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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. |
Company: Enwisen
Started: 1999
Located: Novato, California
Geography: Global
Market: On-demand Workforce Communications
Products: AnswerSource
Key Customers: Fox Entertainment, Nissan, Hershey, State of Montana, Yahoo!
Website: Enwisen
Recent News:
I asked Walter Smith, Enwisen’s Chief Executive Officer a few questions about his business and his view of the SaaS market in 2009.
Did you start out as a Software-as-a-Service company?
Yes, when we started Enwisen in 1999 our vision was to leverage the power of the Internet to deploy robust, highly configured technology for HR using a Software-as-a-Service business model. At the time the term “SaaS” wasn’t commonly used to describe our model… ASP or Application Service Provider… was the more commonly used term for a hosted application. But truly our model from the beginning was to combine software and services in a multi-tenant environment. A key advantage we have had in the marketplace is delivering a suite of products that have all been built internally as a SaaS solution without the challenge of converting from an enterprise foundation or integrating acquired solutions.
Why do your customers buy from Enwisen?
Fundamentally it boils down to compelling economic value and great service. Our technology solves a critical issue for HR – how to deliver quality service to their internal customer (employees) at a lower cost per employee. In today’s economy HR is being challenged to be far more efficient, but without compromising quality. It’s a real conundrum – high touch HR delivery and internal systems are just too expensive and ineffective. Not only do we streamline HR operations, but we improve the service experience for employees. Our solutions are very reasonably priced for the robust capabilities and bottom-line impact we deliver. Customers have to provide services to employees, it’s mission critical, we just give them a better and more cost effective way to do it. Combine that with great, highly attentive service and that’s why customers buy from Enwisen. The validation is there… despite the down economy we grew profitably at 62% during our last quarter and over the last 10 years our retention rate has exceeded 98%.
What do you see as the key trend emerging in the SaaS industry?
Collaboration and integration of various enterprise applications through the “Cloud.” Almost every company today has multiple systems and multiple service providers. Here’s an example – one system for the Intranet, one for HR, outsourced payroll, outsourced benefits, performance and succession planning, learning (LMS), and dozens of benefits providers for health and retirement. Users are simply overwhelmed by the complexity of getting to all of these different sites – how many user IDs and passwords can you remember? If a system cannot be easily accessed, it won’t be used. Companies spend millions of dollars on systems, yet most acknowledge they are underutilized. Also, many companies lock their applications behind the firewall, making it harder if not impossible for many employees to use. One of the biggest trends is to leverage the “Cloud” in a way to seamlessly integrate data and applications to make it easier for user to access everything through a single location.
What is your outlook for 2009?
Now that the fear of financial Armageddon has subsided we see companies getting back to Business 101 as usual. Companies have to continue to innovate, deliver service, retain talent, and drive greater efficiencies to the bottom line. Budgets will remain tight, but companies will continue to invest in ways that make them more efficient in the near term but also prepare them to grow and be more competitive in the long term. We anticipate our current growth rate to continue since part of our success is because of, versus in spite of, the down economy. Companies no longer will buy status quo products due to brand. They will continue to seek best of breed solutions that will give superior performance at a much lower cost even if they are a new vendor to them.
Thank you to Walter Smith for contributing to this profile.
Company: Marketbright
Started: March 2005
Located: San Bruno, California
Geography: Global
Market: On-Demand Marketing Automation Solution
Products:
Marketing Automation
B2B Sales Portal using Social Networking
Key Customers: Varonis, Serena Software, SAP Business Objects and Genesys
Website: Marketbright
Recent News:
Marketbright Grows Customer Base by 43% in Q1 2009
Marketbright Expands Capabilities for Salesforce CRM Customers
Raab Guide Ranks Marketbright Among Top Demand Generation Systems
Marketbright and Rackspace Hosting Announce Solution Partnership
I asked Dom Lindars, Marketbright Chief Executive Officer a few questions about his business and his view of the SaaS market in 2009.
Did you start out as a Software-as-a-Service company?
When we started out in 2005 our vision was to create a better way to automate and integrate SaaS functionality using tools and systems to streamline large scale marketing efforts, and improve marketing ROI. I have more than 18 years experience as a veteran of online marketing and website management and Marketbright’s senior team has its roots in large enterprise marketing operations, web content management, business and enterprise software sales.
Why do your customers buy from Marketbright?
