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Quo Vadis Facebook?

The social networking company is looking for money – lots of money. How many do they really need and what then?

2007 estimated headcount 450

2008 estimated headcount 800
2008 estimated cash flow negative $150MM
Above numbers reported by TechCrunch

2009 estimated headcount 1,200
That translates to a cost structure of roughly $200,000,000 (200MM)
With revenues (I don’t see more than 100MM) this is $100MM under.
Now add the enormous cost of data centers that need to stream the videos, the photos and the rest of the application.

The clock is ticking. So what options has Facebook?
1) Cut Cost / Layoff
Either cut staff in half to get to break even
That’s possible but hard to do. But better saving 50% than losing all.
It would also mean the company is getting profitable and may do an IPO in a year or two.
2) Double revenue
But with advertising? That’s so much harder when even advertising machine Google admits that ad revenue is flat – meaning it’s probably going down. After all, the world is beginning to realize that the advertising model is not a business model after all.
3) Additional Funding
Get $500 Million to survive 5 more years, freeze hiring and use the time to develop a product/service value based business model – probably the hardest but still possible. In MHO the only way to keep current investors happy. Remember Jack Walsh: "Shareholder value is the dumbest thing in the world:"
4) Sell
OK then there is the option to sell the whole package - better now than never. Maybe for a billion or two - again remember Jack Welsh.

Then there is competition (possible acquirer):
1) Google with $16B cash in the bank has some nice little wiggle room
2) Less aggressive but more stable LinkedIn could weak up (I know hard to believe) and with just a few smart tactical moves get really dangerous.
3) MySpace – don’t underestimate those guys. They are less strategic more like a news paper driven network – but they have 3 things: a) Huge momentum, b) Financial backing c) the option to break into business (they are just a bid sleepy in that regard)
4) Microsoft? Not really. No vision, totally a-social DNA, no momentum… just money and then we could list any other company with money.
5) The SAP / Oracle world. Hmm interesting. Unlike Microsoft, they haven’t burned their name in social media yet. Just two massive companies but may become an interesting contender in the game in the next two years.

Disclosure: The above numbers are just rough estimates.
But you get the idea

@AxelS

The king is dead - long live the king

After focusing my blogging on Xeequa and lately on Social Media Academy I decided to to do some personal blogging one in a while. And as such I revitalize this blog here at Blogger.

Generation Y

Y is after X - it's that simple. But Y is very different!!!!

97% own a Personal Computer
94% own a cell phone
75% of the college students have a social network account

About 76 Million are entering the job space right now.
Businesses better get ready to know about the power and connectivity of that generation. If you are not connected you are out.

Social Media - where do you go

Social media has been an interesting ride. Unlike technology that was pushed into the market and a lot of ad dollars made it well known - it was the opposite. The market picked it up and then many asked - what happened?

Every once in a while things change at speed of light and many still didn't even know. Why? Because 1 billion of the 6 billion people on earth communicate amongst each other (like the 15 - 25 year old) without letting the rest participate in the conversation. Then once we all know it we lokk back and just wonder ;-)

Alternative Financing

I came across an interesting white paper put together by SaaS-Capital and ThinkStrategies: “Understanding the Financial Implications of the SaaS Business Model.” It doesn't need to be always Venture Capital.

Also I set down with a fellow CEO this morning discussing the implications of his highly engaged and emotional investors. Three investors own 52% of the company and have 3 different opinion what the strategy of the company should be. What's left for the CEO and management team? Leaving the company.

Fortunately the market is shifting rapidly... alternatives grow equally fast.

The decadence of Venture Capital

Venture capital is out. The financial world is evolving and so are investment strategies. In a recent post Guy Kawasaki pledged for focusing on inexperienced entrepreneurs. About a week ago I was on a panel with Henry Wong from Garage Ventures inviting everybody who want to start a company to grab his business card. His pitch: "Don't worry about valuation - think what you can do with all the money".

