August 24th, 2009

Packaged software, an accident of history

Posted by Phil Wainewright @ 6:28 am

Categories: Business applications, Business models, Development, Software licensing

Tags: Software, Accident, Tools & Techniques, Management, Phil Wainewright

Everyone takes it for granted that the natural order of business is to sell software just as though it were a physical product, shipping it out as a manufactured item and charging a one-time perpetual license fee. In contrast, selling software as a continuously updated service, on a pay-as-you-go subscription, seems like an anomaly. But the accepted status quo is in fact merely a quirk of history, brought about by government action.

It was a ruling in an anti-trust suit against IBM in 1969 that gave birth to the independent software industry, as Rubicon Consulting’s Michael Mace relates in a fascinating blog essay published in May. Independent software vendors (ISVs) are so-called precisely because they were defined by their autonomy from the vendors of computing hardware platforms such as IBM. And since the platforms were physical products, the newly independent software vendors adopted the same product metaphor.

In other words, the genesis of the packaged software model and its one-time perpetual license fee was a government-engineered fork in the history of software. Or as Ryan Martens, founder and CTO of Rally Software, put it when he and I were chatting about this when we met in November last year, the concept of software that everyone takes for granted today was designed by an IBM committee at the behest of Washington DC.

That hardware product metaphor also gave rise to the whole waterfall methodology of defining and building complete software products and then launching them into production as finished artefacts, Martens pointed out. Hardware, of course, has to be built like that, but software doesn’t, as agile development practices (such as those supported by Rally’s application lifecycle management software) allow a more iterative approach. When combined with a SaaS delivery model, the feedback loop Read the rest of this entry »

June 16th, 2009

Netviewer aims to outshine WebEx in Europe

Posted by Phil Wainewright @ 6:55 am

Categories: Collaboration, Ecosystems, Europe, Software licensing, WebEx

Tags: Web, WebEx Communications Inc., Europe, Citrix Systems Inc., Online Meeting, Remote Support, Netviewer, Web Meeting, Remote Administration, Web Conferencing

With more than 15,000 customers in 55 countries, one of Europe’s largest indigenous SaaS players is Germany’s Netviewer. Its online meeting platform is a rival to well-known US names such as WebEx (part of Cisco) and the GoToMyPC/GoToMeeting products from Citrix OnLine. Already the number two web meetings player in Europe in 2007 (according to market researcher Frost & Sullivan), the company added venture backing last year from Deutsche Telekom subsidiary T-Online Venture Fund and European Founders Fund, the investment vehicle of Internet luminaries the Samwer brothers. I had a chance a couple of weeks ago to connect with Netviewer’s founder and CEO, Dr Andreas Schweinbenz (pictured), to find out more about the company’s plans.

It’s still early days in the growth of the European market for web meetings, he believes, and pointed to a Gartner chart on which the European market value of $378.9 million in 2008 just happens to equal the US market value of $378.2 million in 2003. Considering the total GDP of the economies are roughly equivalent, that suggests the European market is around five years behind the US.

Another interesting comparison I’d add is to look at the US players back in 2003. WebEx already had a dominant 50 percent share with revenues of $189 million, but privately-held ExpertCity, which became Citrix Online on acquisition in February 2004, made somewhere in the $20-30 million range. Netviewer is about the same size now, based on its published accounts for 2007 (the latest available under German rules for privately-held companies). It reported gross income of €14 million in 2007 (around $20 million at the prevailing exchange rate). Citrix financial statements for 2008 show that in the five years since 2003, its online services subsidiary has grown to become a $260 million-a-year business. If Netviewer can rival or better that 10x growth over the coming five years, it has a rosy future ahead of it.

Unlike Citrix Online, Netviewer has decided against continuing to focus its efforts on the remote support market — even though that’s where it started out. “We see the larger market in the future is the meeting area,” explained Schweinbenz. That choice, incidentally, avoids crossing swords with Europe’s other significant player in this sector, Spain’s NTRglobal, which is concentrating on remote support rather than Web meetings [disclosure: NTR is a recent client, WebEx has also been a client].

