Sunday, February 26, 2006

Technology Free IT

Information Technology without Technology?

I wrote quite a bid about the disruption, the growth and the strategic values of Software as a Service. I shared with many of you my vision about this industry and where it can go. In an earlier post I stated that we may run a business with nothing but SaaS. Today I'd like to take you out into a near future office environment (a few calendar quarters from now).

OK - So our new office needs some basic communication with internal and external people. We need something for our bookkeeping and write invoices. We need to do some HR work, payroll and expense management. Our sales team need to manage customer contacts, our marketing team needs to manage campaigns and initiatives as well as partners and alliances. We also want something to manage our service teams' requests and cases. And finally will need to manage our products, projects and entire logistics and warehouse.
So let's put up our sleeves and start:

Communication: We may start with Yahoo email and calendar. It is free and allows us to work in a team and see each others calendar. We may then select Webex to communicate with our customers and partners in a more communicative way.
Office: While checking out Webex we find their office products and actually find the necessary office software to run our day to day documents, lists and data tables. And in the future we may consider Office Live from Microsoft.
Customers & Marketing: The obvious first name is But there are others like RightNow and Sugar CRM and already many more. Let's pick SFDC for the fun of it and take RightNow to mange service requests. To write optimal proposals, we may consider Offermatica. If we now want to better plan out marketing campaigns we may come across Eloqua and take them to do the campaigns - may be we also choose ResultsMail to do the sending and tracking of email blasts and manage the ones who want to opt out. And if we want to integrate our partners we go with BlueRoads for channels and Loyalty Lab for retail customer loyalty management. Our call center may be entirely distributed across the nation using Five9.
People: To mange HR related activities we may see EmployEase and may be Expenseit to do the expense reports. To better manage personnel development we may use Successfactors. Additional hiring may be supported by LinkedIn.
Bookkeeping, Orders & Logistics: Now when we get orders we want to choose a complete ERP solution and may stumble over Intacct or NetSuite. We may track all our contracts with Encover. We may also choose one of the project management systems, SCM tools and other products out there for our specific needs.

As you can see we pretty quickly are able to replace every single software today with SaaS solutions. And guess what, all of the above can be done already today. I found over 300 vendors in some 30 categories who all can make this a reality. There is not a piece of software that I need to put on my computer other than a Browser and an OS of course.

But walking through this new office environment I discovered some totally new challenges: My SaaS applications are sometimes so cheap that I may need to connect with other users to find out the best usage - hard to call the Yahoo hotline and ask for somebody to come in and help us optimize the use of yahoo mail in a team environment. Another issue I'm facing in that office is that I don't just start the software - I need to login and provide a password and do so for 20 different applications. Also I may need some tool - at least an online spread sheet - to track all the licenses and keep up with expiration dates. And when I begin to put this all together I would welcome some knowledgeable person to help me find the best solutions for me TODAY (since I don't worry about tomorrow - because I simply switch if I need to).

The advantage how ever are big enough to go forward: We don't need to mess with servers, with backup, with software upgrade and updates. We don't need an engineer who puts this all together for us. We don't need to allocate $250,000 capital expense for software and hardware. We don't need to worry about service and maintenance contracts and we don't need to plan amortization and think about what software is right for us today and how this decision may affect us in a year or two from now.

Tanooma will soon be a showcase for a completely SaaS based business - we have no software that runs on our servers (hence no servers). Tanooma is running a completely "Technology Free IT" environment. Simply because it is less expensive, requires no investment, requires no staff and allows us to pick and choose what is best for us TODAY and end of the year we may switch to what ever makes sense then.

Competitive advantage: We have the most flexible office IT infrastructure and can afford to pick the best possible solutions that fit our most current needs. While others may be limited by the investments they already made - we will have the best solutions for us when ever they are available.

P.S. Ismael Ghalimi, another fellow blogger said it this way:

Saturday, February 18, 2006

The beginning of a new software economy

From 1 Million to 100 Million SaaS users in 5 years

I guess we all pretty much agree: The SaaS Industry will grow fast. How fast - we will see in 5 years from now. But a few interesting indicators show where this all goes:

1) Investors
On conferences publicly and in individual conversations privately we hear it over and over again: "We will invest in SaaS but we will probably do no more investments in traditional license software". For investors it is the recurring revenue model but also more and more the underlying technology. I may be totally off - but I can see more investments into SaaS in the next few years than into Internet in the crazy days. Why? When the railroad boom slowed down with it's crazyness in the old days - the real investment started in building the transportation infrastructure.