Our customers turn to us for sophisticated lead nurturing and management programs, which emphasize listening closely to customer feedback, communicating proactively and building relationships. Lead nurturing is a new business practice for many companies, where the typical mode of operation usually has marketing throwing all leads over the wall to pre-sales or sales –who often cherry-pick leads and leave the others to grow cold. Nurture marketing involves building multistage campaigns that interact with customers across multiple touch points. These nurture programs can create complex customer interactions that are difficult to manage and run the risk of causing customer fatigue if not handled properly or efficiently. Our customers choose the Marketbright approach because it automates the difficult task of managing multi-touch campaigns and the resulting, often complex flows. The platform provides an easy way to deploy and manage multi-touch campaigns across all marketing channels:
Our customers rely on us to deliver marketing automation solutions that check all the boxes, are easy to use for all team members, make complex tasks simple, and are integrated, secure, scalable and reliable.
What do you see as the key trend emerging in the SaaS industry?
The advent of social media has had an enormous impact across industry. In light of the economic instability (and at the risk of discussing the economy ad nauseam), most organizations are making efforts to save money and tighten their belts. Often the first way to do this is to cut spending on marketing for one, but the problem is, this is the time when money spent on marketing is probably more critical than ever. Companies just have to spend their money in the right place, and social media is emerging as a pretty safe bet. Even better, a SaaS solution combined with social media efforts will give you more bang for your buck. SaaS does well in a downturn economy, especially when big organizations are looking to cut back and outsource. It’s also a good alternative when organizations have no or small IT groups, or their IT teams simply don’t have the bandwidth to contribute to social media efforts.
Over the next few years we’ll see social media as a baked-in element of all multi-channel marketing solutions. At Marketbright, we’re already bringing in 17% of our leads through social media, such as LinkedIn, Twitter, Facebook, and staff blogs. Most importantly, no one objects to spending on marketing when it directly results in delivering qualified leads to sales.
What is your outlook for 2009?
In this year of pocket change, trying to find a way to sell more with less, stretching less of last year’s marketing dollars to meet more of this year’s is a top priority. The challenge for many businesses today is they seek a silver bullet, one solution that will solve everything, which of course is non-existent.
For the remainder of 2009, B2B companies should focus on the lead generation activity delivered in the past that directly produced the greatest return. Spend on those programs that generated the majority of business last year. (Seems obvious? Do any of your budgets show trimming of activities you should really be stopped altogether?) Work with sales to identify those accounts that have the greatest propensity to move through the pipeline. Get proactive. Find out what is the minimum amount of information you need to give to a prospect to make them a customer and give it to them proactively.
There is no point in pretending 2009 hasn’t been a challenging year for business thus far, but we may as well make the best of it. Apply your best judgment in becoming more agile, more creative, and above all pay attention to the data that is sitting in your businesses. Find out what worked, do more of it. Accept what didn’t. Don’t do so much of that.
Thank you to Dom Lindars, Erik Bower and Lilly Hanscom for contributing to this profile.
I was listening to an interesting panel discussion at a recent SIIA show in San Francisco that a very good panel:
Joe Talley, Partner at Deloitte who was the moderator; Ken Goldman CFO at Fortinet a large privately held firm and former CFO at Siebel; Sandip Gupta, President, NetMagic a profitable private company; Jeffery Kuhn, Managing Partner FLG Partners, a CFO advisory firm; and Bill Soward, CEO at Adaptive Planning.
Here were some of the interesting tidbits I picked up.
General perceptions on the panel of the economic outlook were cautiously optimistic for the SaaS market. Adaptive Planning just conducted a survey of financial executives in the last 60 days that stated that these buyers are more pessimistic about the future than they were at the end of December. A lot of that pessimism was due to the lack of marketplace visibility, challenges in hitting quarterly sales targets and future cost reductions.
Important Business Metrics
Others felt that SaaS companies are faring better during this recession because of the importance of taking a metrics-based approach to running their businesses. Key business indicators that need to be carefully monitored include:
MRR - Monthly Recurring Revenues. Are they predictable? Have they been consistent? Are they shrinking or growing? These are all important MRR trends to monitor on a monthly basis.
Churn - The percentage of customers who don’t renew your software service. This is a critical metric because no matter how effectively you sell, if you are losing more than you are selling it can be impossible to reach profitability. Another Churn component to keep an eye on are if your Churn or Renewals percentage is consistent but your overall number of seats or dollar amounts shrink.
Renewals - Percentage of customers who renew your service. See above. Another important indicator is if customers are renewing for multiple year terms, this can save your firm precious resources annually to renew your customers.
Cashflow - How much cash are you generating on a monthly/quarterly basis. This is vital in modeling a future path to profitability as well as effective expense control. Cash management is really important in this environment especially for smaller firms because VC funding is very difficult.
