When speaking with entrepreneurs and investors about the investment required to start up a new Software-as-a-Service company, I often refer back to this list.   At Montclair Advisors thought this would be a handy reference for those looking to start a SaaS company during 2010.

Looks like you might need a money tree to start a SaaS company, but for those that reach critical mass and go public, there is a tremendous payback.  This is information has been gathered from various sources including Wachovia, CrunchBase and Google Finance.

Given we are starting a new decade and many could argue that SaaS started in during the last ten years, I thought it would be appropriate to recognize leaders of the SaaS movement. Here are the winners of the Montclair Advisors 2010 SaaS Hall of Fame:

Most Influential SaaS Company:     Salesforce.com

Salesforce has have been the most vocal proponents of the SaaS business model for the last 10 years. They are also the largest SaaS Company based on revenues ($990M) and market value ($8.5B).

Most Influential SaaS Individual:     Marc Benioff

As the CEO of Salesforce, Marc has been the major evangelist for the past ten years. His recent book Behind the Cloud is a great primer for entrepreneurs who are considering starting their own SaaS Company.

Best Transition to SaaS:                  Concur (Steve Singh)

Concur was the most visible company to move their business model to Software-as-a-Service from a traditional on-premise model. He moved his company from a low of .90 a share to creating a company with revenues of $250M and a market cap of over $2B.

Biggest SaaS Acquisition:                 Omniture (Josh James)

Adobe purchased Omniture firm for $1.8B in October 2009.

Largest SaaS IPO:                              NetSuite (Zach Nelson)

The largest SaaS IPO so far is Netsuite’s public offering in December 2007 for $185M. This event made Larry Ellison quite happy since he owned more than half of the company.

Largest SaaS Deployment:              SuccessFactors (Siemens)

In 2009 SuccessFactors announced the largest SaaS applications deployment to date with Siemens where they will deploy their performance management software for more than 400,000 managers and employees.

Biggest SaaS Comeback:                     Dave Duffield (Workday)

After his company PeopleSoft was acquired by Oracle, Dave Duffield formed one of the most successful pure SaaS companies, Workday, designed to create the next generation of ERP solutions.

Most SaaS Customers:                       Salesforce.com

Since they are one of the original SaaS companies it is not hard to believe they would have the largest customer base but they are clearly much larger than any other SaaS company with more than 65,000 customers.

Most Influential SaaS Analyst:         Bill McNee (Saugatuck Technologies)

Bill, a Gartner Group alumni, has built his firm, Saugatuck Technologies to be exclusively focused on Software-as-a-Service and Cloud Computing for the past ten years.

Most Influential SaaS Journalist:          Phil Wainewright

Phil has been a blogger and journalist with many different publications including ZDNet doing a comprehensive job of covering SaaS industry events, companies and trends.

Most Influential SaaS Pundit:              Jeff Kaplan (THINKstrategies)

Jeff has been a very visible figure at industry events, associations, publications where he has promoted and commented on SaaS trends and players for the past ten years.

Most Influential Investment Firm:          Bessemer Venture Partners

Byron Deeter and his colleague Philippe Botteri published a very popular Top 10 Laws for Being ‘SaaS-y’ as well as having invested in many leading SaaS companies.

While walking through the exhibit area of Salesforce.com’s recent Dreamforce event in San Francisco, I was struck by large number of enterprise customers present and the low number of enterprise applications being marketed. I started to think about my experience earlier in the year helping my prior company successfully secure their Series B funding and why the word “enterprise” generates an immediate negative reaction with many venture capital firms when it comes to investing in SaaS providers offering enterprise solutions? When making the venture capital rounds earlier in the year to secure this additional funding, I was surprised by the polarity of views on enterprise applications for SaaS. One group of VC’s defined SaaS applications from a commercial market perspective … high transaction volume, low sales touch and low cost per transaction. To this group, SaaS and enterprise software were mutually exclusive. The other group of VC’s understood the higher costs associated with selling SaaS for complex enterprise requirements and saw the potential rewards. We successfully completed the funding with a group of VC firms in the later group. Their message to us was clear, we believe in the value of your business model but you must lower the cost of acquiring new customers.

The commoditization of SaaS is clearly happening in the small to medium size business market and for some enterprise market companies with relatively simple solution requirements. SaaS solution examples like Intuit’s Quicken Online and their new website building service are examples of the high volume, low sales touch, low customer acquisition cost business model. Some SaaS services offer free trials like Salesforce.com or open source downloads of their applications like Adaptive Planning to help move the prospective buyer cost effectively through the sales cycle. The sales “touch” of this style of selling is typically sending additional information via email, using web seminars and using telesales representatives to close the deal and complete the transaction. For prospective customers who need a straight-forward application that requires little or no professional services assistance for implementation, the cost of customer acquisition can be lowered significantly. It’s very understandable why some VCs only want to invest in the commoditization of SaaS with its high-volume and low-cost of sales. Can the lessons learned in this process of commoditization be applied to SaaS based enterprise solutions targeting companies with complex application needs or implementation requirements?