Netviewer is in no hurry to take its wares to the US market, either. “Let’s not get de-focused by trying to expand internationally too soon,” said Schweinbenz. Its clear target is to be the European number one in web meetings. “The online meeting business is still in its early stages,” he said, and growth is rising: “The economic crisis is pushing the market because people want to save money.”

The company has several initiatives under way to accelerate growth. The first is a partnership strategy to encourage Read the rest of this entry »

March 31st, 2009

LongJump puts PaaS on-premise

Posted by Phil Wainewright @ 1:03 pm

Categories: Development, Platform as a service, Software licensing

Tags: Phil Wainewright

In a move that will horrify purists but bring a smile to the face of many conventional ISVs desperate to launch SaaS offerings of their own, platform-as-a-service provider LongJump is today making its platform available as customer-installable licensed software.

The move is designed to meet demand from enterprises and ISVs that want to run their own cloud development platform rather than entrust their fate (and a monthly per-seat subscription) to a cloud provider. But it will prove controversial with rival platform-as-a-service providers such as Salesforce.com and Zoho, whose argument has always been that the unique benefits of their multi-tenant platforms can only be realized by running on the cloud provider’s own shared infrastructure.

LongJump takes a different view, and will offer its software for customers to install under either single-tenant or multi-tenant licenses, for an annual fee ranging from $60,000 to $240,000 per CPU. Customers will also be able to choose their preferred degree of multi-tenancy, for example whether to assign an individual database to each downstream customer, or how many different application instances they operate (allowing them, for example, to operate regional instances to cater for variations in data privacy requirements). LongJump is restricting support to its preferred operating environment of Red Hat Enterprise Linux and the mySQL database, and customers will have to keep pace with the company’s quarterly release cycle, as it will only support the current and most recent version.

The most unique element of LongJump’s proposition lets developers adopt a hybrid strategy, using LongJump’s servers as a development or pilot platform while maintaining larger-scale production applications on their own in-house servers. This means an enterprise can Read the rest of this entry »

March 25th, 2009

Auditors backtrack on SaaS revenue recognition

Posted by Phil Wainewright @ 2:31 am

Categories: Business models, Software licensing

Tags: Revenue, Software-as-a-service, Taleo Corp., Operational Accounting, Revenue Recognition, Finance, Financial Services, Phil Wainewright

Just when SaaS vendors were starting to get their investors and customers comfortable with the recurring revenue model, now their accountants are getting cold feet. Fellow Enterprise Irregular Jason Corsello has drawn attention to Taleo’s restatement of financials all the way back to 2003, changing the recognition of professional services revenue to spread it across the length of the contract (typically three years in Taleo’s case). There is no change to the value of revenue being recognised, merely the timescale over which it is written to the bottom line. Corsello notes how exasperating this must be for Taleo:

Taleo has long stood by their revenue recognition policy … a policy that has been validated year over year and signed off by Deloitte (their auditors) in the form of the company’s 10K and 10Q. Now, those same folks, Deloitte, have chosen to change the rules and raise the accounting flag (did I say they signed off on those financial statements?), which triggered the attention of the ‘OCA’ (Office of the Chief Accountant of the Securities and Exchange Commission). I wonder how much longer Deloitte will be retained by Taleo?

He notes that the change may well lead many other SaaS vendors into “re-evaluating their accounting and revenue policies.” I’d add that it may also accelerate the move we’re already seeing towards shorter contract terms, since that would allow vendors to book their implementation revenue earlier. But why haven’t auditors and the SEC ever forced on-premise software vendors to take the same approach to implementation services revenues? — especially when there’s plenty more evidence of customers suing to recover those costs once they discover the implementation hasn’t worked! I wonder what the impact on SAP, Oracle and Accenture’s financials would be if they couldn’t recognize all their implementation and license fees until the application had been up-and-running for a three-year stretch? Ouch!

