by Kevin Dobbs

Montclair Advisors, LLC

When advising software clients who are interested in moving to a SaaS business model, one of the areas I really dig into is how are they selling to new customers. Most of us in the SaaS community realize that carefully tracking your Customer Acquisition Costs or CAC, is a critical component in building a successful and profitable company, but I think it is equally important to understand how traditional software sales  and marketing models and SaaS models differ.

Traditional Software Sales & Marketing Model

Over the past 25 years there has been a traditional way to market and sell enterprise software which has been based on key principles such as:

• You need a Large direct sales force including a large support team, or as I used to call them, ‘The Cast of Thousands‘
• Front loaded compensation plans that pay out when deals are sold
  
• High average sales prices, including services, that would almost always be over $500,000
• Long sales cycles, usually 6-12 months, with pursuit costs averaging around $70,000 for every deal the company played in
• Win rates are in the 30-50% range
• Average face-to-face selling time that is around 15%
• Pipeline building using a combination of in-person events (seminars, tradeshows, user group meetings), telemarketing teams (inbound and cold calling) pounding the phones and a lot of paid marketing campaigns
• Lead pipelines that appeared full but always seemed to lack the appropriate level of qualified opportunities
• First generation CRM systems and reports that were produced periodically using Excel

Brings back the good ol’ days doesn’t it.  Many software firms are still using this model and they are finding out that it doesn’t work very well in the new world of Software-as-a-Service sales.  Some of the reasons it doesn’t work is that software buyer preferences are definitely changing, but one big issue is it is very expensive to operate this type of model, especially when you get your revenues paid out over time.

SaaS Sales & Marketing Model

There are several important differences in the SaaS model that make the traditional software sales and marketing model less than effective;

• SaaS customers pay a subscription based on users or usage of the software service over time, usually over three years.  After the recession, this has become the new normal for software sales
• More focused solutions that usually have Average Sales Prices that are typically lower, so reps need to sell more deals to hit the same quota targets
• Key metrics like customer satisfaction, renewals, up-selling and cross selling are even more important for SaaS than they were in the past
• Sales method is more of a “penetrate and radiate” approach
• It takes a long time to build up a recurring revenue stream

Given these differences, then what should your SaaS Sales & Marketing model look like?  Here are some ideas to consider when building out your SaaS sales and marketing plans for 2011 that can help you to build out a low-cost but high-efficiency sales and marketing machine;

Marketing

• Hire experienced marketing leadership and professional
• Evolve a good list of key influencers and industry contact and communicate with them frequently
• Develop a clean prospect database
• Mix paid and free social networking programs
• Build a vibrant customer community and market to them with products like Lithium
• Leverage social media like LinkedIn, Facebook and Twitter to generate interest and leads
• Use Web 2.0 marketing tools like Marketo, Eloqua, Pardot and try drip marketing
• Track everything (see the last Smart SaaS post)

Sales

• Hire experienced SaaS sales leadership and reps
• Your SaaS sales team should be more low touch than your traditional sales team
• Experiment with telesales even with high end enterprise products
• See is using an indirect channel makes sense for your business, if managed correctly these distribution partnerships can dramatically lower your sales costs
• Carefully track your lead hand off between marketing and sales, make sure leads are not falling through the cracks
• Track everything

Metrics like Customer Acquisition Costs and the Magic Number can help your sales and marketing teams see how effective their programs are and can provide insight when to invest and when to continue developing your repeatable sales model.  I would also encourage you to learn more about Mark Leslie’s Sales Learning Curve, because it offers a more scientific approach to cost-effectively building out your SaaS sales team.   Best-in-class firms that have profiled in this blog have adopted many of these techniques to build a scalable but cost-careful sales and marketing organizations.

Stay tuned for Tip #6 Package for Viral Adoption

Continue reading…

By Kevin Dobbs

Montclair Advisors, LLC

When thinking about your transition to SaaS, there are many questions to consider including target customers, value propositions, packaging, pricing and how best to build customer relationships.

After conducting more than 50 Smart SaaS business profiles of all different types including pure SaaS, Hybrids and Cross-Overs, all of these companies would probably answer many of these types of questions differently depending on their type of customer, functionality, geography, vertical markets and the only way they can get useful answers is to continually test everything.   Best in class SaaS firms are always trying different pricing, packages, messages in order to optimize their businesses, like a recent firm we profiled - Clarizen.