Another good point that was made, is that when times are tough, many smaller firms will take on debt when cash is tight. The panelists felt this was a very bad idea and that pursuing debt makes it harder to run a business in a downturn. It is a better idea to think about ways of selling more services, software or content to your existing customers
Communications
I agree with several of the panelists that one good way to improve renewals and reduce churn is to over-communicate with your customers. During the last recession, many software companies went out of business and your customers are nervous unless you are a large publicly traded firm. This type of communications strategy is especially important with large customers who might provide most of the MRR for your company.
In addition, this approach is also applicable for your employees and investors as well. Opening the lines of communication, good and bad, will calm everyone down and make it somewhat easier to manage these key relationships. Talk about corporate goals, KPI’s and several panelists said it is important to practice empathy.
Changing Sales Environment
The recession is definitely changing software buying habits. Customers are now more attuned to buying a subscription rather than an upfront software license. Part of the reason for this is that capital is really tight, and your customers are trying to manage their cash carefully. Some firms, like Adaptive Planning, claim to be able to collect up to 12 months of cash upfront at the time of their deals being signed. This is a good best practice because it provides much needed operating capital for the SaaS firm and it also can be a way for customers to get up to an additional 5% discount on their deal for a 1 year upfront payment.
The panel agreed that customers were buying fewer seats, training less people and looking at longer roll outs. The deals tend to be a little smaller but deals are still getting done. Because SaaS deals are usually handled as an operating expense, it may be possible to get deals done without the intervention of the CFO. But there are still many deals that require not only the CFO to sign-off but also require the CEO and even sometimes the Board to approve the deal.
Customer Acquisition Costs
CAC or Customer Acquisition Costs, is another metric that is important for SaaS companies to monitor. These costs during the recession have also risen. Even though growth is not viewed as important during the recession as cash conservation, it is an ideal time to take share from competitors. This is why many firms are looking at extended trials and even giving their software away to seed their pipeline with future deals that can be harvested as the recession ends and companies start buying again.
Other Marketing and Sales Ideas
Think seriously about shifting your model from an enterprise, field sales orientation to more of a tele-sales approach. Continue to do lead generation and automate your processes, because your sales teams still need leads. Cutting out your lead generation activities to save some near term money can cripple your company later on.
Know who your real sales performers are and upgrade those who are not performing. There are a lot of talented people available in the market, now is the time to improve your team. Re-organize your sales team to be leaner, more focused and effective.
Regional seminars can be very effective. Partially because there are too many webinars but also because people can travel anymore but might want to get out the office to see you in person. It is also a way for the potential customer to see if you and your company are for real.
What I took away from the panel is that if you manage your SaaS firm by monitoring these important Key Performance Indicators and are decisive about making decisions, today’s SaaS firms will emerge from this recession as not only survivors but winners.
Company: M-Factor
Started: 2004
Located: San Mateo, California
Geography: Global
Market: Predictive analytics for marketing and trade investment management
Products: M4 – Marketing Investment Management
T4 – Trade Spending Effectiveness
P4 – Portfolio Pricing Optimization
Key Customers: Coca-Cola, Kellogg’s, Alberto Culver, Ocean Spray, White Wave Foods, Wendy’s
Website: M-Factor
Recent News:
M-Factor Named “Cool Vendor” by Leading Analyst Firm
M-Factor Announces Global Partner Program called “M-power”
M-Factor Appoints Dirk Beyer as Chief Scientific Officer
M-Factor Announces Record Performance & Additional Funding
I asked Lawrence Whittle, M-Factor’s Chief Executive Officer a few questions about his business and his view of the SaaS market in 2009.
Did you start out as a Software-as-a-Service company?
Yes, the background to most of our early team is heavily influenced by On Demand / SaaS delivery. From the beginning it was clear that our target customers were looking for solutions that could offer advanced functionality, but with a lower risk, lower total cost and faster time to value than on-premise solutions would allow and importantly without any significant dependency on IT organizations. Customers want the continuous innovation that is typically only possible with a SaaS delivery model that allows ongoing seamless enhancements — an unthinkable proposition with traditional licensed software.
Why do your customers buy from M-Factor?
Our clients and prospects (primarily Consumer Product and Quick Serve Restaurant companies), have never faced a greater need for forward-looking, predictive solutions so they can optimize where and how to spend their marketing and trade dollars. Simple point in time analysis and backward-looking assessments are of limited value unless you can harness this insight to be forward-looking and enable you to positively change the future outcome of your business.
