroke a cloud pact for small business where Windows Azure would be the preferred PaaS platform for Intuit and Intuit App Center.  This value proposition is obviously good for ISVs that can build solutions to the waste QuickBooks ecosystem with integration not only to QuickBooks data but also between QuickBook applications.

The idea behind this Intuit Partner Platform (IPP) is to help developers to build and deploy SaaS applications that are integrated with QuickBooks data and also to give huge exposure for the ISV on the marketplace that Intuit provides for its partners. This marketplace (Intuit App Center) has thousands of applications that can be used with QuickBooks and other QuickBooks third-party solutions.

Let’s look closer to why Intuit and Microsoft need each other. I read an interesting blog entry from Phil Wainewright that includes very interesting remarks about software platform that happens to be the topic of my Ph.D. dissertation (Evaluation of a Product Platform Strategy for Analytical Application Software). The blog entry from Wainewright includes following picture:

 

You can read more about this topic and download Wainewright’s report “Redefining Software Platforms – How PaaS changes the game for ISVs) for Intuit” and this can be found by following this link.

When you review the picture above in more detail, you will find interesting and relevant information how Windows Azure and Intuit IPP platform play together. According to Wainewright, the conventional software platform capabilities are all about functional scope of the development platform whereby cloud platforms add three additional distinct elements according to Wainewright: Multi-tenancy, Cloud Reach and Service delivery capabilities.  The service delivery capabilities have to do with provisioning, pay-as-you-go pricing and billing, service monitoring etc. The multi-tenancy is typically not something that the PaaS platform provides automatically without the application developer building the multi-tenancy logic to the application. I still hear people saying that a legacy application that is migrated to the PaaS platform will automatically become multi-tenant. This is not true as each application has to be re-architected to take advantage of things such as scalability (application increases compute instances based on load).

The idea behind Intuit IPP platform according to Wainewrite is that Intuit has built service delivery capabilities that can be abstracted from the functional platform that is on the left hand side of the picture. The idea that Intuit had initially was to be able to provide support for any PaaS platform to be integrated to the IPP platform which I think is a good idea by not practical considering how fast the PaaS platforms are evolving and the amount of investments that are put into them.

One thing to remember is that all cloud platforms such as Windows Azure has already moved on the horizontal axis whereby the situation and clear cut separation between functional platform and service delivery capabilities is no longer that obvious. This also means that any Microsoft ISV that builds additional infrastructure elements to Windows Azure has to be carefully aligned with Microsoft product teams as there might be a danger to be irrelevant as some third-party functionality will be covered with the functional platform itself (PaaS platform) like Windows Azure. I have seen the same situation with some ISVs working with BizTalk extensions that suddenly have become part of BizTalk itself. Microsoft is very clear with its ISV partners that they should focus on vertical functionality or features that are unlikely to be part of the Microsoft platform in the short-term.

A new post from Jeffrey Schwartz on August 11th, 2011 explains how Intuit IPP and Microsoft Azure will be even more integrated as Intuit will drop its native development stack and instead “focus on the top of the stack to make data and services for developers a top priority” according to Schwartz. In reality this means that Intuit will invest heavily in Windows Azure SDK for IPP and make developing an app on Azure and integrating it to QuickBooks data and IPP’s go-to-market services easy and effective. Microsoft released some more information about this partnership in the Windows Azure blog. The two companies have launched a program for this called “Front Runner for Intuit Partner Program” that explains what the developers get by participating in the program. The site portrays three steps: Develop, Test and Market and there is a video that explains what it means.

So what should we learn from this blog entry? First of all, every development platform (PaaS etc.) will evolve and my recommendation for the ISV is to focus and invest on one that you think is here in the long run. I think this example from Intuit is a great example of a company that was initially in the race of competing in the PaaS space to some extent to conclude that the investments to keep the competition going is just too huge and this led to the conclusion to select Microsoft Azure as the foundation for IPP. Intuit will be much better off by focusing on building logic on-top of Windows Azure by participating in SDK development an ensuring that any solution specific development can be easily integrated into Windows Azure platform. Intuit will therefore focus on providing data and services for developers to use with Windows Azure PaaS platform.