Some resources when thinking about these types of considerations include:

Software Pricing Partners - Jim Geisman

Chaotic Flow - Joel York

SaaS Blogs

Sixteen Ventures - Lincoln Murphy

4 Pillars of SaaS - Phil Wainewright, ZDNet

In addition to testing, it is a good idea to measure everything including website traffic, marketing campaigns, product usage, customer satisfaction and a myriad of other SaaS and business metrics.  Again, the best firms track and monitor all the key business metrics in order to improve their ability to generate revenues, build market share and reduce unnecessary customer churn.  SaaS requires a very tight operational model and has moved business an art to a science and now there are an entire new class to tools to improve revenue performance and reduce costs.  Some of these next generation of tools include:

Sales Automation

EchoSign - Provides electronic signature and contract management.

InsideView - Sales business intelligence and social media platform.

JigSaw - Business information and data services.

NetSuite - CRM and ERP suite.

RightNow - CRM, call center and social platform.

Salesforce.com - Salesforce is not only a solid Customer Relationship Management system but also a great system of record for all types of sales, marketing and service information and applications. Also offers a application marketplace that provides value added extensions.  Salesforce also offers Chatter a collaboration platform to improve internal communications.

SugarCRM - Open source based CRM that provides a robust no cost solution.

Marketing Automation

Eloqua - Marketing automation platform.

Genius.com - Sales and lead automation.

MarketBright - Marketing and lead generation management.

Marketo - Marketing and revenue management.

Pardot - Business to Business lead automation.

SaaS Analytics

Birst - On demand business intelligence product.

Cloud9 Analytics - SaaS performance management.

GoodData - SaaS business intelligence product.

PivotLink - On demand business intelligence product.

Using many of these tools companies can help a SaaS firm track their business, sales and marketing performance.  The question that I often get is ‘what should I be tracking?’  There are an emerging set of SaaS-based business metrics that include Monthly Recurring Revenues (MRR), Churn, Customer Acquisition Costs (CAC), The Magic Number (MN) and others that provide very precise views into how a SaaS business is performing.  Here is a chart that details some of the more common SaaS business metrics by functional area:

Other resources to learn about SaaS metrics;

5 C’s of SaaS Finance - Bessemer Ventures

Chaotic Flow - Joel York

For Entrepreneaurs - David Skok, Matrix Partners

Haut Tech - Michael Dunham at Scio Development

My opinion about the SaaS business model is that there are a lot of new considerations about building a profitable subscription business today.  The buyers are different, there are many robust low-cost tools available, Cloud technology that can radically change your cost model and time to market as well as many other business factors, so the only real way to really tune your business for SaaS is to continually test everything!

I would be interested in your comments and hearing about what you are testing.

Stay tuned for Tip #4 Sales & Marketing on a Budget

By Kevin Dobbs

Montclair Advisors, LLC

Let’s face it, Hunters and Farmers are very different types of sales people.  One is into the thrill of the chase and the high anxiety of selling the next big deal.  The other is into cultivating relationships, building communities and patience.

When it comes to sales people inside of a SaaS company, these same attributes apply to this team as well.   Trying to get your major account or direct sales reps to effectively manage your existing accounts and still hit an aggressive quota, that usually doesn’t work that well.  The same holds true if you are trying to get your account managers to push their customers to close a big deal, and they just don’t want to push too hard because they might ruin their relationship.  Then why are you trying to get them to do the same job?

The other big difference is usually how these sales professionals get compensated.  A typical software sales rep will have a $1.5-$3M annual quota and want to make at least $200K, where as an account manager might have a much smaller quota, $300-$750K and be making $110-150K.  That’s because they have different skill sets but both types of sales are critically important when building your SaaS sales team. Philippe Botteri from BVP discusses what Gary Messiana an EIR told him about how he compensated his reps for delivering MRR:

• • For 0-25% of the quota, $0.25 commision per $1 of MRR
  • For 25%-50% of the quota, $0.5 per $1 of MRR
  • For 50%-75% of the quota, $1.0 per $1 of MRR
  • For 75%+ of the quota, $1.5 per $1 of MRR

I like the simplicity of the concept and it can be applied to all types of sales roles.

Depending on the type of products/services you are selling, you may actually not have high priced outside sales reps and actually focus more on building out a low cost tele-sales capability.  Even if you do this, you should still separate out your new sales team from your account management teams.  Because SaaS is perfect for the ‘penetrate and radiate‘ sales model, you need teams that can sell that first product and then another team that keeps the customer happy and renewing as well as buying more products and services.

Bessemer Venture’s  10 Laws for being SaaSy also recommends separating your hunters from your farmers.  It is important to be able to find new customers but it is also important to be able to renew, upsell and cross-sell customers additional products, which will increase your company’s Monthly Recurring Revenues.  This well defined sales structure works well with many of the leading SaaS firms including RightNow and Salesforce.com.