You can understand why, having completely failed to notice anything questionable in the books of the financial services industry over the past decade, auditors are now rushing around trying to cover their backsides by locking every other available stable door. But it is irksome to discover that they’re doing so by picking on industries that they patently don’t understand one iota, rather than doing a better job of policing those industries they understand all too well.

I should add — although you probably already worked this out — that I’m no accountant, so what do I know?

January 5th, 2009

Debunking myths about the SaaS partner channel

Posted by Phil Wainewright @ 12:16 pm

Categories: Business models, ERP, Ecosystems, Intacct, Intuit, Microsoft, NetSuite, On-demand, SAP, Software licensing

Tags: Phil Wainewright

There are a couple of widely-held myths about the SaaS partner channel that I saw being debunked in the closing months of 2008. No, neither of them were the hoary old myth that SaaS vendors don’t need partners because they can use the Web to sell direct — the dot-com bust proved that one wrong. Solution providers are still alive and well on the Internet, but to succeed they have to ignore some common preconceptions. Here are two statements I often hear from vendors and other experts when talking about SaaS:

• SaaS vendors need channel partners because customers will only buy business solutions face-to-face
• SaaS partners have to run lean operations because their margins are slimmer

Both of these assertions are just plain wrong — and I have to confess, that’s not something I would have expected until I heard the evidence.

First up is the assertion that SaaS business solutions have to be sold face-to-face. I heard this point made very firmly by SAP last year talking about its experiences with its Business ByDesign offering. It had originally hoped this would be bought self-service via the Web, but later found it required at least a day’s face-to-face requirements discovery. This led SAP to conclude that it would have to rely on partners with specialist vertical expertise or existing local trust relationships. It seemed a logical conclusion, knowing that another SaaS business suite vendor, NetSuite, operates a network of regional sales offices precisely so that it can be close to its customers.

But then in November I moderated a solution provider discussion at the SIIA OnDemand conference in San Jose, in which four solution providers who work with, respectively, Intacct, Intuit, NetSuite and Microsoft, spoke from their own extensive experience. There’s a very good video of the complete session online now. The most surprising insight of this very informative panel discussion was that SaaS solution providers are getting smart at using the Web to sell, close and deliver solutions remotely — often without any face-to-face contact at all. What this tells us Read the rest of this entry »

July 23rd, 2008

PaaS embraces client access licensing

Posted by Phil Wainewright @ 5:37 am

Categories: Business models, Platform as a service, Software licensing

Tags: Software-as-a-service, Enterprise Software, PaaS, Extranet, Coghead, Software As A Service (SaaS), Cloud Computing, Business Services, Pricing, Emerging Technologies

Back in the early days of application service providers (ASPs, the doomed precursors of SaaS), software licensing was a huge barrier to growth, simply because conventional enterprise software licenses assume you already know who all your users are going to be, and expect you to pay up front for all of them. Enterprises encountered similar problems with their early extranet deployments. The licensing that vendors offered simply didn’t cater to the new opportunities opened up by the Web.

Platform as a service (PaaS), which provides hosted infrastructure for developing and deploying custom SaaS applications, is now going through the same rite of passage. Yesterday, Coghead became the latest PaaS vendor to introduce a subscription that recognizes a separate class of casual or less frequent user. Until yesterday, the price per logged-in user was around $10 per month. Now Coghead has added the option of an unlimited user subscription (confusingly named the ‘Limited User’ option) for an additional $50, which allows any number of either anonymous or authenticated users to access the application via specified access points (eg a widget or an API).

The approach is different from that taken by Bungee Labs, another PaaS provider, which charges according to the actual compute resources used. As I mentioned when I discussed this in April, Bungee’s approach can lead to jaw-droppingly low costs for occasional users, but it does have the disadvantage of being less predictable than Coghead’s approach. Paul McNamara, Coghead’s CEO, told me last week that a utility pricing scheme had been rejected because of this uncertainty: customers “don’t want this to be like cellphone bills in the 1990s.” On the other hand, the fixed pricing means that Coghead has to somehow put caps on usage “in case someone wants to create a YouTube on Coghead,” as McNamara told me.