2) Technology
When it comes to Rapid Software Development, SaaS certainly outperforms any other software model. Deploy it now - get feedback - fix it on the fly - mature to a product that is not build for an audience but actually with an audience. SOA, Web Services, open source are just a few key ingredients to build a software so fast that no other technology can compete on a time to market scale. With the speed comes more variety and more diversity.

3) Economy
SaaS is cheap - period. Even so we all hear from the legacy software maker that SaaS is more expensive in the long run - I just hope that who ever says that has a calculator handy. We all agree that the actual software and hardware cost is less than 40% of the overall IT spend. And we also agree that a SaaS vendor is able to split their operations cost amongst 1,000 and more companies versus only one IT organization. Enough said.

4) Popularity
SaaS is simple in the first place and vendors have an unparalleled interest to keep it that way. This will motivate less computer savvy users or industries to investigate software and IT solutions. SaaS will go way beyond application software. Any kind of Tools, Games, Hobby and Entertainment Solutions will get into the market. Manage your wine cellar online, keep your library online and get additional information about the author, play games online and develp your identity and earn points in a new gaming world, begin not only filing your TAX online but actually interact and communicate with your insurance and everybody else in an online home office infrastructure where you find all your documents even if your home burned down.

500 Million PCs (our todays installed base) will use SaaS partly or entirely one way or the other. It may be 100 Million already within the next 5 years.

Saturday, February 11, 2006

SaaS – Mega Disruption

The least significant feature of SaaS is that it is a new software delivery mechanism. That is only a side effect. Unlike the Time Share system in the 70’s or Mainframe based application delivery in the 80’s, SaaS has several disruptive elements that will change the face of the software industry like no other development before.

10 Strategic Aspects of Software as a Service

1) Time to value
With average implementation times of 1 day to 6 weeks, SaaS software is an order of magnitude faster productive than any traditional business application. While traditional business software needed to be installed, configured, embedded in existing IT infrastructure, adjusted to fit with other software and mostly customized not only to fit the customers needs but simply to put to work – SaaS applications in contrast go live immediately and can be used from day one. An ROI can be expected in a matter of months – not years. Even so customization capabilities may be limited – updates and usability will immediately increase.

2) Perpetual service model
SaaS vendors have no other chance than provide excellent service to their respective customers on an ongoing base in order to stay in business and ensure the renewal of the service. Support is typically provided on a 24x7x365 basis – at no extra cost. There is no “product delivered – thank you very much”. SaaS is based on a perpetual service model, versus a perpetual license model.

3) Major transformation in usability and support structure
Since SaaS companies are build on the premise of a perpetual service model, a large amount of creativity goes into usability and serviceability of their products to ensure a profitable operation. Substantial investments go into user interface design, intuitive process design and more or less bug free applications. Since support contracts are no more separate line items – there is a big interest on the vendor side to drive support down; next to zero.

4) Financial predictability
Traditional IT cost was a collection of cost items such as software license, software maintenance, software support, hardware cost, hardware maintenance, up to date hardware to support the software, adjustments in server infrastructure, other operational expense including space and air-conditioning. While this was very hard to plan and predict, SaaS licenses include all of the above – including personnel and support. This is a rather simple to plan per user, per org, per what ever unit over time expense.

5) Leveraged Administration, reduced cost
In the traditional IT environment every update, every upgrade, every data migration is done one by one for every single company individually. SaaS providers by contrast do the same job for hundreds or even thousands of companies over night. Also here the motive to make this error free and as cost effective as possible SaaS providers invest strategically in operations efficiency and leverage the critical mass of customers to always outperform an individual IT center infrastructure in cost, availability and scalability.