One of the big objections about this type of approach is that if forces the customer to deal with two different sales teams.  Although this can be a problem, I have found that these types of channel conflicts can be remedied by using team based compensation plans that have everyone getting paid based on shared goals related to existing customers.  This type of approach also encourages development of up-sells/cross-sell opportunities by the account management team, since they often require the new sales team to engage in these deals and close them.  The team compensation approach means everyone wins, including the customer.

I keep coming back to skills and personalities when structuring your SaaS organization.  Keep your teams small and focused.  Make sure you have ways for those promising team members, who might start out in tele-marketing or account management, to have a path to progress up the sales food chain.  Just make sure that your organization structure is well defined, there are clear rules of engagement and that that compensation plans encourage your sales teams to work together and keep your customers satisfied.

Stay tuned for Tip #3 Test Everything

Company:             EchoSign

Started:                 2003

Located:                Palo Alto, California

Geography:            Global

Market:                  Electronic Signature and Contract Management

Products:              EchoSign Web, EchoSign Salesforce, EchoSign for Google Apps, EchoSign for Netsuite, and EchoSign for Oracle CRM OnDemand

Key Customers: British Telecom, Comcast, Delta Airlines, GE Capital, Qualcomm, and Time Warner Cable

Website:                EchoSign

Blog:                     EchoBlog

Twitter:                 @fromechosign

Recent News:

EchoSign Electronic Signature Reaches 1,000 Customers on Salesforce.com’s AppExchange 2

EchoSign Launches its New App on Salesforce.com’s ChatterExchange, Accelerating the Market Shift to Cloud 2, the Next Cloud Computing Paradigm

EchoSign Integrates Its Electronic Signature Software with NetSuite’s Cloud Computing Platform

EchoSign Now Available Through the Google Apps Marketplace

I asked Jason Lemkin, EchoSign’s CEO and co-founder a few questions about his business and his view of the SaaS market in 2010.

Did you start out as a Software-as-a-Service company?

When we started our company in 2006 the market wasn’t that clear on what SaaS really meant. Our vision has always been clear to build a web or Cloud service where companies could execute a contract electronically on the Web.

This is my 4^th start-up and the second company that I have co-founded. I was a lawyer at the Venture Law Group here in the Bay Area and it was really obvious to me that this was the right way to get contracts done but lawyers tend to be slow to adopt new technologies.

It always seemed logical to be able to execute contracts electronically, because it saves time and headaches but our vision might have been a bit early. Our early customers were an odd mix of web-centric folks who read TechCrunch, use BaseCamp project management products, and other companies that wanted to automate their business contracting processes. Now we are seeing regular businesses are catching up to our early adopters by leveraging the Web for their contracting processes. We believe this might be one of the last open areas for the automating of business processes using the Internet. Like a lot of other paradigm changes contracts will be going from the analog world to digital, and most contracts in the next 5 years will all be executed electronically.

Why do your customers buy from EchoSign?

We have sold to nearly 20,000 customers of all sizes including Proctor & Gamble to Real Hip Hop Records to Dell and more than 80% of our customers use our products for sales oriented tasks. The real advantage for our customers is going from an older fax-based contract process to EchoSign. We can take a process that currently takes days and compress it down to just a few minutes; in fact we have found that the average time to execute a contract with EchoSign is less than 45 minutes.

Aetna likes EchoSign because healthcare professionals can complete contracts faster and more reliably and can reduce the expenses associated with faxing or mailing these agreements. The company has found that by using EchoSign, they can reduce contract-processing time from three weeks to one day on average. Currently about 70% of all of Aetna’s transactions with healthcare providers are electronic and EchoSign helps with these processes and provides visibility throughout the contract lifecycle.

We built EchoSign to be a very easy to use sales tool, not just a product for lawyers. All types of business people are executing contracts today. Business professionals and sales reps just don’t have time to learn how to use new tools; they just want to focus on closing contracts and getting back to their business.

Like Aetna, many of our larger customers also see the benefits of EchoSign for their legal organizations because we provide visibility into their overall contracting process, which helps with compliance by creating electronic audit trails, delivering a secure signing process, which can also help to avoid fraud.

What do you see as the key trend emerging in the SaaS industry?

When we started the company three years ago, customers were just buying SaaS point solutions like Salesforce.com and WebEx. Today companies are running their entire business using Cloud-based software. So the concept of signing and closing contracts can no longer be viewed as just a point solution, but a component of a larger, integrated business process.