The answer is yes… and no. Certainly, the days of high touch enterprise style selling in the SaaS marketplace are not over yet but change needs to happen. Enterprise companies with sophisticated business requirements want to evaluate SaaS solutions but need a “high touch” approach to working with the software vendor. This typically involves lengthy requests for proposals, face-to-face meetings with executives, users and IT, customized demos, pilot programs and site visits to the vendor’s data center or reference accounts. I am sure that selling Salesforce.com to Dell or Successfactors to Siemens was not accomplished with just a free trial, web seminar and telesales rep. The challenge is in how to effectively start moving these more complex sales towards a lower customer acquisition cost business model. Here are ten ideas to reduce customer acquisition cost for a SaaS vendor to consider when selling into the enterprise market …

1) Develop, document and articulate a high impact solution methodology that can provide a prospective enterprise market customer with a clear roadmap on how the SaaS application integrates into their business requirements. A solution methodology typically involves documenting how real world business processes map to the SaaS solution and how the SaaS solution can be successfully implemented without the need for extensive consulting.

2) Use web marketing effectively to improve the quality, quantity and impact of information for the enterprise company buyer. Answer the prospect’s questions before they ask them using Flash based graphical displays, testimonials, videos, structured demos, FAQs and case studies. Web based training materials can be very instrumental in helping a company though the evaluation process.

3) Leverage social networking techniques and processes to allow prospective customers to tap into the collective knowledge of your customer base to help them through the purchase process. Of course, this implies that you are maintaining very high levels of customer satisfaction and you can filter information as needed. Suffice to say, there’s an inverse relationship between customer acquisition costs and customer satisfaction.

4) Use web conferencing technology as an alternative to on-site visits. The quality of web conferencing for both audio and video has improved dramatically over the past few years while dropping in cost. Using web conferencing to stage demos for more than one prospect also helps to reduce selling costs.

5) Organize group visits to data centers or training facilities. A large enterprise company that I worked for a few years ago would stage CIO conferences that included a visit to their data center so they could reduce the number of one-off site visits. This also allowed prospective buyers to meet and network with key vendor staff and existing customers.

6) Focus on cutting the cost of lead and opportunity generation. It’s all about conversion rates…. lead to qualified sales opportunity, sales opportunity-to-close. For SaaS-based applications designed for defined markets, target marketing to specific market segments can be much more effective than broad-based marketing to diverse market segments. The velocity of conversions from responses to leads or leads to opportunities has definitely slowed through the course of this recession. Improving the conversion rate from leads to opportunities by using lead scoring and lead nurturing techniques can significantly improve the ROI of marketing programs.

7) If you can’t measure it, you can’t manage it. Taking a disciplined approach to using CRM, analytics and marketing automation to measure, monitor and manage sales and marketing results is key to cutting customer acquisition costs. If you don’t know what your pipeline metrics or your customer acquisition costs are, I doubt if you will be able to manage them effectively.

8) Know a duck when you see one, particularly when it comes to enterprise sales. Actively manage the sales cycle and accurately access the reality of each sales situation. Chasing enterprise deals that are not properly qualified will most likely not close and will dramatically increase your customer acquisition cost.

9) Drive your order processing costs down. Make your pricing and contractual models easy to access and understand. Complex pricing and contracts beg for long and costly negotiation cycles. Utilize SaaS focused billing solutions from companies like Dreamforce exhibitor Zuora to help simplify the process and reduce costs. One company that I spoke to at Dreamforce told me that their internal cost to process an individual order exceeded a thousand dollars.

10) Automate as much of the implementation and data integration process as possible, articulate an implementation methodology and make configuration an end user process. This is a significant challenge for SaaS based enterprise solutions because implementations are typically complex and there is a large quantity of data that most be extracted from an in-house system, transformed and loaded into the SaaS solution. Without an efficient process or tool set to simplify implementations, the cost of sales goes up because the sales cycle is extended to explain and build confidence that the prospect’s requirements can be successfully met.