An experienced entrepreneur would just roll his eyes and walk away. The ROI on Sandhill Road is no better than Wall Street. So why take the risk? VCs are in trouble and the latest post "In search of inexperience shows it".

The 7 reasons why entrepreneurs avoid Venture Capital today:

1) Ownership
Creating a company and following the entrepreneurial instinct is more than just fulfilling a dream to be one’s own boss. It is creating something that is better than what we have today, a journey to find people who help shape the idea, will buy it because it is better and a journey of evolution, improvement success and failure. Entrepreneurs need partners and not a financial owner that takes 50% of a company for a hand full of dollars and make it their own.

2) Passion
Entrepreneurs are extremely passionate about their idea and need to go their way with no interruption and constant "help" from an investor. Passion is not a guarantee for success but a key ingredient that once broken, breaks the business

3) Founding Leadership
A recent report from Morgan Stanly compared the world leading innovators such as Microsoft, Google, Cisco and others. One of the metrics was passionate founders in the executive bench. 9 out of ten got a check. VCs typically replace the leadership team within 3-5 years and bring "experienced" executives to the team, making the founder a second degree player.

4) Business Objectives
VCs are in the business’ business. Making money from shoving around companies. Butting less and less money in the first place to invest in more and degrade to 1:10 ration of a winning deal to a 1:20 ration. It's also called risk management. Entrepreneurs aren't players who like to play in that category. Business objectives of both groups have departed to far from each other.

5) Disruption
True entrepreneurs come up with disruptive ideas and try to make a difference. VCs are not really looking for such ideas - even so they say so. When Google was founded, it was Andreas Bechtolsheimer, one of the founding members of Sun Microsystems who gave Google money not a VC - Jee who would invest in this where we have Yahoo. Since Google went public VCs invested in over 50 search engines. Very disrupting. VCs didn't invest in MySpace or YouTube in the first place but now invest in 100ds of social networks or video sites - very disrupting.

6) Investment Profile
True Entrepreneurs ceased building their business plan to match a best practices list of people like Guy Kawasaki hoping that it matches the trend. The opposite is the case, true entrepreneurs have counterintuitive ideas, don't follow mean stream and create businesses in very different ways. entrepreneurship is no longer matching the idea of a VC to invest in.

7) Venture Capital Success
Entrepreneurs became very critical when it comes to the success of a VC. While some entrepreneurs don't really care as long as they get the money - true entrepreneurs do care. Today’s ROI of an average VC firm is lousy. They are under huge pressure to deliver results to their investors in order to maintain their management fees of several hundred thousand dollars per head and keep their Aston Martins and Ferraries. That pressure makes them irrational. And the downfall continues.



At the same time very attractive alternatives raised from that downfall. Healthy individual investors are much more likely to invest in disruptive technologies and true entrepreneurs. Large successful companies all have investment arms and seek people with new ideas and the ability to make the idea a successful reality. Even banks, which kind of evaporated from the entrepreneur’s scene, are back with very creative offers. And as Garage Ventures strategy is just a representation of what other VCs doing, seeking inexperienced entrepreneurs at all cost - the success rate will further decline until Venture Capital may completely reinvent itself sometimes in the very distant future.

Clearly people like me know that they are "unfundable" after stating their opinion. But that's the point, we don't care. Venture capital is just no longer of any interest - we are going after true investors who have only one goal: using their money to make more money - instead of expressing their opinions on tactical measures at board meetings.

Yahoo blocks Xeequa and others

It looks like Yahoo has a new spam filter. All emails from Xeequa, Tanooma and ChannelExcellence are blocked by Yahoo. We are working on the issue but it is extremely difficult to deal with Yahoo - so in the meantime GMAIL accounts work just fine.