For example, a typical integrated sales process for one of our customers might be capturing a new lead from Google Adwords, then demonstrating their product over the Web using WebEx and managing the sales process using Salesforce.com and then executing the new customer contract using EchoSign. Our customers would ideally like all of their SaaS tools and processes to be integrated because it saves them time and money. Applications should just be loosely connected together using API’s, they want these products to work together in a more integrated way.

Another trend we see is the rise of many different partner ecosystems that companies like ours will need to work with over time. EchoSign is a Salesforce AppExchange partner; in fact in 2009 we were the signal highest rated application on the AppExchange. We also work with Google Apps, Oracle, Salesforce, Box.net and others. We have these partnerships because our customers are looking to integrate all of these web products together to run their businesses and we want EchoSign to be a part of these expanding set of business processes.

Even though Salesforce has over 70,000 customers, the Laws of Attach Rates would tell us that we can only assume that 1-2% of their customers will consume our service. We just announced we have signed our 1,000^th Salesforce customer, so we are doing well but we need to work with many of these partners who support large eco-systems of customers. Because we are relatively easy to integrate into, we should have a higher attach rate to these solutions and this partner leverage will enable us to grow our business quickly.

What is your outlook for 2010?

Last year, during the recession, we saw elevated churn rates but now our business is back to pre-recession levels. The churn was related to bankruptcies and other similar types of recession fallout.

Our customer’s buying patterns are pretty consistent. Prior to the recession, we had many lower quality customers, but now we are seeing more stable, higher quality customers who are less likely to churn in the future.

These stronger companies are buying our solutions now, which is fueling the growth of our business and we are not seeing those lower quality customers out in the market. I guess it was easier to build a company when equity and debt were available to start a business. Today, strong companies are succeeding and accelerating out of the recession and EchoSign can help these companies optimize their sales processes.

A good sign for our business is that we are starting to see our customers asking to pre-pay for multi-year deals as a way to lock in future pricing.

Company:             Wolf Frameworks

Started:                2006

Located:               Bangalore, India  and Herndon, Virginia

Geography:          Global

Market:                Cloud and Platform-as-a-Service

Products:            Wolf Frameworks PaaS

Key Customers: TRA, GMR, Wipro, Delhi Frieght Carriers, HLB Mann, eCounting, Head Start, Juice Junction, SEDS and eDok

Website:             Wolf Frameworks

Blog:                   Wolf PaaS Blog

Twitter:                @WolfPaaS

Recent News:

ARTIST - Learn2turn builds E-DoK on WOLF PaaS

I asked Sunny Ghosh, WOLF Frameworks, Director and CEO a few questions about his business and his view of the SaaS and PaaS market in 2010.

How did you get started?

We started WOLF in 2006 as a pure play Cloud Computing company about 4 years ago. My partner Ralph Vaz started the company and we have both been in the technology industry for more than 30 years collectively.

We have worked on building many exciting products such as Invensys Skelta, Ebbon-Dacs, DB Query, Digimaker CMS that are widely used in the United States, Europe and Scandinavia.

We have seen technology as a growing burden to a customer’s business. When the technology changes like when COBOL transitions to Pascal, then to .Net, then to the next big technology. But why couldn’t technology be separated from the business because it doesn’t make much sense to tightly render a technology specific assembly for customers, which cannot be changed without technical programming? If you could just keep technology complexity and business requirements separate, then technology could be democratized and be made available to all sizes of companies.

Since the Browser is now the focal point of all modern computing, this means this is the end of the operating system and PC-centric approach to applications. By simplifying technology and making easier to access and less expensive, there is a much larger customer base to build our new business on.

Why do customers buy from WOLF Frameworks?

We have three different types of customers that we sell through our partners:

• SaaS Startup’s who have a great idea and want to build a prototype. This type of customer will be a single user and spend a month to build out their concept.
• Professional Services companies that offers business of services and wants to develop a tool that eliminates services time and to create a new recurring revenue stream.
• Enterprises and ISV’s that are looking to create line-of-business applications, and mashups like GoToMeeting integration with their CRM system or corporate dashboard solutions.

At WOLF we offer a zero code Platform-as-a-Service offering. Since most of our customers and users are business analysts, we needed to make a product that was easy to use. WOLF Frameworks consists of a five layer of architecture including XML integration, billing, presentation, application development and database layers.

WOLF Frameworks offers a variety of capabilities that make it a rapid development environment like the following:

• Templates
• Reports
• API’s
• Multiple devices
• Built in storage
• Business rules and workflow engine
• Access rights
• Support for multiple databases

All of these capabilities allow customers to develop applications 70% faster than traditional approaches at half the cost. Customers have used different types of applications including accounting systems and also electronic patient record system.