Implementing any number of these ideas will help to lower customer acquisition cost. Years ago, Salesforce.com successfully competed against Siebel Systems in large enterprise accounts by following a number of the ideas mentioned above. They showed that a complex enterprise application could be sold and delivered more cost effectively using SaaS than its licensed based counterpart. Companies like Salesforce.com and Successfactors did not turn their back on enterprise sales with its implicit high customer acquisition costs but instead adapted their sales model to lower customer acquisition costs by leveraging a balanced approach to telesales and field sales, web marketing, social networking and their most important asset… satisfied and successful customers. I doubt that selling a SaaS based application to an enterprise company with complex requirements will ever become a true commodity sale but customer acquisition costs must continue to managed and reduced. As customer acquisition costs are reduced, I am confident that VC community interest in SaaS-based enterprise solutions will soon increase.

This week’s Smart SaaS blogger is Gary Damiano.
He can be reached on LinkedIn or at gedamiano@gmail.com.

Last week at Salesforce.com’s Dreamforce conference, it was interesting to see how their Platform-as-a-Service offering, Force.com is starting to gain momentum among the Independent Software Vendor community including Computer Associates and BMC Software.

What is clear for traditional software providers who are starting think seriously about getting into the SaaS and Computing arena, it might be cheaper and faster to use a partner platform than trying to re-invent the wheel.  Both CA and BMC have resources to rewrite their older applications but it isn’t the cost that seems to drive them it is the time to market.  Force.com can provide a real advantage to software firms who have the domain expertise but lack the infrastructure and skills required to write Cloud and SaaS-based products quickly.

Other interesting aspects are that traditional ISV’s are not rewriting the old applications they have, they are re-inventing these applications leveraging newer development techniques.  CA’s Agile Planner is actually filling a hole in the company’s product portfolio and could be a logical cross-sell or up-sell product for them. BMC’s Service Desk offering is designed to dove tail with Salesforce’s Service Cloud 2 offering, and provide something else ISV’s are looking for, leverage.

I am sure that many traditional software firms will have the internal discussion about build, buy or partner their way into SaaS.  Up until recently there hasn’t been a good partner alternative for ISV’s who wanted to build their own solutions but were looking for a partner with SaaS and Cloud Computing expertise.   Even though rumors abound about Oracle looking to buy Salesforce, firms competitive to Oracle like CA and BMC are dipping their toes in the water.

For these firms leverage doesn’t just stop at the platform, Salesforce delivers a very effective go-to-market capability that few other partners can offer.  Witness the 19,000 participants at Dreamforce.  This type of reach and ability to get IT and business buyers attention might make a bet on Force.com worth the risk.  More importantly, these firms are also looking to bridge their older brands to the Cloud by bridging the Salesforce brand power.  CA and BMC aren’t the only firms interested in upgrading their image how about Dell, Callidus, Fujitsui (Glovia) and the momentum is growing.  According to the AppExchange, there are currently more than 200 native Force.com applications currently available.

While at Dreamforce I spent some time with the FinancialForce.com team at the booth and this is a really interesting story.  FinancialForce.com is a wholly owned subsidiary of a European software firm, Agresso and their CODA division.

FinancialForce.com was started about three years ago at the time that Salesforce.com initially launched the Force.com platform. Jeremy Roche the CEO at FinancialForce.com, reached out to Marc Benioff to just learn on how to build a net-new SaaS product and learned about their platform. They had a number of discussions and then finally decided to build their new accounts receivable product on Force.com in 2006.

The CODA team started out by building an integration connector Saleforce.com and the CODA2Go (On-demand version) of their Accounts Receivable module. They wanted to understand how the products worked together and that required workflow between products. It took them about a year to get comfortable with the Force.com platform, there were issues that were specific to complex ERP-like applications but Salesforce was responsive and did update the platform to support these deficiencies.

Once the new company was formed, FinancialForce.com, CODA then built out an Enterprise Service BUS (ESB) to connect their SaaS solutions with their on-premise solutions. One of FinancialForce.com’s early customers, a UK-based newspaper, were using Salesforce for their CRM requirements and CODA for their back office financials but were custom developing an invoicing/AR solution. When approached about the FinancialForce.com AR module as a possible solution, what was appealing to the customer that this solution was able to integrate to both Salesforce.com and CODA. About 6 months ago FinancialForce.com also launched their General Ledger and Accounts Payable modules and now they have a solid SMB mini-financial suite.

As more partners begin building and launching applications and businesses on top of Force.com, it is clear that the momentum is building.

Last week at Salesforce.com’s Dreamforce conference, the big news was around the launch of the new business collaboration set of platform capabilities called “Chatter”.

After updating the audience on Service and Sales Cloud 2, which both had some really cool new capabilities, Marc Benioff announced the latest Cloud offering – Chatter or the Collaboration Cloud.