Microsoft has been in the development tools and platform development since its foundation so they are much better off to do those kinds of massive investments. I think this is very smart from Intuit and this enables Intuit to have a scalable solution that developers can rely on even if the decision was not easy according to Liz Ngo from Microsoft. Alex Chriss (Director, Intuit Partner Platform) from Intuit explains this in his blog why Windows Azure is a good foundation for Intuit development. Also, Intuit provides a tremendous opportunity for ISVs like CoreConnext and Propelware report based on the blog from Liz Ngo.

Software ecosystem will continue to evolve and EVERY ISV has to figure out how its solutions will meld to be part of different sub-ecosystems. This will also require efficient and well-defined Application Programming Interfaces (API) from all parties to be able to create an integrated solution based on service oriented architecture (SOA).

Let me known if you know other good examples where software ecosystems mesh nicely with each other.

Cloud ISV: What technology will you be using when supporting different mobile and tablet devices?

I explained in my previous blog post that the cloud era is here to stay and with this new era, there are also quite a few technologies that the ISV has to select to build a solution. One key thing is to select the cloud platform but an increasingly important technology that the ISV has to evaluate is what development environment to use to support hundreds of different mobility devices, both smart phones as well as tablets.

When I look back not more than five years, the requirements for applications were much different that today when it comes to consuming information. Today, the end user expects to be able to use a smart phone and tablet to view/update information using a solution that typically is built on cloud technology. Flash used to be the main technology to build applications for the Internet browser, but with the decision that Steve Jobs and Apple did on Flash of not supporting Flash on Apple iPad, the success of Flash is doubtful in the future. Consumers do not care about technology, they care about having the ability to consume information and this is something that the technology industry forgets every now and then. If somebody has any doubts about this, just look at what is happening on the US markets and what has happened for example for RIM and BlackBerry market share on smartphones. It is brutal.

Back in 2010, there were quite a few articles of whether HTML5 will kill Flash. There are millions of Flash web sites whereby I do not think Flash will go away anytime soon, but the real question is whether the ISV should believe that Flash is going to survive going forward. My personal opinion is that I would not invest time and money to Flash anymore as we all know it is not going to support all of the relevant mobility interfaces and I do not think that for example RIMs approach by marketing its BlackBerry PlayBook to support Flash makes a difference in the large scheme of things. The question that each ISV needs to evaluate is what technology it expects to support from a long-term application development perspective.

We already know by now, that Flash will not survive in the long run and has already become a major limitation for many ISVs. When you really think about it, users have already won the battle by ignoring the Flash and showing this by buying iPads even if they know it won’t support Flash. Can you afford building sites and ignore the millions information consumers? I do not think so. Many entrepreneurs (me included) have made the decision not to allow any Flash technology  to be used on the web-site as most smart phones and tablets do not support Flash and Flash not optimized either from SEO and SEM perspective. Check your web site analytics/statistics and you will find out that smart phones and tablets are becoming more relevant in information consumption.

I believe that the next wave of innovation will be coming from software vendors that are able to combine the cloud and mobility in a way that helps end user organizations to become more effective and productive in whatever the application area happens to be. I read an interesting article “Building An Enterprise Software Company That Doesn’t Suck” where the author described how large enterprise software packages are losing the appeal from both end user organizations as well as users. People are sick and tired of complicated and hard-to-use software solutions that do not bring any value add to a user’s daily life. Organizations have forced users to use software to fulfill some type of compliance rule but I my bet is that with the new generation of users, this will change whether organizations want it or not. The new generation entering the marketplace is fluent mobility users, they use social networks as we used to use the regular phone and they would not care less about the corporate compliance stuff and based on research, they won’t even apply to organizations that are old-fashioned way of viewing the world.

Technology selections for an ISV business is always tricky and I have had to do this many time during my career and I have also had a few misses such as selecting an application development tool from Synon (acquired by CA) called Obsydian that never really took off in the marketplace and my developers were never really able to use it effectively. The same applies to the selection today in respect to mobility development. Can you afford making a mistake, spend money in development and then suddenly realize that something else should have been used. I do not think so.