We also use open standards like XML, AJAX for inter-operability and portability. WOLF also is based on leading technologies like .Net, MySQL, and SQLServer. Our platform also works with leading Infrastructure-as-a-Service providers like Amazon Web Services, Rackspace and a Canadian provider iWeb.

The WOLF platform can also operate in a hybrid environment that supports both Cloud and on-premise applications. In fact we can take a license of your OnDemand Cloud application into your Private Cloud whenever and since we use a single code base it is possible to sync-up hybrid environments.

One of the major reasons customers like to use our platform is because WOLF Frameworks offers minimal vendor lock-in. Applications developed with WOLF are portable since they built with XML. The data, application design and the hosting providers can be moved, with minimal effort.

What broad trends are you seeing in the SaaS/Cloud markets?

Obviously one major trend is the emergence of the Platform-as-a-Service solutions like WOLF. Our customers are looking for fast, cost-effective ways to develop new Cloud-based solutions to either replace older products or to build out totally new ideas.

There are many different PaaS solutions emerging;

• Application-led solutions from Netsuite and Salesforce;
• Application development-centric solutions like WOLF, Force.com or Intuit’s Quickbase
• Development-centric solutions built on LAMP, Ruby on Rails or Microsoft’s Azure and
• Community-centric platforms like Linkedin and Facebook.

The other trend Private Clouds. Our same customers are looking for ways to extend their existing solutions out to the Cloud but are concerned about security and Private Clouds offer a great alternative to on-premise software. WOLF also offers the ability to develop applications that can run in a hybrid mode, both on-premise or in a Private Cloud as well as out in the Public Cloud. You can also migrate existing web applications into WOLF’s multi-tenant platform rapidly.

What’s your outlook for the balance of 2010?

We are feeling good about our growth and have 10,000 users today and look forward to continuing a solid 2010.

Since everyone is interested in SaaS funding and valuations I thought it would be helpful to tell you about an interesting Cloud Computing investor panel I attended at the recent All About the Cloud conference in SF. The session was moderated by Jason Green from Emergence Capital Partners and was joined by Gary Hromadko from Crosslink Capital, Mark McNay from William Blair and Evangelos Simoudis from Trident Capital.

So what did they have to say?

The market has finally changed for the better

2009 was all about survival and the venture community did less than half the investments than in a typical year.

This year is now about growing again and current investments are more focused on companies that have weathered the economic downturn. Their investments are focused on changing the slope of these types of company’s growth curves, by concentrating more on sales and marketing.

SaaS and Cloud companies are leading the way

Consumers have been driving the adoption of easier to use Cloud-based solutions like eBay, iTunes, Facebook, Twitter and LinkedIn. They are viral and can reach critical mass very quickly because there are low barriers to adoption.

With SaaS, the recession has really pushed the advantages of a subscription business model and moving from CapEx to OpEx software investments. It’s like leasing your car rather than buying it.

Lean start-ups are definitely in. Almost all early stage software investments in 2009-10 are Cloud-based because it takes a fair amount of capital to fund SaaS firms and it takes a long time for them to reach profitability. One interesting comment was that later stage on-premise companies are now being asked about what their SaaS/Cloud strategy is for the future, because without it, they may find funding might be difficult.

What the VC’s are looking for

SaaS 1.0 focused on a company’s income statement, expenses and cash flows than GAAP reported financials. One important measurement is a company’s incremental contribution margins (gross margins), which is critical for SaaS. Companies needed to balance capital efficiency with building a business that can scale.

Investors are looking for unique business processes that can only be built or automated through SaaS or the Cloud. Emergence latest investments are pure Cloud-based companies that have viral qualities like YouSendit, the files sharing company and Yammer and the enterprise micro-blogging firm, both of these companies are viral enterprise solutions. Yammer has more than 70,000 customers with at least 1 user and is signing up between 7-10,000 users a month and 10% are turning into paying customers. Crosslink invested in Carbonite, a backup and recovery company, has high margins and is the only other independent player in the category with Mozy, who is owned by EMC. They felt that scarcity of competitors and their ability to manage Customer Acquisition Costs were important in establishing the company’s value.

The panelists also said they are looking for companies that have a rigorous focus on metrics like Customer Lifetime Value and Customer Acquisition Costs. In fact CAC appears to drive business value because it has a lot to do with capital efficiency and the company’s ability to grow their business.

Exits, IPO’s and Valuations

Economy has recovered and CEO’s are ready to start taking on more risk, and it’s a real change in psychology because we are at the beginning of a macro trend that will last more than 10 years.