6) Data security and reliability
As we learned from various studies, between 70% and 90% of security fraud happens within a company by internal personnel. Data access to not only mission critical but also personnel and other sensitive data need to be granted to a variety of people internally. SaaS providers in contrast invest in security mechanisms and typically operate their systems by people who have no interest in the individual data of the respective clients. By risking the integrity of an entire company SaaS providers have a much higher motivation to ensure data protection than many IT organizations.

7) Meta Data - Business Benchmarks
As our business world is more and more focusing on efficiency, process optimization and improving operational infrastructure we are in the need for benchmarks and data points to actually measure effectiveness in relation to our respective industries and to other industries. A currently very underestimated side effect of SaaS is the ability to collect “Meta Data”, information from all sorts of businesses about sales process times, average lead closure rates, average marketing campaign response data, personnel churn and hundreds of other data points. Even so the business ethic of a SaaS provider would suggest to keep that information highly confidential on a per customer bases, it is of enormous value to our business society to understand the aggregated results and averages. While this is extremely difficult to aggregate with customized and behind the firewall application software, it is a huge treasure of the SaaS methodology. It will take quite some time for some companies to appreciate the benefit of benchmark data vis-à-vis contributing with their critical and sensitive information but as the old saying goes “what you can measure, you can manage and what you can manage gets done”.

8) Technology Free Information Management
Companies, primarily flexible organizations or start-ups may go with Technology Free Information Management and entirely word with SaaS providers. No capital expenditure for the back office, no IT service team, no backup, no update, no data migration, no software installation, no security management. Not only will those companies have a competitive advantage in their operational flexibility and reduced cost but more importantly in their ability to switch to most current technology and most appropriate applications for their respective business.

9) User Integration
In the 60’s computer users where primarily programmers and operators. In the 70’s some educated and trained business administrators joined. In the 80’s and 90’s more and more all employees of a company were integrated in the internal Information Architecture of a corporation. The “last mile” is the integration of legally independent business partners and customers. In a traditional software model this goal is limited to EDI and some dedicated and individual system integrations. The SaaS model how ever also here opens a new world. The combination of Internet Technology, Webservices and the SaaS model allow applications and connectivity that partners and customers can be integrated in a homogeneous business process while maintaining their independence. From dedicated host software to standardized PC software to SaaS reflects the evolution of user integration and user centricity.

10) Explosive Growth.
In the next 10 years, over 500 Million PC users will use SaaS one way or the other, partly or exclusively. If a main stream application cost $50 per year and reaches 30% market share, the respective vendor would make $7.5 Billion annual recurring revenue. He may lower the price to 50Cent per year and still make $75Million. Software will become so cheap – we almost wonder whether it is even possible. Unlike predictions that the industry will consolidate after a few years like the current IT industry, SaaS will grow in variety like any other consumer industry.

Plus the obvious tactical advantages such as omnipresence of the respective application on a global scale, ever faster technology improvements with less hassle of update processes, lower cost if implementation and experimenting with new solutions, new application and other reasons. It is not the software delivery model that makes a SaaS application it is the disruptive service structure, meta data and explosive growth potential.

Monday, February 06, 2006

Tanooma - building a new world

Tanooma - A new world a new engagement
As you know I'm working with a partner on a next generation Software as a Service engagement.

Dr. Timothy Chou (former president of Oracle on Demand) and I decided to continue pioneering the SaaS industry and contribute to its growth. We are currently developing the underlying infrastructure and software architecture for our new solution and also work on definitions, business model and go to market strategy. Please stay tuned for a few more weeks. If you are interested, you may register at the Tanooma site at and we will automatically inform you prior to the launch.

Both, Tim and I are working within this SaaS industry from day one. And we both share our view with many others - this industry will be more disruptive to Information Technology then any other innovation before. The interesting part about Software as a Service is, that it is more then just a new technology - it is actually more a new methodology and more importantly a new business life style.

Selling Software comes to its end. We are at the beginning of providing software based services. A SaaS company can not leave once a deal is signed - the engagement actually just begins at that point. SaaS is a new world with new aspects, new thoughts and new behaviors. SaaS provides new benefits, more simplicity but as markets grow there are more and more questions - I am currently tracking over 300 SaaS companies - end of last year I encountered about 200.

This is going to be one of the most exciting times in our industry!