M-Factor’s solutions provide companies the ability to fully understand what happened in the past by breaking down sales to see the impact of various trade and marketing strategies this is then coupled with an even more important ability to look at constraint-based simulations to accurately predict what will happen in the future. Examples include what will happen if a company shifts advertising support from a brand or product or moves trade funds from one brand to another across channels and time.
M-Factor’s solutions can optimize marketing and trade spend up and down a product/market hierarchy so that aggregate views (such as at a national or regional level) are clear and companies can ultimately construct the best overall plan to meet corporate objectives.
The solutions being delivered as SaaS provides companies with the lower cost and faster time-to-value that they desire in today’s fast moving and highly competitive business environment
What do you see as the key trend emerging in the SaaS industry?
We are seeing interest in SaaS solutions growing significantly as companies want to take advantage of the comparatively low total cost of ownership and quicker returns of implementing SaaS technologies. This trend was already underway but the economic downturn seems to be driving more companies to evaluate SaaS solutions over the traditional on-premise applications. We expect this trend to continue for the foreseeable future. Any operational or security risks around SaaS have been eliminated, in fact the performance, scalability and uptime demands of SaaS have led to a superior level of customer service, way ahead of traditional software applications.
There also needs to be a continued focus on customer satisfaction and innovation from SaaS providers. Since companies more or less rent the software, SaaS providers must provide unparalleled customer support and product functionality to ensure that customers renew. We take great pride in how we address both with our customers and believe that both are required for SaaS companies to be successful.
What is your outlook for 2009?
In this down economy it may be a bit crass to say, but our 2009 outlook is quite positive. We offer a unique and compelling value proposition that is in high demand right now since our solutions can provide companies a holistic view of their marketing and trade spend. Our solutions provide the ability to dynamically plan across accounts, channels, and various time frames and can predict what will happen in the future through constraint-based models. In a downturn year for almost every company, across every sector, we have advanced our customer count, our revenues and our headcount
The proven referenceability of our customers has significantly fueled the overall market interest in our solutions. The lower cost of ownership, faster time to value and ongoing innovation that the SaaS model allows along with advanced functionally of M-Factor’s solutions are also key drivers behind our positive outlook.
Thank you to Lawrence Whittle and Jason Gatoff for contributing to this profile.
I had an interesting briefing with Bill Soward, CEO and Greg Schneider VP of Marketing at Adaptive Planning the other day, which I wanted to share. In the spirit of full disclosure, I will let you know that I worked with Bill years ago at Edify but I have been very impressed with what he has done at Adaptive Planning.
The original purpose of the meeting was to finalize a SaaS business profile but what I thought was even more interesting was their company’s approach to building a SaaS sales pipeline, especially in these tough economic times. I have heard many executives talk about reducing the barriers to sales but Adaptive Planning is really going to the extreme in terms of test drives and transparency for their prospects.
Having run sales, I can tell you that sales reps always have a lot of excuses why prospects aren’t buying and I know there are plenty of excuses to be had these days. What I think we can all learn from Adaptive Planning is that by addressing these potential sales objectives earlier in the sales process, you can build in more predictability and ultimately more sales into your SaaS sales process. Here’s what they have done…
The New Improved Test Drive
30 day trials are no longer new and innovative, they are table stakes for SaaS firms trying to sell their software. Adaptive Planning is no different. They offer a 30 day trial but they also offer…
- A Hosted Express version, which is easy to set up and start to use. This is managed and maintained by Adaptive Planning and is free to use. Most of their prospects have opted for this approach to their trial.
OR
- Download the software for FREE, forever. You can go to SourceForge and download the source code and the Adaptive Planning Express product. To date they have had more than 79,000 downloads. Many of whom will become future paying customers. So if someone says I am not sure that your software will do what the marketing literature claims, just tell them to download it and use it.
Over-Educating Their Prospects
Bill and Greg agree that it is important to provide their prospects with as much information as possible and allow them to select what they need as part of their sales education process. This is also part of the company’s approach to relationship transparency, more about this in a minute. So part education building blocks consist of;
- A Resource center which is a collection of information like collateral, white papers, archived webinars and case studies. Most companies provide this type of information library.
- Pre-recorded video demo where the prospect can get a guided tour of the software, which isn’t really breaking in new ground but can be helpful for busy executives.
- Live Webinar demo, where prospects can interact with Adaptive Planningt team, again this is nothing new.
- On-line Training, which allows you to go into more depth around the product, which I think is a great idea. Because you always have the deeply technical buyers who need deep domain information.
- On-line Price List, this isn’t new for some of the newer SMB SaaS applications like 37Signals or FreshBooks but I think for this type of application this is quite a different approach.
