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With Dreamforce ‘11 coming up later this month, I thought it might be interesting to do a quick review of what I am seeing in the market around the Force.com initiative. Salesforce has been one of the early proponents of using a Platform-as-a-Service or PaaS solution in building out your SaaS business. I believe that the Force.com platform offers new and existing ISV’s several real value propositions:
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Pay-as-you-go pricing model. This is really helpful to small companies just getting started and Salesforce will allow the customers to tie their their revenues to the royalty fees for the platform.
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Packaged platform. The platform contains everything from a development kit, database, configurable UI, reporting and the hosting infrastructure, all for one price. In addition to the price advantages it is just the streamlining of vendor relationships by getting all of your technology from a single supplier.
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Elastic scalability. Because Force.com is built on the Salesforce infrastructure, it can scale up and down to meet the needs of high transaction or even periodic type applications. This is a very nice feature that makes true multi-tenant Cloud Computing infrastructures so cost efficient to operate.
For a company that is new to the Cloud and looking to launch a SaaS business quickly, Force is a great way to start. Based on some of my discussions with clients and other ISVs, here are some of the real and perceived challenges associated with Force.com and other PaaS solutions.
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Lock-in. Most companies tell me that having a PaaS package is attractive but they don’t like putting all of their technology needs in the hands of a single provider.
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Development environment. For many companies who are used to coding in Java or other languages, the Apex 4GL language is not very appealing to hard core developers. It also doesn’t offer enough flexibility for certain types of applications.
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Complexity. Companies who offer complex enterprise applications that require robust rules and calculation engines, workflow, integration or are offering other types of deep infrastructure solutions, find that Force is not a good match for their requirements.
Even with these potential drawbacks, there are many companies who are building their SaaS businesses on top of the Force platform. Here is my short list of some of the more well know firms:
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FinancialForce. The company is a joint venture between Salesforce.com and Unit4, a Dutch ERP firm. FinancialForce offers both financial and professional services applications.
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RemedyForce. Developed by BMC Software and Salesforce.com, it is based on the popular Remedy ITIL and help desk product.
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AgileVision. This is CA Technologies Agile development tool based on Force.com.
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ServiceMax. Independent company that is offering a Cloud-based Field Service Management solution. The company just landed a Series B round of funding for $14M.
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JobScience. Offers a talent relationship management suite on top of Force.com.
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Veeva Systems. Offers CRM and regulated content management solutions.
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BasicGov. Delivers a suite of applications designed for the needs of state and local governments.
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CyberU. Cloud-based learning management system.
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Less Software. Provides a light-weight supply chain management software product.
Other traditional software firms, or Hybrids, and even some SaaS firms are using the Force.com platform to extend their existing products and solutions. Some of these companies include:
- Axway. Axway Community Management (ACM) is a new offering that extends the company’s existing on-premise B2B and EDI products.
- Callidus Software. This hybrid company built a new set of Cloud-based SMB sales performance management solutions, Plan Communicator and Commission Manager.
- Convio. Their Common Ground product extends their constituent engagement solution for non-profit organizations.
- Xactly. A leading SaaS firm that offers incentive compensation and sales performance management solutions. Built a very lightweight solution on Force.com for very small companies called Xactly Express.
- Zuora. Offers their Z-Force 4.0 subscription management platform for Salesforce.com customers who want a tightly integrated solution.
There are many more applications being developed and I am sure more will be announced at Dreamforce at the end of August. What is clear is that there are many different use cases and the PaaS market is evolving very quickly, it is just important for companies to carefully evaluate their needs before committing to any platform.
I would also recommend to connect to other firms that are doing similar types of products or services and ask them about what has worked and what to watch out for. When used in the proper situation Salesforce can really offer a nice Force multiplier for your SaaS business.
By Kevin Dobbs
Montclair Advisors, LLC
The best-in-class SaaS companies are obsessed with operational efficiency, and they are constantly testing and monitoring all different types of business processes to improve speed and reduce costs.
A good example of this focus on efficiency is the use of the Customer Acquisition Cost (CAC) metric to measure the overall effectiveness of marketing and sales efforts. Since it is not possible for a SaaS firm to spend as much to sell new customers like a traditional software company, this becomes a very important efficiency metric to track because it has a direct impact on both the top and bottom line of the company.
SaaS Metrics
Just like CAC, there are a number of other process-specific SaaS business metrics that are commonplace for firms to use to monitor all areas of their company. Leading firms will usually track some subset of these types of these SaaS metrics on a quarterly, monthly or even in some cases daily basis. Here is a list of sample SaaS metrics that I have shared with my clients that can be used to kick start the discussion with operational groups inside of a firm that is considering a move to SaaS:
The most obvious areas to track are revenues, COGS, cash flows, bookings, CAC, profits, customer satisfaction, customer lifetime value, revenue per unit, customer satisfaction and churn. Beyond that there are a myriad of process specific metrics and dashboards that can be tracked and monitored, but start with the most important ones first.