This new business collaboration offering, which was never to be confused with Social CRM, consists of a wide range of Chatter platform capabilities. Many of which look very similar to Twitter, but don’t get confused, this is NOT Twitter. Although Chatter will be integrated with popular social networking sitesl like Twitter and Facebook, these integrations are only feeds into Chatter.

The key line that kept getting repeated was “Why do I know more about strangers on Facebook than I do about my own employees?” This apparently was a major driver in the development of Chatter by Salesforce.

On a funny note, during the analyst meeting, someone asked Marc if he was going provide Chatter on-premise? (Remember Salesforce is in the Cloud!) In a sarcastic reply said that he was actually packaging up the Exodata Chatter servers and that they were being shipped out to clients at the time of the launch. That got a big laugh from the audience. This was also humorous because Chatter won’t be Generally Available in the Cloud until sometime in 2010.

Key capabilities include employee profiles, status updates that are familiar with LinkedIn and Facebook, Groups, external and internal feeds, ability to share content with groups and events, alerts and notifications that allow for your apps to speak to you, an extensible API for the Force.com platform, integration with Google Docs, Twitter and Facebook. To learn more watch this Chatter demo by Parker Harris, Salesforce.com’s EVP of products of the opening day keynote.

Unlike other emerging business-related Social CRM players like Jive Software (SAP partner), Lithium, RightNow or even Oracle, Salesforce seems to be focusing much of it competitive energies against Microsoft SharePoint. I think this is probably a red herring.

Another major benefit to the Chatter strategy is the addition of a new Salesforce mascot family. Saasy now has Chatty. People were lining up to get their photo with both of these mascots… wow.

Here’s what I think the real Chatter strategy is based on…

• Stickiness. This is a ‘fun’ business application and if it is widely adopted as a business collaboration tool, it will be hard to replace. This process may take awhile for this adoption to take place but it will have lasting impact on their clients. The flip side to stickiness is that customers will be much less likely to cancel their service if they are hooked on it. With industry attrition averages between 10-20%, this could have a real hidden benefit. This is especially interesting in that they are giving the basic Chatter capability away with the basic and enterprise subscription licensing. Wonder if they have modeled out this impact?

• Barrier to entry. I think that it is interesting that Salesforce is thinking that this capability might actually upset Oracle Fusion and SAP’s next generation of SaaS offerings because it would require a rewrite of their core platforms. Actually this might make it more likely that SAP might do more than expand their partnership with Jive Software, and force them into a situation where they might have to buy them to keep up with the Benioff’s. With Fusion targeted for GA some time in 2010 (probably December), if they were to add in a robust collaboration capability, it would most certainly delay the GA, which would push Fusion into 2011. So Chatter becomes a key differentiator for Salesforce, even if it experiences low user adoption.

• Facebook and Twitter. By aligning themselves with these leading social networking platforms, Salesforce will be able to differentiate their solutions as hip compared to the older generation. With all types of younger workers continuing to move into the market, this makes Salesforce solutions possibly more interesting to the Generation Y workforce.

• Productivity. By putting collaboration (email, chat, document and knowledge management) in context to various business processes, the hidden strategic benefit might actually be a more productive workforce – closing more deals, resolving more issues, and engaging more employees. Because this is a solution that doesn’t need any training, it could be rolled out broadly without a lot of costly change management activities. Difficult to quantify this benefit but as more use cases become exposed over the next 6-12 months, this will be a really interesting benefit to solutions like Chatter.

So what are the issues with Chatter?

• Security. Kept emphasizing that Chatter has been built on a common security architecture that is the same one being used by Salesforce, which meets stringent bank-level security requirements. This actually might be a CIO selling point because it might be a way to reel in employees who are social networking with corporate information on unsecure sites like Facebook and Twitter. By integrating with them but controlling the internal networking, and not allowing export of data to these sites, the security teams can at least protect data access and distribution.

• Adoption. Salesforce has never really launched a enterprise-wide application before and Chatter is even a different animal than a traditional employee-oriented application. This is uncharted territory for Salesforce and it is unclear how rapid or widespread the adoption of their technology will be. What is good is that Marc Benioff did mention that they are not making any projections on what is going to happen with Chatter, they figure it will be popular but were reluctant to make predictions based on wide-scale adoption. It is in Salesforce’s best interest to make sure Chatter is successful because even modest adoption would ensure a level stickiness that their current applications may not even enjoy.

Just try and take away someone’s Facebook and you will understand stickiness!

If employees only want to use Twitter, they probably won’t like Chatter.