I recently read an interesting article “Seven Reasons HTML5 is Killing Flash” with some interesting points of why HTML 5 could potentially kill flash. According to the article, there are more than 109 million mobile users with HTML-5 ready browsers, but by 2016 the estimate according to ABI Research is that there will be more than 2.1 billion mobile users with compatible browsers. According to ABI Research, there will be 25 key features that will make HTML 5 competitive and the seven that was picked in the article are as follows:

1)      Video Play: HTML5 includes a tag for videos that allows it to play with the start, stop, pause etc.

2)      Video Record: This will become even more important going forward as mobile phones have video recording and HTML5 will support this

3)      Audio Play/Record: Today, the user needs, Flash, QuickTime or Java to play or record audio, but with HTML5 it is just another tag.

4)      Apps: HTML5 allows Web pages to access the same routines that make browsers work and enables them to become like any application. I think this is one of the key things when you think about mobile application development using HTML5

5)      Rich 2D Graphics: All types of sophisticated two-dimensional graphics will be built into HTML5

6)      IM: Instant messaging will be built into HTML5 by virtue of Web sockets

7)      Real-time Streams: Web sockets will also allow any Web-page designer to easily add real-time data streams to the application.

HTML5 could become the best friend for the ISVs going forward as it will provide the broadest support from a device/browser perspective and when smart phones will get HTML5 compliant Internet browsers. HTML provides a better way to support multiple devices as is explained in the article “Enterprise App Stores Harness HTML5” by Colin Johnson.

Cloud ISV: Do not focus on building infrastructure, but focus on building value add for the end user

Software developers love to challenge themselves with things that make them feel good and the trickier the problem, the merrier it is to find the solution. In some cases, this could obviously be the killer innovation that nobody else has ever done, but if it is something that already exists and can be purchased from a third-party organization, it is waste of time and money to rebuild something that is already available. Do you remember the saying “ it can’t be good as it was not invented by us?”. I do remember vividly and have been the witness multiple time during my career.

Ten years ago software developers had to work on basic infrastructure before getting the solution built, but today, the focus should be mostly on innovating and assembling solutions that bring something new to the marketplace. I still see SaaS ISVs to claim that they need to build a billing solution as part of the solution, but there is plenty of other solutions already on the marketplace that do that well an can be integrated to the overall solution scenario.

I happened to view Microsoft Windows Azure homepage today to see if there was something new and was very happy to see the homepage to include the same statement that I am bringing here: “Focus on your application. Not the infrastructure”.  A good place to start looking at other SaaS components/solutions is to visit Windows Azure marketplace that includes listings of different solutions that the ISV can use as part of their solution delivery. If you are a system integrator, you should also spend time understanding what the software ecosystem has to offer so you can become a trusted advisor to your clients.

I do recognize that in some cases there is a need to build “glue” components that can be regarded as infrastructure components, but at the same time, the ISV needs to realize that those components will be replaced by commodity software whereby the original solution needs to be reengineered in some way or the other. In the past, as a leader of a software development team, we had to spend lots of time creating infrastructure for our solution to even work. I used to be the lead for several business intelligence solutions and at that time, there just weren’t enough components or infrastructure that would take care of the basic functionality. I still remember vividly our fight in going from 16-bit Windows to 32-bit technology and we had to support APPC communication between the mini computer and the Windows desktops.  The bad news was that IBM decided to redo most of the router software with a pace that we as an ISV had really hard time to follow and we run into pressure from our clients to upgrade our 16-bit technology.  You typically do not want to be the first one on the planet to test new technology, but in this case we did not have a choice. We spent multiple months “running against the time” when trying to get our solution to work with the latest Windows router technology and it was not fun and it was very expensive.

I mentioned that SaaS ISVs should look at other SaaS solution to bring functionality as billing and organizations such as Zuora, Inc is an example of an organization that brings subscription billing and commerce platform that can be used by other SaaS vendors.

My message to cloud ISVs is simple: learn your cloud ecosystem, learn what there is that you can consume as part of your solution and focus on innovation on the solution and not on the infrastructure.

Cloud ISV: Are you managing your Customer Churn and what tools are you using to control it?

How do you make sure that your SaaS application is relevant and the end users are happy with the solution? In the past, you were able to charge for the solution in one big payment, but with the new subscription-based licensing model, you will have to retain the customer happy throughout the contract period and if the person is not happy, they will not continue using the software.

