Category: software Page 13 of 14

Costs of deploying SAAS

On August 28, 2008

SAAS is a cheap delivery model right? Well it depends if you are a technical or a business oriented person. There was a very interesting article on Business Spectator today regarding the costs of deploying SAAS software.

One of the most interesting statistics for me was that Salesforce.com (one of the few genuinely profitable SAAS success stories) spends half its revenue on sales and marketing. When I think about it it makes sense, but I guess coming from a technology background it isn’t something that I would have initially thought of. The scary thought that comes after this is what percentage of revenue is taken up once you include support as well? The even scarier one is are you really achieving scalability if these represent the vast majority your costs?

As the article points out, there are three economic fundamentals:

How much it costs to attract new customers (known as subscriber acquisition costs)
How much money can be extracted from those customers in regular subscriptions (known as “average revenue per user”, or ARPU)
How often subscribers drop out and have to be replaced (the churn rate)

For point 1 I think SAAS companies still rely on their old mantra that the SAAS model generally is still struggling for widespread momentum. I think this still holds true, but perhaps these days more because of the costs of migration and training rather than lack of market acceptance or knowledge. The sales and marketing costs are therefore quite high as they are pulling lagging and inflexible customers into what is now a competitive market place with low barriers of entry.

These low barriers of entry tie into the last two points. Companies can theoretically treat SAAS software like they would their telephone company and switch at any stage. This means that new entrants can come in and undercut the established players, keeping subscription revenues down across the board.

The interesting part for me is that online classifieds is somewhat like the SAAS model. It relies on subscriptions and has a low barrier to entry. Why are they so profitable then? I have a few ideas:

A new twist on the established classifieds model, rather than a whole new model
Industry maturity leading to a consolidation of players (and profits)
The difficulties in targeting consumers online

To be honest I really feel like I am missing something here. Can anyone help?

GPL Licencing Headaches

By Scott Savage

On August 21, 2008

In Business, software

Let me say this from the start, I think Open Source software is the way of the future. Let me also say that I am not a lawyer. On that point I find it incredibly ironic that the urban definition of the IANAL acronym disclaimer directly references the GPL. This is even taken one step further with another more ridiculous acronym created during a GPL discussion, which conclusively proves that giving acronym loving nerds a sniff of legal jargon is a recipe for disaster.

It also helps explain my point, the GPL isn’t the Open Source saviour some people think it is. I hate to list points, because the people feel they need to find a way to argue against each one rather than the logic as a whole, but I am going to do it anyway:

Money = Evil – Any efforts to profit from Open Source development work is treated with scorn. Comments such as “To release a non-free program is always ethically tainted” frustrate me. Equally promoting an Open Source product does not give you licence to trash commercial software. They are your competitors, if you think you are on their level then treat them with respect.
Discourages Integration – The GPL is brilliant for making utilities. Compilers, databases and graphics programs are all essentially utilities that you interface with in a certain way, but never extend or deeply customise for your own purposes. Deep integration is one of the biggest competitive advantages that Open Source has over commercial software packages, so why make it hard? For example SugarCRM allows web service integration; but even modules, templates and dashlets that integrate within the existing API’s are considered to be covered under the GPL. Is this really a deep extension of the core product?
Patent Protection – Patents are either loved or hated, usually depending on whether your name is on one or not. Regardless, the fact is that they are not going away. Open Source products are just as vulnerable to patent infringements and litigation as commercial software is. As the lines between Open Source and commercial work continue to blur, it is emerging that corporate indemnification is almost becoming a quality assurance stamp. A community cannot offer indemnification, so they really need to focus on their competitive advantages. Stay away from heavy duty licences that just muddy the waters for smaller businesses and institutions, don’t forget a hatred of licences seeded your whole industry!

As with anything legal there is no ironclad solution. As far as I can see the solution is to make it as easy as possible for people to contribute maximum value with minimum overheads and receive value for whatever purpose they desire. Rely on the fact that producing a commercial product that is 99% Open Source is not a safe, competitor-free business model!

The Rise of CRM

By Scott Savage

On September 12, 2006

In Business, CRM, software

Long’s post about talking to customers sparked my interest due to my current thesis work surrounding CRM packages. It raises a very interesting question, and that is do these companies genuinely not care or are they not capable of caring?

A company can only ‘appear’ to be capable of caring if it has invested in systems that ensure each customer interaction is responded to in the best possible way (for both the customer and the company). This requires a lot of business strategy planning and scripting, often using inputs such as customer surveys, psychologists, marketing managers and front line staff. Getting to know your customer clearly takes a lot of time and effort.

All this planning work is in vain however without a successful implementation. Big companies for many years have invested heavily (millions of $) in packages from SAP and Oracle.

It is only now that small and medium enterprises (SME’s) are investing in this area. This shift has mainly occurred due to 2 things, an increase in customer service quality expectations and a decrease in the implementation cost of CRM software.

To give you an idea of what CRM software is capable of I would suggest watching this demo video. It is tucked away on the Microsoft Dynamics website, but it gives an excellent overview of how a CRM system works.

Microsoft and a number of other providers are making a large scale push into the smaller end of the market. By smaller I definitely mean employee numbers, not value. In Australia the SME market actually represents 92% of businesses and 80% of total business value. As far as developing areas of IT go this is a huge one, and it brings with it a whole load of business analyst, software customisation/integration and many other job opportunities
with it.

The exciting part for me however is not that I will have a career path, but that IT is being recognised as a business driver and competitive advantage rather than a necessarily evil to support a business. The TLA‘s of CRM, SFA, ERP and logistics areas are leading the way in this area. One day will the CIO always
have a seat at the board table? Will IT staff be recognised and valued as revenue generators and as holders of crucial business knowledge? Sooner or later, time will tell.