So how much does it cost? For existing Salesforce customers who have already purchased seat of Sales or Service Cloud, those seats will get Chatter at no cost, which is good deal. For those employees who don’t have Salesforce seats but want to have limited access to Chatter, the pricing is $50/seat/month. After talking to a product manager on the Dreamforce show floor about this, it seems like a lot of money for almost no functionality. My guess is that when they roll out Chatter later in 2010, they will have a better thought out plan around pricing

In the end, the Chatter strategy makes a lot of sense. The customers I spoke to about it really like it and I will anxiously await the official launch in 2010.

When I was learning to drive many, many years ago, I remember my dad telling me to pay attention to not only where the other driver’s eyes were looking but also to where their wheels were pointed. So it was with my search for SaaS at the recent Oracle OpenWorld event in San Francisco. Amid the hundreds of exhibitors and sessions, Cloud Computing in the form of SaaS based applications was being called out, acknowledged and exhibited. There were “campgrounds” of SaaS based applications exhibiting and the normal spread of CRM On Demand sessions. Clearly, Oracle senses the need to position itself as a supporter of Cloud Computing which requires them to encompass and embrace the growing proliferation of SaaS-based services and vendors. Like Levi Straus during the Gold Rush, who made his fortune supplying the miners with clothes and supplies, Oracle has the opportunity to provide the platform and infrastructure that can be a significant enabler in the Cloud Computing story.

But this blog is not about Cloud Computing, it’s about where Oracle is with SaaS-based applications. Certainly, they are continuing their efforts to build out their primary SaaS offering, CRM On Demand with new features and social networking capabilities. There were large banners in the exhibit areas for CRM On Demand and a section of the exhibit hall was dedicated to a few dozen SaaS add-on applications like Helpstream, Adaptive Planning and Eloqua. Oracle’s decision to allow a huge presence for one of their primary SaaS competitors, Salesforce.com, in the west convention hall was interesting. Even more interesting was the opportunity that was provided to Salesforce.com’s CEO, Marc Benioff, to present at an SRO executive session. Marc eloquently thanked Oracle for the opportunity to participate in OracleWorld, talked about the growth of Cloud Computing, their newest offering, Service Cloud 2 and gave away copies of his insightful new book “Behind the Cloud.” In comparison to the exhibits of SaaS vendors and the mega-exhibit of salesforce.com, Oracle’s SaaS offerings had a relatively small presence. No new SaaS offerings for key markets like Human Capital Management or Enterprise Performance Management.

So back to my original point, where is Oracle looking regarding SaaS but also, where are their wheels pointing? Gauging by my OracleWorld observations, Oracle definitely feels the need to acknowledge the proliferation of SaaS-based applications. In my opinion, allowing Salesforce.com to present and exhibit is a huge change in course regarding SaaS. Salesforce.com is Oracle’s biggest competitor in the Customer Relationship Management marketplace but they also are built on top of Oracle database technology. This is not a unique situation in the Oracle world of co-opetition. SAP, their biggest competitor in the enterprise resource management marketplace, is also built on top of Oracle database technology. SaaS is here to stay and though Oracle is not showing any signs of interest in building out its SaaS offerings, it is very interested in ensuring that its database, middleware technologies and possibly its expansive infrastructure are used in the SaaS gold rush. The question of why Oracle is not looking at SaaS as an application delivery vehicle but has its wheels pointed to supporting SaaS vendors and gets into a discussion of Oracle’s business priorities and culture.

Oracle’s business model is heavily dependent on maintenance and support revenue. At 22% of license revenue, this represents a significant portion of Oracle’s revenue and margin. Any significant move away from license sales and to SaaS will disrupt this model and the business culture that has been built upon it. A second factor to Oracle’s delay to move to SaaS-based applications can be found in their sales model. The SaaS sales model is significantly different than the license sales model. SaaS sales typically involve a higher volume of transactions at a lower total contract value. Because SaaS based applications are pay-as-you-go and require limited configuration to be production ready, not only is the software component of the total sale reduced, the consulting component of the total sale is reduced as well. Getting a massive sales organization like the one at Oracle to embrace a SaaS applications focus will be a time consuming, culturally altering and expensive proposition. This is not likely to happen soon.

A more likely strategy for Oracle to pursue if they want to become a leader in SaaS based services would be to focus on the small or medium size business market with a dedicated and independent sales team selling SaaS based applications and not try to convert their existing base of global 2000 enterprise customers. Given the investment by Oracle’s CEO, Larry Ellison, in Netsuite, I am tempted to think of them as an experiment to test a new SMB sales model for Oracle. I suspect that part of the reason that Oracle allowed such a significant presence for Salesforce.com at Oracle OpenWorld is that they do not see them as a significant competitive threat to their installed base and need for them to continue their success to help drive the growing need for platform as a service and infrastructure as a service technology, a market that Oracle is definitely interested in. Of course, Oracle could use their merger and acquisition machine to quickly become the leading provider of SaaS based applications. There are definitely candidates out there other than salesforce.com that could help Oracle accomplish that.

