Sightings in SaaS

Archive for August, 2009

Listened to Bruce Richardson from AMR Research speak today about cloud computing and he made a comment about the number of companies he talks to where the IT budget is more than the Marketing budget. “That’s just crazy,” he said, and I agree. Several years ago I ran into a Business Owner who had a wholesale/distribution business that was a perfect candidate for NetSuite.

During our conversation he let it be known that he had solved the issues of managing an on-premise system – he hired the guy from the software company who had installed it and trained his staff. I had to admit that he had a solved a pesky problem; he had a full time person devoted to running and maintaining his business system. I thought, at least he understand the importance of this system to his business. But how would it impact your business if you were able to use the cost of the IT guy in other areas, like marketing or additional sales staff? How about someone to develop a partner channel for the business? 

Every once in a while someone points out the obvious and makes it all too clear what the actual cost of on-premise systems is, like Richardson did today. In the case of the IT guy, the real cost is in the lost sales opportunities that the business owner passes up every day, week, month that he pays someone to support his system.

Was just notified that AMR Research is hosting a Webinar on SaaS ERP with AMR Research Chief Research Officer Bruce Richardson, Commco President and CEO Franklin Christopher – they are a NetSuite customer – and NetSuite CEO Zach Nelson. Should be an interesting hour. You can register here.

I have attended several of these in the past and I always find it interesting to hear how a particular company uses NetSuite for their business. Every company is different and NetSuite has the flexibility to accomodate a great deal of complexity. So if you are thinking that the cloud might be the right place for you, then this might be the right webinar to attend.

The most important question facing the company considering an ERP system, whether it is a replacement or a first time purchase, is ‘Does this system fit my business?’ It is a daunting question to answer, and most companies realize over time that the better question is ‘Is this system flexible enough to meet my business needs, not just today but in the future as well?’ It is impossible to meet all of a company’s needs out of the box, so flexibility is key. I’m sure that in this webinar you will hear a lot about flexibility. I hope you find it an hour well spent.

We recently finished up a project for GoEngineer, the largest reseller of SolidWorks 3D Design software in the Western US.

GoEngineer uses the NetSuite ERP/CRM system extensively, including a division that uses Advanced Project Accounting to manage a large professional services team. Previously they had the website hosted by a local company, and every time they needed a change they had to pick up the phone to speak to the principal, and then wait for time on his schedule.

What they really needed was a Content Management System, or CMS, to help them manage the site ongoing; adding new pages, products and training announcements on their schedule. The NetSuite CMS was a perfect fit. They didn’t have to learn another User Interface, it’s completely integrated with the rest of NetSuite, and it enables them to sell online effortlessly, they are doing a bit of e-commerce, as well as list new classes, events, whitepapers, videos, etc.

The key for GoEngineer was to find a way to put a lot of content into a site and keep it looking streamlined and classy. The last thing that GoEngineer wants is a ‘busy’ website. They sell B2B and need to present a professional face to their audience. At the same time they want engineers and designers to find interesting content that will help them make a decision about both SolidWorks and GoEngineer.

One of the neat customizations that we did on the site was a Calendar that lists all of the schedules classes that Go offers, by location. The allows current customers to check in and see when they might have a chance to send a new employee to a class, or take an advanced class themselves, and they can find it in the most convenient location. We also added some scrolling customer testimonials and placed a SolidWorks rotating advertisment on the interior pages.

A large site like this requires a good deal of content gathering and editing and Go’s Marketing Director Jennifer Douglas did an awesome job. Great site, great project.

Open Source applications exist in every category, like accounting and customer service, inventory management or salesforce automation. Now, some software Value Added Resellers, VARs, are taking open source applications into the cloud, meaning that they are installing them into shared infrastructure and platforms operated by vendors like Amazon or Rackspace.

The vendors own and operate the physical infrastructure including the servers and the communication bandwidth. On top of this infrastructure the vendor or the VAR installs operating systems and databases. Then on top of this the VAR installs open source business applications. The Customer operates their business on this platform by accessing it over the internet, with the normal security protocols in place.

The cloud by itself is a great move forward for computing. It’s radically more efficient, greener, and less expensive than everyone running their own little server farm. And open source software by itself is also fine, especially for the lower levels of software like operating systems and databases. But when you put open source business applications on top of the cloud, the best aspects of both are lost and you end up with a storm. Let’s take a look.