I have stated before in my blog posts that a net new client and the associated Customer Acquisition Costs (CAC) will have to be absorbed in a year or less, but the reality is something else. Therefore, if the customer quits using the solution after the first contract term (typically one year), the ISV will not even recoup the costs that were accumulated to get it in the first place.  If you look at the included picture from Joel York (2010), you will see that the ISV will cover the overall customer acquisition costs by signing up new customer and eventually the ISV will make a profit as it will cover the CAC costs when the Churn is also considered.  I explained this in more detail in my blog entry “ISV transitioning to the Cloud, Cloud Financials and Operational Metrics”

Churn and CMRRAs developers and engineers, we typically fall in love with what we do and we expect the end users to do the same thing. Wrong. Won’t happen and have been there, done that. What we need to be doing is to building employee software as the Bessemer Top 10 Cloud Computing Law states (#Law5) and I described this in my previous blog entries. If we do not use the software ourselves within the company and act as real customers, why would we expect customers be the ones where we test the usability. You would be surprised how many times we have seen solutions entering the market without any testing. The question now becomes how the solution can be tested prior of delivery and also in scenarios where the SaaS ISV enables a trial version of the software. How can the ISV make sure that most of these trials are converted to real customers? How can we monitor the application usage and also identify possible use cases that lead to an unsatisfied customer/user?

Luckily, there are some innovative companies thinking about this and one of these is Totango that has recently announced a beta version of a solution that helps SaaS vendors to be more effective in retaining customers and also converting trials and freemium licenses to fully paid clients. According to CIO.com article, many SaaS vendors have adopted a freemium pricing model, which is an evolution of the traditional 30/day free trial model according to CIO.com. The freemium model enables users to use the software in perpetuity, but the freemium model is usually missing some key components/elements that the user organization needs and will there want to upgrade to.

Totango  provides an “instrumentation layer” that tracks relevant business events that enables the ISV to really understand the application usage. The funny thing is that I used to build this kind of functionality into business intelligence solutions, specifically executive briefing books so we could evaluate if a report/graph was necessary and what had to go away. Back then, we wanted to make sure that the decision support group did not build charts/reports that were useless as this would be waste of time and money. Today a SaaS application that does not appeal a user will lead to churn and churn and low growth means slow death to the SaaS ISV. It is as simple as that.

Software solutions we are using on a daily basis when running a consulting business with people distributed in different parts of the world

I get questions from other entrepreneurs what software we are using to run our business and it has been my intention for a while to create a blog entry about this and I finally got to do it so here it is.

I founded TELLUS International six years ago after having been part of a software company exit (sales of a software business intelligence company). When founding TELLUS, I made a firm decision not to invest any money in hardware which forced me to select solutions that would run as a cloud solution (SaaS).  This was a pretty bold statement back in 2005 as the cloud really became reality and part of “accepted” much later and there really wasn’t that many SaaS solutions back then.

Throughout this blog entry, you will see that solution integration plays an important role when running a business. Integration is by far the most important thing that an organization should pay attention to. You do not want your personnel having to re-enter things to many applications, the focus should be on sharing information across different applications. For us, Microsoft Office Suite with Microsoft Word, Excel, PowerPoint, Project, OneNote etc. are obvious selections for the office productivity tools but all fo the data and documents have to live in the cloud.

There are some applications that are better suited to run as desktop apps with the ability to save data to the cloud and therefore I really see a hybrid model to be the case in many solution areas and I have some examples of this later in this blog entry. If we work in Microsoft Word, the document will be saved a cloud vault so nothing will be lost even if the laptop/desktop fails or hard drive goes bad. In our case, M-Files document management solution was the right choice due to many reasons that I explain later in this blog entry.

Let me start this journey by working through each operational area where software is needed. I will start by looking at company accounting as that is what is usually needed immediately after the company has been created. You could potentially keep your books using Microsoft Excel (I have seen this happening as well), but I decided to base my company on a real foundation from get-go and Excel was not the solution for TELLUS accounting and was not cloud based either.