May 30th, 2008

Sharing your login is a criminal offence

Posted by Phil Wainewright @ 2:19 pm

Categories: Business models, Software licensing

Tags: Software, Commoditization, Pricing Strategy, Software As A Service (SaaS), Pricing, Tools & Techniques, Marketing Research, Emerging Technologies, Marketing, Management

It looks like security-as-a-service is going to be one of the themes I cover here next week, and meanwhile I’m mulling a new post about SaaS and software pricing. So it seemed like a good moment to relay a comment that I heard from one of the panelists speaking back in February at the European ISV Summit in Frankfurt. Vincent Smyth, regional VP EMEA of digital protection vendor Macrovision made this rather striking assertion:

“Sharing logins is a form of piracy — it’s revenue leakage.”

Think about that next time you pass those scrappy post-it notes around the office so that everyone can get access to the Dun & Bradstreet credit reports, look up the Xignite currency data or share a single WebEx account. What you’re doing is tantamount to criminal larceny.

Maybe this on-demand version of software piracy is one reason why Microsoft is not really sure whether it wants to go through with its rumored pilot of pay-as-you-go Office streaming. For Macromedia, though — no slouch at protecting its own intellectual property, by the way, with “over 3500 issued or pending patents and patent applications worldwide” — it’s just another revenue opportunity. Smythe went on to mention several other on-demand “revenue leakage” scenarios, including drag-and-drop application provisioning in virtualized data centers or cloud-hosted application servers that access a backend database.

Another way of addressing the revenue threat of course is to embrace it head-on, as Zoli Erdos recommended earlier this week:

Yes, SaaS disrupts the traditional software market, but there’s another equally important trend happening: the commoditization of software. Commoditization is beneficial to customers, but a death-spiral to (most) vendors. Except for the few that drive commoditization.

The trouble with revenue protection is that it criminalizes would-be users in a last-ditch attempt to resist commoditization. Far better to adjust pricing to appeal to an emerging new class of users.

April 30th, 2008

Microsoft preps pay-as-you-go Office for June launch

Posted by Phil Wainewright @ 6:16 am

Categories: Collaboration, Microsoft, Software licensing

Tags: PC, Microsoft Corp., Microsoft Office, Business Services, Desktops, Office Suites, Software, Hardware, Phil Wainewright

After more than seven years of lobbying by service providers, Microsoft is finally set to allow pay-as-you-go licensing for Microsoft Office and other products downloaded to PCs using streaming technologies, according to information the company recently made available to channel partners. Many observers will see the move as a new salvo in the Microsoft’s titanic struggle against Google Apps and other online challengers to its desktop application franchise. An early trial-run of the scheme saw Office offered for as little as $10 per month, with no contract commitment.

Expected on June 1st or shortly afterwards, the long-awaited change to terms in the Service Provider License Agreement (SPLA) will lift a longstanding ban on the use of technologies that stream the software code from the server to run locally on the client PC. Previously, the SPLA only allowed pay-as-you-go terms for desktop applications that run on the server and are accessed remotely using a Terminal Server client.

The change will make a huge difference to the appeal of hosted Office, according to Neil Gardner, VP of marketing for Endeavors Technologies, one of the vendors offering products that enable and manage the application streaming process. “It completely changes the model of offering Office applications to either the business or the end user,” he told me yesterday. “It becomes a true on-demand or pay-as-you-go model.”

Although a few providers have had some success with Office products delivered using Terminal Server, most have failed to gain significant market traction, in some cases suffering huge losses and embarrassing market retreats. The majority have chosen to concentrate on delivering Exchange and SharePoint as well as basic Microsoft web hosting, all of which are now available from Microsoft in multi-tenant versions designed explicitly for the service provider market — with Dynamics CRM soon to be added to the line-up. But many will see Office streamed to customer’s PCs as the icing on the cake, Gardner believes.

“Talking to service providers, this will make a huge change to them,” he said. “Many are holding back because they don’t think they will have a viable offering if they don’t offer the Microsoft applications. Office is the one everyone seems to be interested in.”