- Online Community is another great idea. Using social networking to build a strong community around not only your products but also your company. Adaptive is using the Jive Software platform to provide chat threads, videos, blogs, polls and best practice advice. They even offer private collaboration spaces where customers can share best practice ideas privately.
By combining all of these building blocks, it gives the prospective buyer almost every way to learn about and evaluate Adaptive Planning’s software.
WYSIWYG Transparency
Bill spoke about having a transparent relationship with their prospect and ultimately their customer. They feel that their open information approach provides a prospect with virutally every way to experience and learn about their products, support, pricing and company. This is a powerful differentator when buying software but more importantly when a prospect is shopping for a vendor relationship. The reality is that today’s software buyer is more sophisticated but also realizes that their relationship with a software firm is typically lasts between 5-7 years and that they really do want to ‘try before they buy’. For Adaptive Planning their transparent approach is paying off.
Lowering Customer Acquisition Costs and Building a SaaS Pipeline
A term you hear a lot about in the SaaS world is CAC or Customer Acquisition Costs. This is basically the cost of finding, qualifying and signing up new customers. In the enterprise software world, where you were getting large up-front payments, you could sell with a team of sales professionals. In the SaaS world, where you are getting paid over time, it is imperative to sell using as close to a self-service sales model as possible and I believe this is what Adaptive Planning is doing. What I like is that they are not just cutting costs, they are putting everything out there in a transparent, logical way for their prospects to make their own decisions and self-qualify. There are still people at Adaptive Planning who will sell you software but only when you are ready to buy, which saves everyone time and money.
So far their approach appears to be working because they have more than 400 customers and continue to do well even in this recessionary environment.
In Charles Darwin’s landmark work on the Theory of Evolution, he stated that “…Natural selection acts only by taking advantage of slight successive variations; it can never take a great and sudden leap, but must advance by short and sure, though slow steps.” Based on what has been happening with our economy over the past six months, the Human Capital Management software world is going to be forced to do a quick evolution.
Times are tough; just consider the global economic slowdown over the past three years. In 2007 it was the sub-prime mortgage crisis, in 2008 it was the Banking crisis and in 2009 we are beginning to see the Human Resources crisis.
This is very different environment for HR professionals than the old War for Talent era that was discussed by industry experts over the past five years; this current crisis is more related to a dramatic reduction in jobs in the economy and unemployment approaching 10%. Human Resources related budgets and headcount have been cut way back in an effort to stem the financial tide. Unfortunately most companies were not ready to eliminate anywhere from 5-30% of their workforces overnight. Not only were they not prepared for this change but they probably don’t completely understand what the future impact of their actions will be for their workforces. These dramatic changes have left HR in a precarious position looking forward because they have little in the way of staff or resources but their charter remains the same.
HR’s Rapid Evolution
As someone who sold HCM software for the last 12 years, it was always part of the sales pitch that the HR organization is always expected to do more with less. Now that the environment has really changed, when senior executives now say to HR, ‘do more with less,’ they really mean it.
Just like in natural selection, the HR survivors need to evolve. So in this brave new world, you no longer have the level of resources that that you have taken for granted for years. Resources like IT support, capital dollars in your annual budget, a team of people to work on projects and time. You may ask, how do I evolve? With dramatically less people, budget and basically the same responsibilities, you need to automate as much of your workload as well as your personal interactions. In this new world, the human touch is going to be at a real premium when it comes to HR.
Well - now that you are completely depressed, let’s review some ideas on how you can be an HR survivor. Did you know that most companies have up to 200 different HR suppliers, depending on the size of your company? Do you really need all of them? Since you are now in a zero sum budget exercise, start looking at your operating expenses as one big pot of money and start determining what is essential and what is optional. As you start your process, you need to free up budget to fund critical automation projects that can enable HR to continue to push along its strategic objectives. This may actually be a process that your IT business partners might actually be willing to help you with, since they are feeling HR’s pain like never before.
Natural Selection
So as you start thinking about your natural selection budget project, you should start to build out your game plan by trading out your old software for new software. My general conclusion about software is simple, old software is bad and new software is good.
Let me explain…
Many of the current Human Capital Management software providers evolved from PeopleSoft. PeopleSoft was the leading HR software provider in the market for nearly twenty years and spawned a complete suite of Enterprise Resource Planning applications including benefits administration, payroll and other HR applications. When PeopleSoft was purchased by Oracle in 2005, Oracle became the dominant provider but they appear to have no clear future plans for their HR software. So you need to continue to pay maintenance for old software, which keeps getting older.