The cloud offers businesses a way to pay for utility computing. When they need and use more power, bandwidth, disc space, they pay for it. But just as demand spikes it can also drop. A retail chain may have huge needs in December and January, but much less in July and August. Why buy and maintain a computing infrastructure to handle the Christmas rush when the other 10 months of the year you utilize 20% of your load capacity? It’s wasteful because you still have to pay the electric bill every month.

On the cloud this problem goes away. You pay for what you use by leveraging a common infrastructure. Open Source applications however have a different reason for being. They exist so that a business can adapt the base code of the system to meet their very specific needs. Open Source applications are about a custom computing environment. A company that uses open source business applications does not want to be hindered by a common code base – they want to do things their way. They don’t want to vote on enhancements with 10,000 other users of the software; they want to do the enhancements and own the enhancements.

So on the one hand you have a common computing environment, and on the other an uncommon, idiosyncratic computing environment. When you mix the two it’s like bringing humid, hot air up from the Gulf of Mexico and introducing it to cold, dry air from Canada. Folks from Oklahoma to the Dakotas can tell you how this works. It’s not good.

You can see the appeal of this idea from the VAR’s point of view. They can essentially run their own Software as a Service, SaaS, operation without actually writing a system. They will have many billable service hours as they customize and install the applications, and over the ensuing years they can collect a nice percentage for ongoing support. They do not have the headache of managing the infrastructure themselves, nor do they have any capital outlays. It’s SaaS on the cheap.

But how about from the customer’s POV? What’s in it for them? They may save a few bucks on software licensing, but they now have a system built by a small VAR that has been customized to the umpteenth degree. Where are they if the VAR moves on, goes out of business, how will they continue to support an application code base that they do not understand built on an platform they have no idea of how to manage? Can they find another VAR to assume responsibility for their system? How long will it take them to come up to speed, and at what price?

Bottom line is that the combination of open source business applications and a cloud computing environment takes the best arguments for each and, together, turns them into a huge negative. Customized business applications need long term ownership and if your business is counting on them then you should own them. But by trusting a VAR to set them up in the cloud you have handed over ownership to a third party.

On the other hand, a true SaaS vendor, whether it’s Helpstream, or saleforce.com, or SuccessFactors or NetSuite, takes complete responsibility for generating, debugging, maintaining and upgrading the code base. They install this code base on a cloud of their choosing and therefore they can offer you, the customer, the utility computing efficiencies of the cloud. With their flexible systems, they can also offer you the ability to add on additional functionality for your particular business model. But they own the code base, not you or your VAR. They have the long term support of the system in mind. Sure, SaaS companies are merged, acquired and they sometimes even go out of business, but they are an order of magnitude more stable and dependable than a VAR.

In the end, open source business applications on the cloud are just too risky; they have no true owner and in the end may literally become orphans. You can put your own applications on the cloud; you can buy software services on the cloud; but having a VAR customize open source applications and put them on the cloud is a tornado waiting to happen.

Couple of recent headlines from NetSuite should have been commented on but I have been up to my ears this summer with other projects – like the ones that pay.

First, NetSuite now offers a financial only package. Very useful and a good move by NetSuite. This tells me that they understand that the SaaS model means that collaboration between applications from different vendors is a reality from which they cannot hide. We have always advocated an integrated suite at SightLines, as they have of course at NetSuite, but let’s face the music: Not everyone sees the world like this. Some people would rather run another CRM and link it to NetSuite Financials. Why not oblige them? The fact that both systems are SaaS actually enables this union. Again, we are not saying that it’s a union we would bless, but if dogs and cats living together is your dream, the joining is easier when both come in a SaaS mode, that’s for sure; especially if both parties have a web services api, which they do, by the way.

In another announcement, NetSuite surprised us when it revealed an acquisition of QuickArrow. QA is a SaaS company in the Professional Services Automation, PSA, category. In fact they were direct competitors of OpenAir, purchased by NetSuite last year. Why another acquisition in the same market? My guess is that NetSuite saw OpenAir as a way to add some very important functionality to its ERP offering. OpenAir gave NetSuite instant visibility and viability in the Professional Services arena. QuickArrow is a way to strengthen that position and add customers, frankly. The direction, as explained on the QuickArrow website, is to move those QA customers who need additional functionality to OpenAir, and of course all of them will be offered NetSuite Financials, or the full Suite.