The change will initially be for a 12-month pilot restricted to Read the rest of this entry »

April 25th, 2008

How PaaS pulls software pricing down

Posted by Phil Wainewright @ 8:43 am

Categories: Business models, Development, Platform as a service, Salesforce.com, Software licensing

Tags: Software, Salesforce.com Inc., Application, PaaS, Pricing Strategy, Pricing, Sales Force Management, Marketing Research, Marketing, Sales

Platform-as-a-service startup Bungee Labs this week released a new utility pricing model that really starts to put the spotlight on the pricing charged by established software-as-a-service providers. Bungee also announced what it calls ‘federated hosting’, which gives customers the choice of where to host their Bungee-developed applications; with Bungee in North America or Europe, on Amazon EC2, or (on payment of a per-instance monthly license fee) in any data center of their own choice. More about that below.

The pricing is interesting because Bungee has done away with separate pricing for storage, bandwidth, processing and so on, instead setting a single fixed price of $0.06 (six US cents) per user-session-hour. (It’s pro-rata to the nearest second, so if you log in for just three seconds every day for ten days, you’ll pay for a total of just 30 seconds of usage, ie 3c. But per-session also means that if you log in and then go out for two-hour business meeting without closing the application, you’ll pay for the full two hours).

What caught my eye about the pricing was when Bungee showed me this calculation of the typical monthly cost of a business productivity application such as CRM or a collaboration client deployed on the Bungee grid:

This really throws into relief the pricing currently being charged for packaged SaaS applications like Salesforce.com [disclosure: both Bungee and Salesforce are clients]. Even if you argue that the three hours a day is an underestimate and double it, you’re still looking at a very modest $7.20 per user per month. Bungee Labs doesn’t offer storage (its main use case is applications that integrate other online services) so add in a few more dollars per month for data storage on S3 (soon with even lower transfer charges). Now compare that to the $65 and $125 figure that Salesforce.com charges for its packaged application license. Or the $50 per user per month you’ll pay for its Force.com PaaS platform.

This is a direct question of value. Is there enough value in the finished application supplied by Salesforce.com to justify the 1100% markup of Enterprise Edition? Read the rest of this entry »

April 23rd, 2008

Meshing the desktop into the cloud

Posted by Phil Wainewright @ 5:09 am

Categories: Microsoft, Software licensing, Utility computing

Tags: Web, Ray Ozzie, Microsoft Corp., Mesh, Zintel, Mesh Account Service, Channel Management, Desktops, Marketing, Hardware

I’m often harsh on Microsoft, but I’m going to lighten up now that it’s introduced Live Mesh (great coverage at Liveside, a useful ten points from Mary Jo, more at Techmeme).

One of the misconceptions people often have about the Web is that exists ‘out there’, as some separate universe that we plug into and out of from our desktop devices and office networks ‘down here’. In fact, our local networks and devices are just as much (or should be) a part of the cloud as any other connected resource. Live Mesh brings that to life, as product director Mike Zintel explains on the brand new Live Mesh blog:

“[It] blend[s] the web, Windows and other computing endpoints in a way that preserves the ‘it just works’ feel of the web with seamless integration into my common workflows. The coolest thing about Live Mesh is how it smashes the abrupt mental switch that I have to make today as I move between being ‘on the web’ and ‘in an application’.”

At first glance, that may seem a perfectly reasonable and innocuous statement — and indeed it is, if you take a Web-centric view of the world — but coming out of Microsoft, it’s dynamite. Instead of seeing the Web as an extension of the desktop, it includes the desktop as part of the continuum of the Web. Where then does the application sit? Not on the desktop, or on any identifiable server machine, but simply in the mesh. In other words, it becomes a service, capable of running anywhere in the cloud, including on the desktop.

Zintel’s blog post is a really great starting point for understanding what Microsoft is doing with Mesh. One of the most striking aspects is the way that Live Mesh begins with individuals, and defines everything else in relation to and by the individual: Read the rest of this entry »