When thinking about natural selection for HR software, think about the clear disadvantages in the current environment for your old school software provider:
- Software requires a large capital investment. This might be really difficult to get funded in our current environment, no matter how critical the software is to your company’s objectives.
- Implementation projects are both long and complex. Lots of investment to support customization and an expensive team of consultants who will live on-site for months or years. The consultants have to install your software in your data center, which will require a significant investment in hardware and infrastructure.
- Massive software upgrades. Whether it is moving from PeopleSoft 8 to PeopleSoft ? or to the latest version of SAP, these upgrades are expensive and require a lot of internal support resources and a big hardware investment.
- Lack of flexibility. The older software providers typically have rigid products, which make it tough to make even basic changes to features, reports or anything else. This is also a big disadvantage of buying all your HR software from a single vendor, like Oracle or SAP.
- Don’t play well with others. Ideally all of the software works together to make it easier to configure workflows, data elements, reports, and analytics because your data is sitting in a lot of different systems. If your software isn’t open to working with other systems, it can get really expensive, and you don’t have any budget to glue everything together.
Now you can see why old software is bad… and why they may be going the way of the dinosaur in the next 5-10 years. That’s right, even Oracle and SAP. Remember MSA and McCormick & Dodge!
What attributes should you be looking for in your future surviving HCM software suppliers?
These survivors have these clear market advantages:
- Software-as-a-Service. You have probably heard this term but it is simply when the software company rents you the software and you subscribe to their service the next 3-5 years. Because of this approach to delivering software as a service, SaaS firms are forced to be more cost-efficient because they get paid over time. SaaS software is delivered to your users through the Internet, which means your IT department doesn’t have to have to buy or support any software or hardware – this can save your company a lot of money.
- Long-term relationships. Because you rent the software, your SaaS provider has a vested interest in keeping you happy because you will want to continue to renew your subscription to the their software. Unlike old software firms who would sell you their software and disappear, SaaS firms are encouraged to stay close their clients and listen to your input.
- Incremental changes. It was not only the expense but also the tremendous organizational disruption associated with large software upgrades that customers really dislike about the old software model. SaaS clients enjoy a ongoing stream of transparent upgrades, that fix bugs, add features and their software literally evolves over time.
- Less extra costs. Since SaaS providers host their software in their own data centers, your company doesn’t need any IT staff to support their software or infrastructure (servers, firewalls and security) typically required to run HR applications.
- Configuration. SaaS firms offer more flexibility in the way they set up your software. Unlike the older software firms that bring a cast of thousands to customize and install your software, SaaS companies can set up an initial version of your software in minutes or hours rather than in months. Then once they understand your business needs, the software can be configured without custom programming. This approach saves you both time and money.
- Open for business. In this new world it will be difficult for any company to purchase every type of HR software from a single provider, so it is important for software to communicate and share information with many different software packages. This sharing will enable you to automate as many HR tasks as possible, allowing you to do more with fewer resources over time.
Slow Evolution of HCM Software
A little known fact is that the original Software-as-a-Service provider is Automatic Data Processing. They have been delivering payroll and HR services as a service, for nearly fifty years. Their offerings started out as a basic payroll service and their internal software just helped them to deliver their service more efficiently to their clients.
In the 1990’s, the next generation of on-line solutions appeared - where on-premise software was transitioned to being hosted in providers’ data centers (commonly referred to as Application Service Providers). A number of HR ASP software providers emerged including: Employease, PeopleSoft eCenter, and Workscape.
Then about ten years later, the conversation evolved from just hosting traditional software and a new model emerged - on-demand software, that provided a pay-as-you-go pricing model along with streamlined upgrades and new support processes. Some of these on-demand providers included: Authoria, Kenexa, SumTotal, Stepstone and Ultimate Software.
Then just a few years ago SaaS providers started to gain momentum. These firms really looked at delivering their software truly as a service and never delivered it on premise, sold in the traditional way. The HR SaaS providers always delivered their software over the Internet, with a modest amount of services, no upgrades, per-employee-month pricing and self-service support. Many better known HR SaaS providers include SuccessFactors, Taleo and Workday.
The next generation of HCM software might be based on Cloud Computing, where the SaaS providers no longer own their data centers and use providers like Google or Amazon.com to deliver world-class infrastructure support at on a pay-per-transaction fee. This approach could drive down costs, complexity and make a wide range of traditionally expensive HCM software much more affordable for small and medium-sized businesses.
Darwin Speaks
The HCM software market has undergone a number of wide ranging transformations over the last thirty years. We come back to the premise of old software is bad and new software is good. Old software is bad because it is expensive to maintain, modify and upgrade. Software teams that have the experience of working on traditional software but now working at new companies where they are using modern techniques might find it difficult to make their software better, faster and cheaper.