To call Yahoo for support is another interesting exercise: pay $29

Oh well - another item in the comparison list Google vs. Yahoo

Internet Monopoly

Today I tried to get the new Fiber to the home from Verizon (FiOS). Unfortunately our area is not served by Verizon. O-ton Verizon sales rep :"You know it is a monopoly we can't serve your area, AT&T is". Hmm - I tries AT&T but they don't have any high speed Internet in our area. So I checked back with my current provider Comcast Cable - yes, I have Internet via cable but when I check bandwidth with my little tool I see upload speed of some 70 Kb.

Wow - and that all happens in Silicon Valley. Some times I hope I would be somewhere in Eastern Europe, 5MB fiber to the home.

So was that what we had in mind when we went from a government owned telecom to the "free market"?

Can you hear me - can you hear me now?

Happy New Year 2007

With the beginning of the new year and changes in the blog software I'm experimenting with a new Blog for Xeequa and updating this blog. The new software for Blogger is pretty cool - B U T as I converted it to the new format I guess I lost a lot of the old customizations such as the Technorati Links, Feedburner Links etc. Oh well...

Please visit also my new blog which is http://Xeequa.blogspot.com

Web 2.007 (Web two dot oo seven)

And of course – in the typical spirit of Silicon Valley – here are some more predictions:

- YouTube will have much more users then MySpace
- Web 2.0 will enter the business world
- LinkedIn will go public
- Investments in traditional software will be next to nothing end of 07
- The number of Internet users: 1 Billion
will become the "number of the year" for all marketers
- World of Warcraft may be another IPO candidate
but may be purchased by Sony and runs on the “cell”
- Xeequa will have more customers by end of 2007 than SFDC
(just kidding – but you get the ambition)
- Second Life will become the leading virtual business party spot
- TV and print adds will further plunge to total none importance
- Relevance as measured by Technorati, Alexa and others
will become the market cap index for private companies

Let me know what you predict :-)

Xeequa receives first award

What an honor - the company is not even launched yet and we get our first award. On Zolis block you can read:
And the Winner of the Weirdest Company Name Award is: Xeequa
I couldn't help to get some explanation. But hear the whole story on the 15th when we launch the company.
In any case, thanks Zoli.

Xeequa Company Launch

For many this this will come as a surprise. Only a hand full of people and a team of engineers knew about it. Today we declare end of stealth.

January 15th 2007 I will launch an new force in the collaboration space and particular Indirect Business. Xeequa, the new company is in business to help companies instantly create and manage profitable partner alliances. Unlike today’s channel management solutions, which are owned by one vendor for “their” channel, Xeequa allows instant Cross-Company Collaboration for all companies with all partners simultaneously. All based on Web 2.0 technology.

Tanooma, the SaaS directory, will also early next year come out of Beta. We already changed the advertising mechanism to Adsense by Google which allows us to simply interact with Google to leverage our ad space. SaaS companies can self register; self service their profile so that Tanooma is pretty much a fully automated - self supporting entity. Registering a company or searching through the SaaS industry on Tanooma is completely free of charge and we have no intention to charge for being represented there. That allows us to have the most complete directory in the SaaS space.

SIIA OnDemand Conference

An interesting conference – somewhat competing with Saascon in San Francisco. While Saascon was directed to SaaS End Consumer and bringing SaaS closer to the broader public, "OnDemand" was a conference for industry leaders discussing the future of SaaS.

The first few presentations reflected the clear trends and expectations that SaaS is going mainstream and many speakers and panelists predicted that SaaS will replace many on premise applications in the next few years. However some on premise applications like global large scale ERP implementations will remain behind the firewall for quite some years. An analogy was drawn to the 80's when PCs replaced terminals - yet today - 25 years later - mainframes and even terminals are still in business. The SaaS future seems to be in the hands of the new generation software companies who are built for SaaS from ground up. Discussions made obvious that companies who need to change from a license product business to an on-demand model will have a very hard time. While some predict that most license software companies will fail to make the move, others put the example of Concur up, who successfully made that transition in a two year effort.