Oracle OpenWorld as usual was an interesting window into the thinking and direction of Oracle. Regardless of the rhetoric that we have heard from Oracle about SaaS, as evidenced by the presence of SaaS on the exhibit floor and Marc Benioff’s presentation, Oracle is positioning to be a player in this market … someway, somehow.

This week’s Smart SaaS blogger is Gary Damiano.
He can be reached on LinkedIn or at gedamiano@gmail.com.

Monday October 12th

It has been several years since I went to my last Oracle User Group meeting, prior to them buying PeopleSoft, Siebel and BEA.  Here are my thoughts around the first day:

The Keynote

Charles Phillips and Safra Catz kicked things off and were helpful in shaping how Oracle is planning on not only rolling out Fusion but also how Sun will fit into their strategy.  Unlike other firms like CA or Infor who just purchase software firms and milk them for the maintenance dollars, Oracle is spending $3B a year on research and development.  They are trying to fit all of these acquired pieces together for their customers, to making them easier to install and purchase.  The analogy of buying a car piece by piece is one that is often used by firms that are looking to provide a tightly integrated ecosystem.  I am not sure if this is really what customers are interested in buying because it really creates a classic vendor ‘lock-in’ scenario.

Larry’s vision is to tightly assemble all the technology components a customer might need; horizontal and industry applications, middleware, databases, infrastructure and, after the Sun deal is approved, they can offer hardware too.  This type of vertically integrated strategy seems to work beautifully for Apple and their consumer-oriented iPhone but will this approach be as widely adopted by Global 2000 organizations with very complex requirements?

The other surprise to me was that there was no announcement of any ‘native’ Oracle Fusion applications. Many of us were hoping that there will be more news about Oracle Fusion application delivery dates, but maybe something will be announced over the next few days.  I believe that when the very smart development people at Oracle started working through the plan to rewrite JD Edwards, Siebel, PeopleSoft, Hyperion, Retek, etc…. Maybe taking a phased approach over 5-10 years might be more realistic than rewriting all the products into a new suite all at once.  That is probably why we saw all of the application ‘mash-up’ demonstrations using Fusion this morning.   This Fusion middleware mashup approach is the near term future for Oracle application customers.

This was only Day One, so stay tuned.

Here are some other general observations from Day One.

Open World Positives

• I was really impressed with the size of the event with more than 35,000 attendees, even in a recession.  The show appeared to be well organized and all of the keynote sessions that I saw were well executed and informative.  So Judy Sim, Oracle’s CMO, should be given a lot credit for her team’s efforts.

• Most of the customers that I interacted with appeared to be interested and engaged.

• The partner pavilion (trade-show) was completely filled out and appeared to be well attended.

• The Oracle Fusion middleware and Oracle Business Intelligence solutions were full featured and had  many new enhancements.  The little 5-minute demos were helpful and gave the audience a quick look at each product.

• I was pleasantly surprised to see the number of global customers and many provided public testimonials.

• I liked the tables (with power-strips) that were set up for analysts and bloggers for all of the Keynote sessions.

While speaking at a recent meeting of the Silicon Valley Product Development Management Association, PDMA, I was struck by the uncertainty and confusion around the definition and implications of Cloud Computing. A quick poll of the audience, about 40 software professionals, confirmed my observation that Cloud Computing, though widely recognized, is not understood consistently.

Wikipedia defines Cloud Computing as “an example of computing in which dynamically scalable and often virtualized resources are provided as a service over the Internet.” The ‘Cloud’ can also be defined in terms of computing layers.

The first layer is Software-as-a-Service (SaaS) or the actual end-user Cloud-based applications that people access and use. The next layer is Platform as a Service (PaaS) where to development tools, utilities and middleware live to support the SaaS based applications. PaaS is not the realm of the end-user but rather the developer. The final layer is Infrastructure as a Service (IaaS), the physical layer of the Cloud where the hardware, plumbing, brick and mortar of the Cloud exists. This definition of the Cloud is a clean and simple way of explaining a fairly complex ballet that happens in a heartbeat every minute of every day all around the world with very successful and widely used applications like Salesforce.com, SuccessFactors, Netsuite and Xactly.

A different way of defining the Cloud is in terms of attributes. In my opinion, the Cloud can be defined through these attributes: Transparency, Elasticity, Affordability and Permissiveness.