As you think of your portfolio of HCM software providers, maybe Darwin could help. And if Darwin were alive today, and knew about Human Capital Management software, I think he could put many of your company’s providers into these categories:
- Endangered – they are doing some of the right things to turn themselves into survivors but haven’t turned the corner just yet. These are the providers you need to keep a close eye on, just in case they become extinct.
- Extinct – those providers who are on the downside of innovation, living off of your precious maintenance, old architectures, delivered on premise and probably won’t be around for the long term.
- Survivors – those software firms who are worthy of your investment and will be in the market for the long term.
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Company: RightNow
Started: 1997
Located: Bozeman, Montana
Geography: Global
Market: On-Demand Customer Relationship Management
Products: RightNow CRM Suite RightNow Service RightNow Marketing RightNow Sales
Key Customers: Drugstore.com, TomTom and Electronic Arts
Website: RightNow
Blog: Voice of the Customer
Recent News:
- RightNow Ups the Ante on SaaS with Service Level Credits
- New Product Registration Capabilities in RightNow February ’09 Drives Top Notch Customer Care
- drugstore.com Customizes Online Shopping Experience with Beauty Chat
- Good Customer Care, Not Prices, Wins Loyalty of Credit Crunched Holidaymakers
I asked Greg Gianforte, RightNow Chief Executive Officer a few questions about his business and his view of the SaaS market in 2009.
Did you start out as a Software-as-a-Service company?
RightNow has been a pioneer of SaaS / On-Demand technology since our company inception in 1997. Our underlying services are built to dynamically scale our client’s customer service and support up or down as they need. Unlike other providers, our solution is built to deliver exceptional experiences to our customers across service, marketing and sales interactions.
Why do your customers buy from RightNow?
RightNow’s on demand hosted CRM business model delivers quick time-to-benefit and helps our clients reduce operating costs, improve customer experience, retention and advocacy, and maintain a competitive edge.
What do you see as the key trend emerging in the SaaS industry?
As Cloud Computing gains momentum, it will become even more vital for a SaaS company to stand behind its service commitments since they are responsible for system reliability and performance. Customers are expecting a high level of availability and providers are using their ability to deliver as a competitive advantage.
RightNow recently announced an ‘up-time’ commitment to our customers of 99.9%, forcing our team to take uptime seriously, and making sure the right level of attention is being paid to the issue.
No amount of “money back” will take the place of performance, but a company’s willingness to put real dollars at stake underscores the confidence they have and that their customers should have in their solution.
What is your outlook for 2009?
Times are tough, but projects are still getting done and forcing some tough decisions. The best companies are continuing to adopt CRM technologies because they have identified that CRM and superior customer experiences are the best ways to keep and expand a customer base in a weakened economic state. Customers don’t grow on trees and in tough economic times it is even harder to attract new ones.
Thank you to Greg Gianforte, Jason Mittelstaedt, Joseph Brown and Katie O’Connell for contributing to this profile.
Company: SuccessFactors
Started: 2001
Located: San Mateo, California
Geography: Global
Market: On-Demand Performance and Talent Management
Products: Goal Management
Business Performance Accelerators
Key Customers: Advo, Allianz SE, Cadbury Schweppes, Hilton, Kimberly-Clark, Gen-Probe, PETCO, and Rexel
Website: SuccessFactors
Blog: Performance and Talent Management Blog
Podcast: People Performance Radio – US Edition
Recent News:
Orange Deploys SuccessFactors to 13,000 Employees in the UK
I asked Lars Dalgaard, SuccessFactors’ Chief Executive Officer a few questions about his business and his view of the SaaS market in 2009.
Did you start out as a Software-as-a-Service company?
Absolutely. Since the beginning, we built SuccessFactors as an on-demand platform in the cloud from the ground up. The underlying technology platform is called the SuccessFactors Web Component Engine, and it’s the basis for all SuccessFactors’ applications. The Web Component Engine was built on a multi-tenant architecture with a single-code base incorporating expertise gained from working with more than 2,600 customers worldwide. The platform includes a set of reusable technology components such as a business process template designer, workflow engine and data permission model. It’s the foundation of SuccessFactors’ Performance and Talent Management Suite and enables us to quickly innovate and create new applications to drive business performance for our customers.
Why do your customers buy from SuccessFactors?
By using the latest research, the smartest technology, and the most secure systems on the planet, SuccessFactors works every day to help companies achieve tangible and measurable results, lower costs, and align their organizations.