This is evident by more than 100 M&A transactions last quarter including high profile deals like IBM buying CastIron, Salesforce buying Jigsaw for $142M, Successfactors buying CubeTree for $50M. The current environment is right for deals, especially as SaaS is gaining enterprise momentum with recent deals like SuccessFactors’ mega deal with Walmart for 1.6M users. Transactions like Jigsaw, CubeTree, and CA’s purchase of 3Tera and Nimsoft for $350M all indicate a return to a healthy M&A atmosphere, that will probably last for the next 12-18 months.

Oracle and SAP won’t be aggressive on the M&A front until they come to the realization that they can’t build Cloud solutions internally. Because many SaaS companies have now crossed the $25-30M in recurring revenues threshold, these firms may become quite attractive to these larger ISV’s looking to make the move to the SaaS business model.

But these acquirers don’t want to take on the burn associated with many start-ups so it will be important to stay close to breakeven and you may have to sacrifice growth for profitability. Since the access to capital is still tight, start-ups will have to try and collect cash upfront and continue to tune their business models to improve cash flows.

Companies that seem to own a category have perceived scarcity value which will result in a premium on any transaction, especially if they are perceived to own a segment franchise. VC’s and acquirers are looking for a minimum of 40% CAGR to get a premium valuation.

On the other side of the liquidity front, the IPO window for SaaS companies is beginning to open up and firms like SolarWinds and LogMeIn have now been joined by SPS Commerce and Convio. At least before the recent stock market downturn, these companies had traded up by 15% since their IPOs.

The panel seemed to believe that the market is definitely getting better and that is good news for SaaS and Cloud Computing companies looking for funding or an exit!

There were a number of keynotes at last week’s All About the Cloud conference that focused on Public and Private Clouds and the market. What was interesting is that the typical hype associated with Cloud Computing appears to be calming down. It seems like it is no longer necessary to justify or explain the Cloud, or at least for the audience at that conference. According to Gartner the Cloud Computing market will be $150B in IT spend by 2013 as compared to $56B in 2009 and is the #1 Strategic Technology for CIO’s in 2010

The new Cloud attitude appears to be more about ‘when’ and ‘how’ enterprises will be utilizing Cloud solutions rather than ‘if’.

Coexistence is ‘In’

The other interesting change, which I first noticed at the end of last year at both OracleWorld and Dreamforce, was that everyone seemed to be talking about co-existence or hybrid uses of the Cloud with on-premise assets. This more reasoned approach is going to make more sense to CIO’s and business executives to who have spend millions building out their infrastructure over the past 10 years. Cloud can be complimentary. Starting with fringe or edge applications and then over time becoming more useful for mission critical functions.

The Consumer Cloud

Tuesday’s press panel with [insert names] focused mostly on the use of the Cloud for consumer applications like Facebook, Google, Amazon, eBay and future offerings like iTunes LIVE and Microsoft Office 2010 (launched on May 12^th). Cloud is everywhere but the average consumer doesn’t even know they are in the Cloud. With the advent of ubiquitous broadband access, smart devices and massive data centers, there are all sorts of Cloud based consumer services emerging. But the market is still evolving because the Generation X’ers are plugged into the Cloud but as Kevin O’Brien from Oracle said in his session, ‘My mom still doesn’t know what the Cloud is’, and she is probably isn’t alone.

Private Clouds

There were many sessions that discussed how there is money to be made in the Private Cloud market. You can have many of the advantages of the Public Cloud without the security and control issues. IDC projects that by 2014, $11.8B will be spend on servers to create Private Clouds, considering overall IT spend in the US is approximately $1T, that’s not big percentage today, but it will be in the future.

Scared of the Cloud

Are CIO’s scared of the Cloud because of their potential for loss of control, security issues and resource impacts? Several sessions touched on this aspect of the Cloud Computing market including CIO’s creating hurdles to adoption.

Given the cost and scalability advantages why wouldn’t organizations like the State of California quickly adopt Cloud based solutions? What about the switching costs like decommissioning your own data centers, software and restructuring personnel. If you already own PeopleSoft and it is working, will you really be open to a Workday ‘rip and replace’ scenario? Enterprise organizations are warming up to the idea, just ask Flextronics.

One panelist cited a recent Google Docs deal that went sideways at UC Davis where they scrapped their trial for several thousand users. Maybe there were other considerations than the Cloud but most of the sessions agreed that the benefits of the Cloud outweigh the risks and CIO’s are starting to think in terms of intelligent trade-offs instead of just being against the Cloud. This is probably smart, given the recent economic conditions and every CEO is looking to optimize their IT spend.