Accounting in the cloud back in 2005

Back in 2005, the only real SaaS vendor for accounting was Intuit with QuickBooks Online and that is what we have been using from get-go. I had exposure to QuickBooks Online already before 2005 when I was running a business intelligence software company so I knew what I was getting myself into. The reasons why we went initially to QuickBooks Online from regular QuickBooks was due to the need to share financial information with the headquarters in Finland. A SaaS solution enabled any user get immediate access to the books. What a great concept and Intuit was the first one to get a SaaS solution to the marketplace.

The benefits of having accounting in the cloud are many such as:

1)      I can have my CPA review on my books anytime, anywhere without me having to worry about hardware or software to be installed.

2)      I can generate invoices and have people to enter their time for billing purposes just using the browser

3)      With the mobility era coming even stronger, the mobile interface to QuickBooks Online are getting even better what it is today.

Communication tools with the external world

As a Microsoft partner it was very natural for us to select Microsoft-hosted Exchange environment for our email needs. We have been using Microsoft-hosted version since it came out and could not be happier. The environment supports different types of mobile devices as well and which is the reality of many organizations today. The days when everything was standardized into one specific device are gone.

Document Management Solution – Getting documents and workflow processes into control

A key part of any consultancy is to standardize how documents are managed, where they are saved and what type of workflow processes are attached to different document types. During the past six years we have tried many solutions and luckily I was able to find something that not only made sense to the users, but also supported my vision of having a cloud-based solution for our document management. The solution is M-Files with Windows Azure backend (storage) and a small plugin that enables fully integrated user experience when working with Microsoft office environment. Let me explain what I mean by fully integrated document management experience.

First of all, the end user does not have to think about document management when using M-Files.  M-Files is like a drive on a laptop/desktop with the difference that the user does not have to worry about directories or file naming when saving the document to the M-Files Azure repository. The user is presented with a metadata card that includes information for that specific document type (document class) and this is much more meaningful to the user as everything then becomes searchable and structures can be changed without really having to think about directories. How many times have you wondered where you saved a document and whether the document is the last one that has been touched? According to some studies, a document exists on average 19 times in a typical corporate environment. What a horrible way to spend money and time for nothing.

In our case, we have also integrated M-Files with Dynamics CRM 2011 Online environment with full two-way synchronization. What this mean in practicality is that all customer names and contacts are automatically synchronized from Dynamics CRM 2011 Online to M-Files Windows Azure repository. The synchronization is two-way where any change in M-Files is automatically synchronized back to Dynamics CRM 2011.

The reality is that all of us use Microsoft Office as the main environment when working with documents and what M-Files brings to the table is a native plugin to each one of these apps, including Microsoft Outlook: each application has a button to save the document to the M-Files Azure Document Vault and that is very powerful. Nobody in the organization has a need to explain that he/she does not have time to save documents, because the effort is in fact less as the document metadata card is automatically driving the saving process.

We also use the workflow engine in M-Files to drive our approval processes in proposals which is important to keep the quality high on the documents that are sent to the prospects.

If you reflect on the text above about how we integrate things within our organization it is easy to say that M-Files is almost like the traffic controller sitting in the middle and documenting what we are doing. We have seen many organizations with disintegrated applications with lots of re-entry of data and that is not only useless but also frustrating to the end users.

On top of the integration capabilities between M-Files and other operational applications on the metadata and metadata related records, any document that flows through any of the employees will have metadata associated to it and any document will have full support to audit trail as well as company/contact information associated to it. M-Files enable organizations also to integrate the solution into ERP/accounting database whereby M-Files really becomes the central hub for any information flow.

Sales and Marketing in the Cloud

Salesforce.com is a pioneer in SaaS-based sales force automation solutions, no question about that. Back in 2005 when I had made my decision to only use SaaS based solutions, I had to go with SalesForce initially but we agreed in the management team that once Microsoft comes with its own SaaS-based solution, we would convert to Dynamics CRM Online. We did exactly that with the Dynamics CRM Online that Microsoft introduced to the marketplace. I am glad that I did this transition. With the new Dynamics CRM 2011 Online release, the third-party market was given the opportunity to create add-on applications whereby the use of the CRM could be extended to new functional areas.