The Cloud is Transparent
Transparency is an interesting concept when it comes to the Cloud as it works at multiple levels. Location transparency of the hard and soft resources needed to drive Cloud based applications is at the core of this concept. The end-user does not need to know the actual location of the resources they are using. The developer has a set of Cloud-based services or application program interfaces, often referred to as API’s, to link to the needed resources. A single application can access resources like data or even application components from multiple locations. In relational algebra terms, it’s a many-to-many concept … many users sharing many resources from many locations.

The Cloud is Elastic
It provides a flexible environment that can grow or contract for an application based on varying loads of users and data. From the end-user perspective, this happens auto-magically and does not require the end-user or operator to make overt decisions or actions to scale or procure resources to meet their applications needs. Behind this application flexibility is the Cloud at work - shared applications accessing multiple data sources in multiple locations quickly, securely and consistently.

The Cloud is Affordable
It’s the economics of scale realized through utility computing model. The collective buying power of the masses applied to application computing. Applications are pay-as-you-go because the user does not have to pre-purchase dedicated physical computing resources, because the Cloud can scale to their ever-changing requirements. The domination of on-premise, license software models is being challenged by the subscription services model, which is driving application software companies towards an inevitable business and cultural change.

The Cloud is Permissive
It is in essence an environment that can include and involve multiple resources, standards and methodologies. Whether it be .Net or JAVA, Windows Azure or ORACLE, Force.com or Etelos, Boomi or web services APIs, there is no one technology or computing standard that rules the Cloud. Developers can select from a wide range of resources to build SaaS applications through the Cloud. Granted that there are companies like Oracle or Salesforce.com who claim leadership of the Cloud but the reality is that the attributes of the Cloud make it highly unlikely that any one vendor will dominate it in the short term.

When it comes to Cloud Computing, there is no consistent definition. I believe that the attributes that I have described help to further describe and differentiate Cloud Computing but the words from Judy Collin’s song “Both Sides Now” still ring in my ears…

“I’ve looked at clouds from both sides now
From up and down and still somehow
It’s cloud’s illusions I recall
I really don’t know clouds at all”

We still have a lot to learn about Cloud Computing. Talking to the members of the Northern California chapter of the PDMA was enlightening and intriguing. The great questions that were asked and high interest levels tell me that acceptance of Cloud Computing is growing rapidly. There’s still a long road ahead in terms of broad marketplace adoption. The attributes of transparency, elasticity, affordability and permissiveness are in tune with a growing marketplace need for a new generation of applications that operate in and through the Cloud.

This week’s Smart SaaS blogger is Gary Damiano.
He can be reached on LinkedIn or at gedamiano@gmail.com.

I often hear the question, “What is the difference between Software-as-a-Service and Cloud Computing?”  The answer is that the Cloud is a utility based resource that companies can use to deliver software and services.  This can sometimes even be more confusing when Cloud Computing is referred to as Platform-as-a-Service.  SaaS is really the business model associated with the delivery of that software and services.

Until recently, it was a difficult for both customers and SaaS providers to use the Cloud to deliver robust, enterprise-class solutions because the Public Cloud was not really industrial strength.  There are real issues in using a Public Cloud solution for your SaaS offering today including security, integration, manageability, data location, auditing, reporting and overall compliance.

Computer Weekly - Top Five Cloud Computing Security Issues

ComputerWorld - Twitter Breach Revives Security Issues with Cloud Computing

One scary revelation that I heard recently is that the same billing system that is used in Amazon’s EC2 service is also the one that is used to buy that big screen TV at Amazon.com.  That might turn out to be an  issue if you were trying to maintain your SAS70 or Sarbanes-Oxley certification.

There have been a lot recent announcements regarding new Virtual Private Cloud offerings over the past few months by Amazon, OpSource, Savvis, GoGrid, Sun, IBM, Rackspace because the market is looking for a better alternatives to the Public Cloud.  Some of these Private Cloud offerings are more advanced than others, but the Cloud Computing providers are now moving in the right direction by offering solutions that are hardened to be much more acceptable to enterprise customers.  SaaS providers are also in need of truly reliable infrastructure solutions too, because they have to support their customers with robust SLA’s, especially for their enterprise customers.

Why SaaS providers are happy is because this type of enterprise Infrastructure-as-a-Service approach helps companies:

- Innovation.  It should be possible to try out a new product ideas with a small beta communities and if their tests work, then they can very quickly ‘productize’ them.  Because of the lower cost and rapid availability of resources it should make innovation process more productive.  How often do I remember working with someone on a Friday afternoon and them spending their entire weekend building out their idea. Now with this type of utility computing approach you can take it from concept to rollout much faster.

- Faster time to value.  Based on the Private Cloud product that I recently saw demonstrated, you can initially set up a secure, multi-tenant instance of your favorite infrastructure in less than 30 minutes and then create additional instances in just a couple of minutes.