One interesting side note on the QuickArrow acquisition is that salesforce.com will, when the deal is completed, become a NetSuite customer – they currently use QuickArrow. But that’s not a big deal as NetSuite now offers a link from its applications to salesforce.com, check out the OpenAir site for details.

PSA, as NetSuite CEO Zach Nelson noted in the most recent earnings call, is a robust growth area, perfectly correlated to the growth of professional services itself in advanced economies. It also presents a nice fit for the SaaS model because it inevitably presents the company with geographic challenges: Multiple offices, staff in the field, difficult communication channels. Operating a company with this model online makes infinite good sense, from employee self -service for hours and expenses, to multiple offices using the same ledger and rolling it all together at month end. Everyone has perfect visibility into their role and data, from any node on the Internet. That in itself is a very compelling story.

I also find it interesting to see NetSuite’s strategy for growth at work. Obviously the bulk of their growth is and will continue to be organic, but if you have evolved a great knowledge base around running a SaaS business over the past 11 years, as NetSuite has, then acquisitions of other SaaS companies makes sense from two separate angles; you can bring enough efficiencies to bear on the target that it becomes more profitable over time; and you can entice its customers to buy other products in your SaaS universe.

From a pure business point of view, when you have one good reason to do something, the risk is normally too great to overcome. But when you have 2 or more good reasons to act, you have a sound business case and the risk, though ever present, subsides somewhat. The point is that in the future I can see NetSuite, the parent company, owning and running several SaaS companies in various categories. Users of one service will never be forced to purchase other services, but they will have a natural inclination to at least take a look. So the question that remains is from what SaaS category NetSuite makes its next acquisition?

I thought this was an interesting interview with Zach Nelson, NetSuite’s CEO, in a recent Forbes publication.

The questions were tough and right to the heart of NetSuite’s business and SaaS – software as a service, especially on security.  On several occasions Nelson mentions that the target maket is th 5 million companies in the segment just below the Fortune 500. This might be a ‘bit’ of an exaggeration but we’ll give it to him. These are actually good size companies, most of them. They probably have over 200 employees and several locations, and many of them have of course an employee count in the 1000’s. 

My one question for Nelson, which was not asked, is how NetSuite is going to help to create a SaaS ecosystem in its targeted customer base. For example, if a company is going to use a SaaS ERP and CRM system then you have to expect it is also going to use a SaaS HR System, and a SaaS Supply Chain, etc.. As I wrote recently, NetSuite suffers in my opinion from a lack of competition from other SaaS ERP systems in this market, and helping to create a SaaS ecosystem would be one way to crack this nut.

Of course, it’s a lot easier said than done, as anyone in business knows. There is a lot less collaboration between software firms that have synergistic, as opposed to competitive products, than one would expect. Alliances are difficult to start and often end up creating more problems than they solve. NetSuite has also used some of the proceeds from 2007’s IPO to purchase some products that gave it broader functionality – like OpenAir and QuickArrow, both in the Professional Services Automatoin space. Buy or ally – probably not a question NetSuite or others can answer at this time, and this also makes alliances more difficult. 

At the very least, some of the key SaaS players in various software verticals should really think about creating a unified force. It would be great to see Saleforce.com, SuccessFactors, Taleo, Concur, NetSuite, HelpStream and several others together in a SaaS showplace.

Microsoft and Google recently announced their intentions to revisit WWI’s Battle of Passchendaele. There they will slug it out in mud up to their waste. Microsoft will try to lay waste to the encroaching Google empire with a frontal attack on Google’s search franchise. Google doesn’t want to die just in the trenches though, when there’s real glory out in the open field making a frontal assault on MS’s Windows operating system and Office applications.

Google is going to engineer a new pc operating system and has already released a set of online applications for creating documents and spreadsheets. They will also host your email if you are a fairly large company. MS now has Bing search and a new deal with Yahoo to run Yahoo’s search. My humble suggestion to General Balmer is that they take a look at how easy and useful Googles Adwords is for a customer to use, and then take a look at the completely useless and unfathomable Yahoo search application. This would be a small but welcome step in the right direction, but I digress.