Other Resources
Here are some great sources of information on SaaS metrics including:
David Skok of Matrix Partners, forEntrepreneurs blog and his SaaS Metrics post, which is really comprehensive and easy to read.
ReadWrite Cloud’s, 6 SaaS Metrics You Should Track
Michael Dunham of Scio Consulting, Haut SaaS Blog did a great post on SaaS Metrics – SaaSoNomics 101
Joel York’s Chaotic Flow Blog is always really useful and he did a fantastic post on SaaS Metrics and Economics. Joel provides a very scientific approach and a lot of details for those who are really interested in getting into what comprises SaaS metrics theory.
Some firms like j2Communications tracks hundreds of metrics related to their subscription software services but it took them ten years to get to that point. My advice to clients is always, start with something simple, make sure that works and then you can always add complexity as you go along.
Last week’s Oracle OpenWorld show was quite an event with many different story lines including the tie-in to the Iron Man 2 movie. In fact, in the main area outside the keynote hall there were three Iron Man suites along side their Exadata and Exalogic cousins. So here is what we learned:
Cloud in a Box according to Marc Benioff and Larry Ellison. There was quite a number of heated, yet humorous references to Marc Benioff’s (CEO at Salesforce) comments related to Oracle’s view of Cloud Computing that it has to reside in an Exadata box. In fact in one session I attended, he even said that the Internet was not made of Cloud boxes that were even taller than Marc, and he is tall. In the Sunday afternoon session, Larry was very dismissive of both Marc’s vision of the Internet and his book Behind the Cloud. If you have some time check out Marc Benioff’s OpenWorld keynote, very funny.
| Different Viewpoints about Cloud Computing | |||
| Larry Ellison - Oracle | Marc Benioff - Salesforce.com | ||
| Big Picture View | Cloud in a Box | Cloud on a Box | |
| Centralization | Centralized Computing | De-Centralized Computing | |
| Scaleability | Scale up | Scale out | |
| Target Buyer | CIO | Business executive | |
| Pricing | Mostly license | Subscription | |
| Control | Compliance | Experimentation | |
| Cost | $$$ | $ | |
| Big Trend | Vertical Integration | Consumerization of Software | |
What is really interesting is that in many ways they are both right. Larry is very famous about a his rant on Cloud Computing and that it is nothing more than a network, servers and software. This is true, even the most Cloudy providers in the market like Amazon and Salesforce.com are dependent on a real infrastructure that can scale and is reliable and many of these firms are Oracle customers.
On the other hand, Marc is right that the Cloud is less about buying, building and maintaining this scalable architecture and more about leveraging a firm that provides their Infrastructure-as-a-Service. This has been one of the main catalysts for the software industry’s move to a subscription business model or SaaS, just like Salesforce.com.
In some ways both companies are right, it just depends on your viewpoint. I think that Oracle is thinking more like IBM and HP and Salesforce is more aligned to Facebook and Zynga. Even though Larry and Marc were both exchanging jabs last week, they are both customers of each other, and in the end that is good for all of their customers.
Mark Hurd looks like he fits in well with Oracle. The keynote sessions where Mark presented, he was relaxed and really knew the material. Given Oracle’s absorption of Sun, it is really helpful to have someone with Mark Hurd’s background helping Larry run the company. The hardware business is quite different than running a software firm and Oracle was able to secure one of the best hardware executives in the industry from HP.
Oracle is really embracing the hardware world. It was interesting to see the focus on the new Exadata and Exalogic products. The company’s messaging revolved around performance, availability, security and management and not very much around applications or Cloud Computing. A lot of discussion around hardware and software being engineered together to create these incredibly powerful database and middleware server platforms. But does this approach raise concerns around ‘vendor lock-in‘? This hardware-centric strategy makes sense because Oracle really views IBM as their biggest competitor and they need to monetize the Sun acquisition as well.
Fusion applications are coming at the end of the year, but not sure if anyone at Oracle cares. Larry told the crowd that the writing of the new Oracle Fusion applications for Financial Management, Procurement and Sourcing, Project and Portfolio Management, Human Capital Management, Customer Relationship Management, Supply Chain Management, and Governance Risk and Compliance. These are the products that were promised last year at OpenWorld but they appear to be real at this point. Although I didn’t attend the deep dive sessions for Fusion, others who did told me that they have done a good job. At the Wednesday afternoon keynote, the demos of the products looked good and the user interface looks quite modern.