- Security. Being able to leverage infrastructure that can pass muster when a customer’s Chief Security Officer is reviewing your offerings.  Even some small and medium sized businesses are publicly traded and operate globally and even these smaller firms have the same types of compliance and regulatory constraints that large companies have.  Private Clouds will make using a Cloud-based infrastructure more realistic for SaaS firms selling to these types of organizations (ie. most of them).

Then there are all the other benefits of pay-as-you-go and scalability that come with Cloud Computing, which are always of value to a SaaS company.

For software companies who haven’t already rewritten or moved over to a SaaS model already, a Private Cloud may offer other benefits.  There are still many companies who are concerned about not being able to offer a multi-tenant, SaaS solution to their customers and prospects.  Leveraging a Private Cloud type of infrastructure for these non-SaaS software firms, allows them to develop a migration path to SaaS that is much more affordable and realistic than in the past.  The days of building out your own data center, or even your own cage in someone else’s data center, are coming to an end.

Face it, even the Obama administration is rolling out their own Cloud based initiative - Apps.gov.  It is still quite early but Private Clouds will really speed the adoption of Cloud Computing by the majority of SaaS companies over the next five years.

After working at Oracle for almost five years in the early 90’s, I can tell you that when Larry sets his mind to something he usually gets it.

Let’s take a trip down memory lane…

It started by just plain beating your competition at sales and marketing.  Remember, crush Ingres, destroy Informix, smash Sybase … they were close to dead and Larry let them slip away.  He would have obliterated DB2 and SQLServer but IBM and Microsoft were too big.  Still he ended up owning the database market.

With the database market securely in his grasp, he started looking to other places where data resided… Ah, applications.   Larry had always said that Oracle didn’t care about applications and that they were focused only on the database market.  Then starting in 2005, he started his assault on the applications market first with Retek, then PeopleSoft, J.D. Edwards, Portal, Siebel and then Hyperion.  SAP is too big to take out and you still need an aspirational competitor anyway.

Humm… if you combine middleware into databases, you probably would sell more databases… then he acquired BEA and Agile.

In September 2008, Larry ranted about “What the Hell is Cloud Computing?”  Then just a few months ago Oracle buys Sun Microsystems and is arguably now one of the leading Cloud Computing providers.  I guess the ‘Network really is the Computer‘.  Now with his new toy Exadata, he is going after Teradata but when he gets his new toys from Sun - Java, MySQL, storage, grid computing, virtualization - he will have a lot of Cloud Computing fun.   It will be interesting to see if Oracle keeps the hardware part of Sun or spins it out to his friends at HP.

So now we come to SaaS.

The battle between mentor and protege.  Marc Benioff, with the help of Larry Ellison, has done a phenomenal job launching the leading Software-as-a-Service firm, Salesforce.com and creating the entire SaaS industry.  At Oracle’s earnings call last week Larry claimed that although Salesforce.com is the largest SaaS firm at $1 billion annual run rate, and Oracle is now the second largest SaaS provider at an $750 million annual run rate.  This included some high profile wins for their CRM on-demand offering last quarter including NetApps, McAfee, Land O’Lakes and Conoco.   But I can imagine that Salesforce.com won their unfair share of the on-demand CRM deals last quarter.

Oracle Fusion finally arrives.

What I found interesting is that the new Oracle Fusion suite of applications is now code complete and in beta.  This means it will be available from an Oracle sales rep near you in the fall. Oracle Fusion is on-demand ready and will offer three delivery models; traditional On-Premise, SaaS and then there is On-Premise SaaS.   On-premise SaaS, is that like military intelligence? This is usually and incredibly bad idea unless you are a $23 billion dollar company that generates more than $5 billion in profits.  The new Oracle SaaS suite will all ERP modules including CRM and HCM applications focused mainly on F1000 sized organizations.

Even though Fusion might be a positive development for the Oracle On-Demand sales team, it is doubtful this will be enough to enable Oracle to control the SaaS market organically.   So look for Oracle do what they have always done when they want to control a market, buy their way to the top.  That would mean that some Oracle alumni’s like Marc Benioff or NetSuite’s (Larry and his family own a majority of Netsuite) Zack Nelson will probably be on Uncle Larry’s radar screen.  This is just like other Oracle alumni’s Craig Conway from Peoplesoft - who is also on the board of directors of Salesforce.com and Tom Siebel were pursued.

I guess in the end if you can’t beat’em, join’em.

Looks like someone is assuming an attack formation … the end of 2009 should be very interesting for the ever-evolving SaaS market landscape.