Cloud 2010 and Beyond

Cloud is just the new thing. According to Bill McNee at Saugatuck Technologies, their most recent Cloud Computing survey indicated that 86% of the respondents thought that the Cloud would be part of mainstream IT by 2014.

There appears to be reasonable optimism that Cloud Computing is not a fad and its going to happen, it’s just going to be the way people are operating today in the future. The Google Docs business is adding 3,000 new companies a day, that doesn’t seem like a fad. According to Gartner, their Hype Curve for Cloud Computing showed that July 2009 was the peak and it really appears that the market is maturing about the Cloud.

Venture Capital firms are only funding Cloud-based start-ups and large technology companies like Cisco, CA and IBM are buying SaaS and Cloud based companies (like CastIron Systems) because they realize they need to overcome the ‘Innovators Dilemma’ around the Cloud. There will be an increase in successful SaaS and Cloud companies as the market continues to mature, as well as a lot more M&A activity.

As one speaker so aptly described the current market situation for many companies when evaluating Cloud Computing, ‘When a piano falling from the sky, you should be worried more about will it hit you not where it is while it is falling.’

Company:              GoodData

Started:                  2000

Located:                 San Francisco, California

Geography:             Global

Market:                   Cloud Business Intelligence

Products:                GoodData On-Demand Analytics

Key Customers:      MarketMetrix, TriNet, Enterasys, Black Duck, and Gazelle

Website:                  GoodData

Blog:                       GoodData Blog

Twitter:                   @gooddata

Recent News:

GoodData Powers Reporting and Customer Analytics at Sinu

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I asked Roman Stanek, GoodData’s President, CEO and Chairman a few questions about his business and his view of the SaaS market in 2010.

Did you start out as a Software-as-a-Service company?

We restarted the company in 2007 focusing exclusively on Cloud Business Intelligence. Based on my experience, until recently most SaaS BI was based on an older ASP rather than a true multi-tenant model. By 2007, there was a real opportunity to build elastic BI solutions on top of the Cloud especially with the emergence of companies like Amazon who launched EC2. The traditional way of delivering business intelligence was too expensive and not available to everyone who wanted access important business data. Often times a company’s BI solution was slow and expensive because of inconsistent data demands which are common, that creates spikes in usage.

GoodData spent two years thinking through this problem and building out our platform, which is built on top of Amazon’s Web Services infrastructure that provides a scalable way to build our business. Our team beta tested our solution and by late in 2009 we started selling our new products and re-launched our company.

Our collective experience over past last ten years has been in and around the SOA space, which is very closely aligned to the new Cloud Computing world. For me the inspiration for GoodData was when I really began to realize the possibilities and the disruptive properties of the Cloud. We just needed to find a big business problem, which led us to the world of BI.

It was clear that customers who have bought traditional Business Intelligence solutions from IBM/Cognos, SAP/BusinessObjects, SAS and others, faced the classic innovators dilemma when expecting these providers to deliver new, easy-to-use solutions. Then Salesforce.com came along and said you no longer had to buy software, you could rent it, and by having your software in the Cloud it would always be fresh. They really helped to validate our use of the SaaS business model.

Why do your customers buy from GoodData?

With our approach GoodData can now deliver Business Intelligence for the masses through our use of SaaS and the Cloud. Our customers buy from us because we are focused on creating a really positive product experience, which means that our customers can control and personalize their own user interface, dashboards, metrics, and reports.

Our solution was designed to be really easy-to-use because our customers would rather just turn it on and start using it, which makes their ‘out of the box’ adoption very rapid. We provide a nice set of business-oriented BI templates including pipeline management, marketing, customer services and customer lifecycle analytics all at a reasonable price.

GoodData’s focus is to have our customers up and running quickly. Today we concentrating on “Success in a Month” but over time we want to be continually improving so in the future we will be able to say to our customers GoodData will provide “Success in a Week”.

The most difficult part of building a fully functional BI solution is the intelligence part. GoodData understands that any BI deployment requires creating the model, loading data, integration, then producing metrics, reports and dashboards, we just want to make it really fast and easy.

For Trinet, one of our early customers, our solution is so easy they were able to get started with only one hour of training and most users actually have had no training at all. User adoption at TriNet has been fast because our solution is intuitive. GoodData believes that the analyst in the cube type of BI solution is a broken model because they rely on IT to get their SQL queries and it takes a lot of expertise to use that type of product. We believe that IT should be out of the report writing business and more focused on getting data into systems.

The use of marketing metrics typically get heard but not seen but with collaboration this type of campaign information can be shared in reports, dashboards and KPI’s. When you visit call centers, for example, they have all their metrics on the wall about sales regions, agents and then make decisions about this static information. With our model, we want employees to register and use our solution and we don’t charge for extra users. This model encourages adoption. We charge by the project and use a ‘land and expand’ sales approach. We evaluate our business not on the number of users we are charging for but more on the ‘data under management’ approach, which we think is a better way to approach BI.