A key element in our CRM use is a Microsoft Outlook plugin from a company called Linkpoint360 that enables us to save emails either to Account/Contact or Lead contacts. What makes this different to the very effective native tracking in Dynamics CRM is the easiness to flag things to the database. It is just one click “Record to Microsoft CRM” and you will be presented with a dialog box where you can select how you want to save it and if you want to add a follow-up action on the account/contact/lead. This solution is one of those things that you can view as a “non-brainer” and I would highly recommend to test it out and you will see that the money you pay for it is worth and the return on investment from productivity perspective is just ridiculous.

Another related technology to CRM use is marketing and email automation and we made a decision to use CoreMotives Marketing Suite that has a native Microsoft Dynamics CRM 2011 Online solution that enables tight integration to the CRM use. What it really means is that the CRM becomes “the place” to go to for everything. When we send out emails as part of the campaign, everything will be tagged inside the CRM and the analytics will give us a 360 degree view of how the campaign has progressed, how many reads the campaign message has had and what type of actions the user has taken. Very effective and what makes it also interesting is that Coremotives uses Windows Azure as the backend for the solution which is obviously something we like ISVs to do when building solutions. That is part of TELLUS educational series when making selections of technology. This is exactly the same technology that M-Files is using as it backend cloud technology.

As our business model is to work with Independent Software Vendors (ISVs) and Systems Integrators (SIs) we depend on our marketing and sales process as we apply this to both channel building for our ISV clients, sales to end user organizations but also to market our services to prospective ISVs and SIs.

With M-Files integration to our Microsoft Dynamics CRM 2011 Online with LinkPoint360 and CoreMotives we have a fully integrated lifecycle management of our entire marketing/sales process.

Research tools

My life is about research and writing and part of this process I have had to search and pick the best tools for this work. When you think about the process that one performs in research, the internet with search engine becomes one of the most important tools. The question now becomes where you save all of those links that you might need, the regular “favorites” folder in an Internet browser just isn’t enough. I ended up by selecting Microsoft OneNote 2010 as the most important tool for me to collect data and this has become invaluable to me in everything I do. Besides Microsoft OneNote, I also use mind mapping tool from Mindjet to plan and categorize things as I explained further down in this blog entry. The main tool for any of my writing is Microsoft Word 2010 that has been the foundation for two of my latest books and the third one I am working on.

Other productivity tools

Besides the operational tools that I explained above, we use a few other very handy tools when working on projects.

Graphical tools

One that has become a key and core software solution for me is Snagit from a company called Techsmith. Snagit enables me to grab anything from my current screen and reuse that image in my presentations or documents that I am authoring. Snagit has really become a core tool in any work that I do.

Mindmapping tools

Another application is a mind mapping software MindManager from Mindjet. We have used mind mapping in all of our research projects as it gives a nice overall view on the information that you are trying to portray. This has been extremely useful in our influencer intelligence studies that we have worked on during the years.

We started by using the Windows version of Mindjet, then signed up for the SaaS-based version of Mindjet called Mindjet Catalyst but realized pretty soon that it was not able to scale to the mind maps that we were building so we discontinued the use of the SaaS solution. I believe that the horsepower that this type of application takes is not really suited for a pure web-based solution seen from a usability perspective.

Presentation tools

The key presentation tool for our TELLUS workshops and events is Microsoft PowerPoint 2010. For the online video presentation we use Camtasia Studio Screen recording & Video Editing software from the same company Techsmith that is the creator of Snagit software. This software enables us to record PowerPoint slideshows with voice/and video capture with lots of different output options for different devices.

Scanning software for business cards

One of the key tasks that I do after a conference or having met a person is to scan the business card by using Dymo Cardscan 800c device with its embedded software. I have been using this technology for years, but unfortunately since it was acquired by Dymo, I have seen no developments for the software or integration to other solutions such as Microsoft Dynamics CRM 2011 Online environment. They have their own SaaS environment where you can synchronize the cards from the desktop software but that environment does not have any other integration possibilities so it remains to be seen how long I keep using this package. Once somebody invents or creates a solution that integrates well with Microsoft Dynamics CRM environment, I am ready to move over.

I will add new tools/software by updating this blog entry and in future blogs I will go in more detail to explain how each of these tools are used from a practical sense in our daily lives. I would love to hear what other tools you are using and also the use cases behind them.