According to Larry the writing of the new Fusion applications was the biggest development project in Oracle’s history, it was interesting to see that there was little for no fanfare surrounding this major milestone. As long as the Fusion applications sell more database and infrastructure software and more Exadata servers, I guess that’s what is important. The successful roll out of the Fusion applications later in the year is going to be important for the overall software market but I doubt it will really impact the leading SaaS providers like Salesforce.com, Taleo, SuccessFactors or Workday. It will be interesting to see how Oracle evolves its thinking about the applications market and it’s approach to the Cloud, because that is where all the growth will come over the next 5 years.
On a recent client engagement I was asked to provide a simple set of definitions for basic terms and concepts around Software-as-a-Service and Cloud Computing (which I often use inter-changeably). What was interesting is that there is a lot of buzz out there but I can see why people get confused because there isn’t a standard set of definitions.
So my Friday contribution to the SaaS industry I am publishing the Montclair Advisors’ SaaS Glossary of Terms. I would be interested in your feedback on the definitions and if I miss any key ones.
| Term | Definition |
| ACV | Annual Contract Value of a subscription software agreement. |
| API | Application Programming Interface. |
| ARR | Annual Recurring Revenue. |
| ASP | Application Service Provider. Typically associated with a hosted single tenant software solution. |
| CAC | Customer Acquisition Costs. A key -SaaS metric that measures sales effectiveness based on how long it takes to pay back Sales and Marketing investments. |
| Churn | A SaaS measure of customers who do not renew their annual or monthly subscription agreement. |
| Cloud Computing | A utility computing method that shares many types of computer resources through virtualization and delivers an elastic computing environment over the Internet. |
| CLTV | Customer Lifetime Value. A key SaaS metric that is used to measure customer value, usually over 3 to 5 years. |
| CMRR | Contracted Monthly Recurring Revenue. A key SaaS metric that is calculated for new customers, up-sells, cross-sells and removing churning customers. |
| CoLo | Co-Location facility. A term for leasing a third party’s physical data center infrastructure, which usually includes the building, power, Internet connectivity and security. |
| Cross-Sell | A key SaaS metric measuring new software functionality or modules added to an existing software subscription agreement. |
| Down-Sell | A key SaaS metric that measures when customers remove of functionality, users or capability that lowers the CMRR. |
| Freemium | A business model in which the SaaS or Cloud Computing provider offers basic features to users at no cost and charges a premium for supplemental or advanced features. |
| Hosted Software | Single tenant software that is delivered over the Internet from either the Software vendors own data center or through a third party hosting company. |
| IaaS | Infrastructure-as-a-Service refers to a combination of hosting, hardware, provisioning and basic services needed to run a SaaS or Cloud application that is delivered on a pay-as-you-go basis. |
| Mashup | It is a web application that combines data or functionality from two or more external sources to create a new service. The term implies easy, fast integration, frequently using open APIs and data sources to produce results that were not the original reason for producing the raw source data. |
| MRE | Monthly Recurring Expenses. |
| MRR | Monthly Recurring Revenues. |
| MSP | Managed Services Provider. Usually a hosting or CoLo provider who provides a higher level of application management services (App management, monitoring, reporting, billing and call center support). |
| Multi-tenancy | Refers to a software architecture where a single instance of the software runs on a server, serving multiple client organizations (tenants). Multi-tenancy is contrasted with a multi-instance architecture where separate software instances (or hardware systems) are set up for different client organizations. |
| On-Demand | Is often used as an interchangeable term along with SaaS. |
| On-Premise | Traditional method of installing and customizing software on the customer’s own computers that reside inside of their own data center. |
| Platform-as-a-Service (PaaS) | Platform-as-a-Service solutions are development platforms for which the development tool itself is hosted in the Cloud and accessed through a browser. With PaaS, developers can build web applications without installing any tools and then they can deploy their applications and services (reporting, integration, security) without any specialized systems administration skills. |
| Private Cloud | Employs Cloud Computing principles within a customer’s own internal networks. The term implies that the same virtualization and highly flexible and scalable methods used in huge Internet-based enterprise datacenters. |
| Public Cloud | Cloud Computing conducted using the public Internet outside of any enterprise firewall. |
| Renewal | Agreeing to extend an existing software subscription agreement beyond the initial term. |
| SLA | Service Level Agreement. The contractual terms of service associated with SaaS provider’s offerings. |
| SOA | Service Oriented Architecture. |
| SaaS | Software-as-a-Service refers to multi-tenant software delivered over the Internet and customers consume the product as a subscription service that is delivered on a pay-as-you-go basis. |
| Subscription | SaaS licensing method where customers rent their software from the provider usually over a 1-3 year period. |
| TCV | Total Contract Value. Total value of a transaction as measured over the term of the agreement. |
| Up-Sell | A key SaaS metric measuring additional software functionality, users, or capacity that is sold onto an existing software subscription agreement. |
| Virtualization | The creation of a virtual (rather than actual) version of an operating system, a server, a storage device or other network resources. |
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