Since day one, SuccessFactors has been focused on customer success and our on-demand platform helps us do this quickly – getting customer-driven product evolution and frequent enhancements up-and-running when they need it. We also deliver innovative, customer-driven new features on an iterative monthly basis, allowing customers to continuously increase the value they receive from us.
By listening to what our customers want and then taking action immediately to deliver what they need, we’re providing the ultimate level of customer service while providing fun, easy-to-use, user-centric software that creates real business value for our customers and encourages better adoption companywide.
What do you see as the key trend emerging in the SaaS industry?
• It’s going to accelerate. Hard economic times force innovation and companies are keeping a close eye on the bottom line, so this is going to speed up the pace that companies adopt lower cost of deployment SaaS offerings, delivered via Cloud Computing
• SaaS and Cloud Computing will continue to innovate and be easier to use. We are going to see more companies making SaaS as easy to use as Google, Amazon and a slew of other consumer applications and Web sites. Driving adoption and everyday usage will continue to be very important.
• Customer service is HUGE. Today companies care most about doing more with less and keeping their existing customers DELIGHTED. They had to do this before but now it’s critical – they can’t afford to lose customers. We interact and work closely with our customers on a daily basis – a paradigm shift from the legacy, on premise software sales model of selling multi-million dollar license deals and then reengaging the customer five years later. Companies with lots of customers and smart strategies are pouring everything into keeping customers DELIGHTED and the SaaS model makes the product more relevant, flexible, and scalable to the customers’ needs.
What is your outlook for 2009?
Our customers are putting increased focus on their top talent and high performers to make sure these people are motivated and engaged – a critical strategy during today’s economic downturn. SuccessFactors is giving them the tools to really hone in on who’s doing great work, while also providing the clarity to help them make tough business decisions. The War for talent has not ended. A company’s top performers are still being targeted by competition.
There has been a lot of discussion about the strength and resilience of the SaaS model during uncertain economic times. We get that. But what is more crucial is that companies really need to focus on energizing, retaining and keeping their best people motivated. It’s not a ”nice to have,” it’s a must have. Currently, companies are spending about 70 percent of operating expenses on their people. Companies need to be ahead of the curve, and SuccessFactors helps provide ways to make better business decisions in today’s tough economy.
Thank you to Lars Dalgaard and Jennifer Gazin for contributing to this profile.
Company: QuickArrow - has been acquired by OpenAir, a NetSuite company
Started: 1999
Located: Austin, Texas
Geography: Global
Market: Professional Services Automation
Products: Project Management; Resource Management; Time, Expense and Billing Management; Strategic Business Analytics
Key Customers: Salesforce.com, Genesys, Borland, HP and Symantec
Website: OpenAir
Twitter: QuickArrow Twitter
Recent News:
QuickArrow Unveils Next-Gen Integration with Microsoft Outlook®
QuickArrow and RTM Consulting to Host Webinar on Maximizing Services Business in a Down Economy
I asked Kevin Bury, QuickArrow’s Chief Executive Officer a few questions about his business and his view on the SaaS market in 2009.
Did you start out as a Software-as-a-Service company?
Depends on the buzzword… We started out in 1999 as an “ASP”. Then we were “On-Demand” for a few years, and now we’re “SaaS”. But yes - we’ve always offered a hosted solution, and since we got in ahead of the curve, we were able to avoid the challenge of transitioning delivery models that so many traditional software vendors are contending with these days.
Why do your customers buy from QuickArrow?
The short answer is: To reclaim their personal lives.
The vast majority of services businesses are still running on spreadsheets, and the time spent compiling manual reports is mind-boggling. Anyone who has ever worked in services knows that most of the time, nights and weekends are spent playing catch up. QuickArrow automates the process, and provides much better business visibility than any spreadsheet ever could.
What do you see as the key trend emerging in the SaaS industry?
There are several interesting trends taking place, like Platform-as-a-Service, and Integrations-as-a-Service, but ultimately, I think the biggest trend we’re seeing right now is that SaaS adoption is reaching the tipping point, or about 15%. That’s the point at which you typically see the hockey stick effect kick in. And lately, it’s easy to understand why the “pay as you go” message is resonating so well.
What is your outlook for 2009?
One of the critical drivers for SaaS success is retention. You have to protect the annuity while driving new sales to ensure predictable, steady revenue growth. So this year, we’re really focusing on ensuring that any initiatives that hit the roadmap are good not only for new sales enablement, but also for our existing client base. And thanks to our SaaS model – if we can do that, we should see continued growth in 2009.
Thank you to Kevin Bury and Thomas Meredith for contributing to this profile.
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