Or perhaps I do not digress. In all the talk about the new MS/Yahoo search I have only seen one comment about the paid search advertising application that a company uses to put it’s short add on top or right side of the page. This common omission reveals the bias that you see not only in the media but in the companies involved, also. Thousands of enterprises, from the largest to the smallest, use search advertising as a way of putting their product or service in front of a person who is looking for that particular product or service. But the companies have only really talked about the searcher, not the searchee, in this whole affair. As is the norm now, the enterprise is forgotten. The whole purpose of search for Yahoo, MS and Google is to attract enterprises to place their adds for particular keywords. That’s the monetization part of search. Without it you wouldn’t have a Google.

But for all of the billions that Google and MS have made over the years from the coffers of the Enterprises that buy software or advertising, where is the payback? Where is the love, man? MS spends its every waking minute trying to engineer a new I-pod competitor (they finally put the Zune out of its misery last week), or trying to be #1 in children’s video game players. What do they have for the enterprise? How about Vista? How about 4 different business software application lines that they purchased and are now harvesting without any new development? How about Office, a perfect example of bloatware?

Google is headed in the same direction. Now that they are all rich with our cash, the enterprise is forgotten. They’re all about the consumer now. Consumer cell phones to compete with the I-phone. Consumer operating system for small computing devices. The small computing devices themselves. To wage war with MS Google will soon be on the shelves of the local mall.

If you are a corporate technology buyer at any level, you have to wonder how any of this helps you. Every year a greater and greater percenatage of your budget goes to these ingrates and what go you get in return? You get to buy your kid a new personal music device powered by Moogle? It’s more than sad or disappointing, it’s humiliating.

I’m all for competition and frankly I wish they could sell seats to this fight on pay per view. I’d pony up. But at some point the enterpise must ask why we are always paying for everyone else’s good time. When I buy a software service I want to know that part of my outlay is plowed back into the service to make it better, faster, more complete. Say what you want about Oracle, NetSuite or SAP, but at least they don’t turn my corporate IT budget into toys for teens.

I just read Larry Dignan’s post over on ZDnet about the tipping point for on-demand ERP, and my first reaction is that Larry is correct: There will come a time when on-demand ERP loses that new kid on the block look and becomes the enterprise’s first selection when picking teams. My second reaction is that that there is only 1.5 players right now and unless that changes there will not be a tipping point, not anytime soon. Let me explain.

As Larry clearly delineates in the article there are really only 2 players in the on-demand ERP market at present: NetSuite and SAP’s BusinessByDesign. But SAP has had an awful time trying to bring ByDesign to market and their current strategy leaves one scratching one’s head vigorously. SAP’s biggest issue is that they have not been able to scale the ByDesign applications for new customers, and now they are baking in business intelligence, making the product even more difficult to scale. You wonder if they are killing ByDesign with kindness. At any rate, BBD is not generally available and the current thinking is that it won’t be until some time in 2010.

So where does that leave us? We have NetSuite with a full ERP less manufacturing - though partner RootStock is taking care of that – and a fully integrated CRM and E-commerce engine as well. There is Intaact, very strong on the finance side but less interesting when it comes to operations. Then there is Coda2Go, a financial app built on the SalesForce platform with an interface to the SF CRM apps. But that’s it. There are a few other offerings of simple accounting applications, and some even simpler invoicing applications, on demand. 

But there are not enough competitors out there to create a strong team. My sense is that software buyers, whether they are the business owner or the CIO or whatever, like to look at several strong players before making a choice. Right now, that means looking at a couple of on-demand players lined up alongside of several on-premise players. 

This is NetSuite’s unique dilemma: They are first to market, far out in front of everyone else, so much so that they have not yet been challenged. It must make tech buyers wonder why the field is so sparsely populated? 

Larry commits to a tipping point 2 or 3 years out for on-demand ERP, and that’s probably within reason. But the quicker NetSuite finds some other players in this market, the quicker the tipping point will happen. On-premise ERP really got going when buyers saw Oracle, SAP, Peoplesoft, Lawson and dozens of others in the market. Vendor exuberance for an idea, like integrated enterprise resource planning applications, created excitement in the buyer community and furthered their acceptance of integration over best of breed. In my opinion we will need to see a couple of strong new players in on-demand before buyers sense the excitement of this new idea.