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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.
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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