An interestingly large portion of the conversation on the podium and on the floor was around indirect channels. While sales organizations are not large enough and marketing budgets are limited, SaaS vendors need to find ways to attract partners to spread the word and help implement their solutions. Some companies present their successes with channels.

2 month Sabbatical

Wow - 2 month through the US from coast to coast. Yes, this was a very educational, interesting and relaxing tour. Never in my live I had 2 month off - and yes it is hard to get back into business mode. On the other hand this was so helpful to better understand the country, the diverse cultures, peoples, challenges and opportunities. We came back thinking "California is an island".

Software as a Service is big - in California. But in the rest of the US? We talked probably to more than 100 different folks in Bed & Breakfasts, Hotels, Motels, Restaurants, Gas Stations, Supermarkets, in Parks or elsewhere - not a single person had an idea what Software as a Service is. Hmmm - so how are we doing in terms of SaaS marketing?

We visited computer stores: "What is hot these days?" "Multimedia in any way or shape." Videos, photos, MP3... Any business around Internet? Cable Modems, better screens, faster machines, a laptop for grandpa. On software? Antivirus programs. Microsoft? Hmm don't know nothing hot.

Now we are back and totally recharged

Interviewing Channel Thought Leaders

I interviewed several channel thought leaders from within the SaaS industry and share the details in my other blog "Channel-Excellence".

The essence so far:
The SaaS Channel is finally coming into existence. It is not so much the traditional VAR and Reseller now moving to SaaS, but much more completely new companies that form a business specifically to fill the gaps of the SaaS industry. These catalysts do basically 3 things right - that truly enhances the value of the SaaS vendors:

1) They connect (integrate) multiple SaaS applications to a complete information infrastructure (Implementation Services).
2) They provide additional ongoing services including content creation, modification or improvement in very many shapes (Recurring Services Model) .
3) They help smaller local businesses to overhaul and improve their very individual business processes and leverage the fast to implement SaaS application to provide tools to actually service those improved processes (Consultative Services).

The SaaS channels are true catalysts to the SaaS industry. They work in a very different way than traditional VARs and resellers did - and exactly that is the value they provide. SaaS Catalysts accelerate the SaaS industry and will become a true cornerstone to our future.

1,000 podcasts

Podcast has been in interesting topic for many people in the last few years. One person how ever took it to a new extreme: Eric Mattson. His own goal: Conducting 1,000 podcasts, interviewing marketers, innovators, entrepreneurs and other interesting people. I was number 68. Check it out.

Channel Excellence - the book

After 25 years in indirect business - growing channels for Rockwell International, building my own global distribution organization (Computer 2000), today part of Tech Data, successfully growing yet a new channel during the DotCom boom (Infinigate) - while the saying went "The internet eliminates the middleman", then building a new category of Channel CRM Software as founder and CEO of BlueRoads and lately helping the SaaS industry to create a whole new channel structure, I decided to write a book about "Channel Excellence".

I'm pretty far and plan to publish it in about 12 weeks. In the meantime I will interview channel chiefs, channel workers and people who helped shape the indirect channels in the high tech industry. Any inputs are very welcome!

To support that project I created a separate blog ay http://www.channelexcellence.com

Channel Sales & SaaS

Much is written about how Software as a Service will kill the indirect channel. SaaS vendors flip a switch and the application is live. It seams that the 250,000+ US based VARs and resellers go out of business any soon. But wasn’t that the story when the Internet came into existence? Or earlier when CDW opened their doors? Or… 1850 when the industrial revolution started?

N O – the channel isn’t going to die!
I recently talked to a few executives in medium and larger size organizations. And there was 1 single question that makes it so obvious what role a channel needs to play in SaaS: “Who has the capability to help us put it all together” – “Who can help me composing my new IT world which may consist of multiple vendors for different jobs i.e. Sales, HR, Expense Management and so forth”. The channel business simply hasn’t really started yet. But here are already several cases with great success stories.