With our target market, firms with over $100M in revenues, it’s not about the software or tools, it is about getting the information to front office workers quickly, so they can make better decisions.

What do you see as the key trend emerging in the SaaS industry?

Over the past two years we have been very vocal about Cloud Computing and how it is becoming a credible infrastructure. We hope that there will be less focus on the differences between Public and Private Clouds because this is not really relevant to GoodData. We think the discussion in the future will be mostly focused on costs and pricing of the Cloud.

We have a partnership with Amazon AWS, which delivers a complex, sophisticated Cloud platform. What is great about working with them is that they introduce new services every month that we can leverage without additional investments in R&D. The industry is going to be a lot more price competitive going forward, just like Moore’s Law was for microprocessors, innovation in the Cloud continue to drive down costs. This Cloud innovation cycle will be a key factor in our ability to lowering our prices while improving our BI services.

Another trend is metrics- driven businesses. This has been driven by the web, which produces much more data and business are now beginning to rely more on data than instincts. With the emergence of great web-based tools, metrics are now more accessible and usable for business management.

Collaboration is one step away from metrics. The recent announcement of Salesforce Chatter is a great way for organizations to distribute metrics/dashboards and better understand what is going on in their business. Internal tools like Chatter will help deliver and notify line-employees and managers how to better run their businesses.

What is your outlook for 2010?

Since this is our first year of being a commercial company, as the founder and CEO I am keeping the company very focused on Delivering Success in a Month in a repeatable fashion. Because at this stage in our evolution it is all about execution and focus.

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Company:            Cloud9 Analytics

Started:                2007

Located:               Redwood City, California

Geography:          Global

Market:                 On-Demand Performance Management Solutions for Sales

Products:              Cloud9 Pipeline Accelerator Suite and Cloud9 Analyst Suite.

Key Customers: Aspect, Avaya, Beckman Coulter, Inc., Carestream Health, Inc., D&B, Jigsaw, MySpace, Rolls-Royce, Schneider Electric, Siemens Enterprise Communications, Splunk, Thermo Fisher Scientific, Thomson Reuters Healthcare

Website:               Cloud9 Analytics

Community:         Cloud9 User Community

Twitter:                @Cloud9Analytics

Recent News:

Cloud9 Achieves Breakout Performance in 2009

Karen M. Steele Joins Cloud9 Analytics as Vice President, Marketing

Cloud9 Analytics Integrates Goals, Bookings and Sales Data For salesforce.com Customers

Cloud9 Announces Major Business Expansion - Large organizations accelerating adoption of Cloud9 solutions

I asked Swayne Hill, Cloud9 Analytics CEO a few questions about his business and his view of the SaaS market in 2010.

Did you start out as a Software-as-a-Service company?

Yes, from its inception, Cloud9 has been a 100% multi-tenant platform for performance management applications like sales pipeline management and forecasting. The company is also SAS-70 certified.

Why do your customers buy from Cloud9?

Cloud9 Analytics provides SaaS performance management applications designed for customer-facing front office functions including sales, operations, marketing, services and support. Cloud9 solutions help companies optimize revenue by providing real-time visibility into what’s changed in key management processes such as managing the sales pipeline or managing the forecast.  Cloud9 solutions deliver sales leaders and executives with actionable insight into the state of their business with a single, consistent and flexible view.  Unlike other business intelligence tools designed for the IT department to build Ad Hoc reports, Cloud9 provides domain-specific analytic applications delivered through a software subscription, that are immediately relevant and consumable for line-of-business users. Using Cloud9 solutions, customers report increased win rates and forecast accuracy leading directly to increased revenue.

What do you see as the key trend emerging in the SaaS industry?

As Cloud Computing platforms such as Salesforce’s Force.com, Amazon AWS, Google’s App Engine, Intuit’s IPP and others emerge for Cloud Computing development, there will be greater opportunity for ISVs to provide solutions and broaden their reach.

What is your outlook for 2010?

Cloud9 sees continued rapid expansion of SaaS business analytics, driven by trends like:

Technology: Smarter automation support for key management processes that are currently bogged down by today’s disconnected manual approaches.

Data Transparency: Businesses need to stem the flow of disappearing data from transactional systems like CRM and put that data to work on the front lines.

Economic Turnaround: The economy will expand again and business will invest in technology that creates competitive advantage - SaaS will become the model of choice with minimal upfront costs and quick time-to-value.