B U T – the new industry needs a new type of channel.
There is no need for a warehouse, for technicians to install and configure software. The new world needs business savvy and business process aware people. There is no margin to be made from reselling but money from consulting, implementation, integration and ongoing maintenance. Feel free to download my whitepaper at Tanooma.


SaaS is not only no danger for the channel – it may actually be the biggest business opportunity in IT history. About 1 Million early adopter started with SaaS so far. About 750 Million will join the party in the next 10 years or so. That requires 1 – 5 Million Channel partners to act as catalysts for that new industry; it may turn out an even bigger channel than in the traditional IT industry.

TCO for SaaS Applications

SaaS is all different and so is their TCO discussion!
The discussion about the total cost of ownership for SaaS solutions is on the rise. In my last 5 years of selling SaaS solutions into corporate America – customers range from multi billion dollar global enterprises where we installed truly global solutions spanning multiple continents and even multiple external legally independent but connected organizations – the question of TCO was present, yet the conclusion may come as a surprise.

Let me start with the “good old days of IT”. Total cost of ownership was the “sum of all fears”. And they came in various flavors and shapes. The calculation typically started with server systems, backup capacity, network infrastructure, routers, hubs, cables, then of course the respective software, the operating system, the database, the applications itself, the tools, update cost, migration cost, maintenance contracts for software and hardware. Then we got more sophisticated and included air-conditioning, the floor space, energy, related facility cost and of course the personnel to run the whole show. Lately there is even more cost involved such as rising security cost, disaster recovery management related cost and also all the management overhead. As we try to customize the solution more and more – sometimes we customize us to death – we have cost that is even harder to calculate. With all that, financing the whole structure became another none negligible cost item.

To get even more sophisticated we added opportunity cost, downtime cost, resources that needed to be available in case something goes wrong. In the 90s we learned that the actual software for instance is actually just some 15% of the total cost (depending which calculation you use and which consultant you ask). And at the end we even had to purchase software that helped us to calculate the TCO which came on top of the TCO.

After about 20 years of TCO discussions it is interesting to note that there is still no generally accepted method or formula to calculate TCO in a way that we can compare values, benchmark ourselves and our vendors. Even worse – TCO became a ever more fuzzy marketing weapon with no real value associated that either financial analysts can build a judgment on, executives can base decisions on or purchases can be measured by.

Now let us look into the TCO calculation for a modern software as a service based information system: Let me take the same buckets: Server, backup, software, operating system, database, updates, migration, aircon, space, infrastructure, support, services, teams, financing and all the rest of it. Isn’t it interesting that we get all that for $20-$200 per user per month from a SaaS provider depending what we are using? What do we do at BlueRoads, Salesforce.com, Tanooma or who ever in the SaaS space for customers large or small, regardless whether it is a multi billion dollar Avaya or a 10 Million Dollar medical device startup. We, the SaaS providers, own and run the data center. We do OS upgrades; we manage the database servers and build the application around the database we choose. We do not need to worry about compatibility with 3 database vendors and their 50 different versions. We deployed the application, we provided the update, we manage the data migration at major updates, we support the user because we ARE the technical back end, we pay for energy, the server space. We do the system financing, the depreciation, the planning, the disaster recovery. The monthly software fee BECOMES the TCO unless we do something that is simply yesterday IT – we force the vendor to deploy it behind the firewall, customize it, put it on the customer’s server, and ensure compatibility to their database…
But that is NOT Software as a Service – this is an in-house web based application server, no different from any client server application.

Now the magic question: How on earth can a SaaS provider do that all for 60 bucks a month? Well if you think of it, Salesforce.com spreads their IT cost over 20,000 companies – not 1. But also for smaller SaaS companies – IT cost is may be still 1/1,000 of the cost of an internal IT organization simply by spreading it over 1,000 customers.

My conclusion – put the TCO discussion to rest (Sorry Gartner) – and may be worth mentioning there is no OWNERSHIP of the application, it is a service.