May 10, 2005 – Emergic

Selling Software as a Service

Back when we started AlwaysOn in 2002, we were initially very enamored of Salesforce.com. “How cool,” we thought, “we can have a robust CRM system for a low subscription price per seat. And no download, no backing up stuff, all the information available from any web connection.” We were convinced that most small-to-medium companies would turn to an instant, cheap, and powerful software-as-a-service solution like this to manage their sales teamsand other major IT applications. Since these early days, the software-as-a-service industry has been growing 26% annually and should hit $8 billion by 2008, according to a study by market research firm IDC. “We are just about at the point where almost any service can be set up on the web in a secure, easy-to-use, self-service, and mobile environment,” said John Doerr. “The final stage is developing a true sense of community. Now that this is all coming together, all sorts of big market opportunities exist.”

At AO we think a lot of two private companies that could really leverage this model. They are NetSuite, which is largely owned by Larry Ellison, and JotSpot, which was started by two of the founders of Excite and is funded by Mayfield and El Dorado Ventures. NetSuite could become a QuickBooks and Salesforce.com killer, because it combines e-commerce, accounting, and CRM in one easy to use software-as-a-service package. Now that we’ve implemented it ourselves, it makes our old Salesforce.com service look like a mere glorified contact management system.

JotSpot is an “application wiki.” You may wonder what the heck that is. Well, imagine if you could take all those Excel spreadsheets that you use to manage everything in your business that your main apps don’t, and imagine that you could easily throw them up in an open webpage environment, so anybody you designated could see and update those spreadsheets. “To put up a whole app in the JotSpot environment takes the skill of an HTML programmer, but once it’s up, pretty much anyone can join in and modify the information,” explained Joe Kraus, JotSpot’s CEO. Using Chris Anderson’s “long tail” illustration, your main (or “head”) applications are your accounting, CRM, etc., but you also have all these little custom (or “tail”) apps you’ve created to manage smaller projects. Those are the ones JotSpot hopes to help you manage. “Excite didn’t make it because we were too busy trying to sell ads to the big advertisers, while Google set up a way for all the little guys to advertise who could never afford to before Google’s programs,” Joe says. “It turned out that selling ads to the little guys on the “long tail” represented a pretty huge market opportunity.”

There is also some resurgence to the idea of glorified ISPs setting up highly efficient data centers with cool new second-tier web solutions like those offered by Topspin and Redline Networks, and selling your hardware as a service. Sun is making a big play in what Sun president Jonathan Schwartz calls “utility computing.” We like the idea, and definitely believe in the new generation of hardware vendors who are optimizing our back-ends, but we’ll have to wait and see what kind of profits can be made renting out big datacenter functions.

Television Networks in the 21st Century

Deloitte Touche has a special report. From an accompanying press release:

The report, Television Networks in the 21st Century: Critical mass in a fragmenting world, argues that the model of a few dominant network channels funded by advertising has long been disappearing and may soon be gone for good. However, these changes also create new opportunities for networks that can evolve into a multi-dimensional, highly adaptable, customer-focused model. They also are expected to result in a variety of innovative products and services for consumers.

“Today’s consumers are seeking content across an expanding array of transmission media, channels, interactive platforms and devices,” said Tony Kern, deputy managing principal for the U.S. TMT group. “As a result, consumers and their pocketbooks will be increasingly spread across a wider range of options. Audiences will splinter into many smaller pieces, even in countries that have undergone fragmentation for years. Networks will no longer attract mass audiences, and therefore they won’t be able to charge premiums to advertisers. Their legacy business model will no longer be viable.

“However, there is also good news,” said Kern. “Demand for content is exploding in all forms of media, and this creates significant opportunities. Cable subscription revenue has tripled since 1997, and DVD revenues have skyrocketed by a factor of 15. New mediums such as Internet Protocol Television (IP TV) have the potential to drive revenues even higher.”

The report predicts that successful television networks will adapt to this new world by minimizing the fragmentation of their audiences and generating income from entirely new activities. They will:

* Offer content and programming across a variety of media channels and formats;
* Re-package and market content not just as products but also services;
* Significantly extend the contents lifespan, by offering more digital content that can be quickly and easily packaged, and sold or rented across a wide range of media including physical packages such as DVD, VHS and memory cards and electronic downloads via wired and wireless networks.

Some of the future products and services that may be available to consumers include:

On-demand content A warehouse of audio and video content for a wide range of uses, such as web-casts, radio airplay, mobile phone downloads, and Video-on-Demand.

Interactivity Participation, voting, purchasing, news and information, on-line games, questions and comment submission, and web-based chat.

Events Tie-in events such as the concerts based around the Pop Idol and American Idol series.

“These new products and services will enhance the television networks’ relationships with consumers, while at the same time providing a reliable stream of subscription revenue and repeat business.” concluded Kern.

Mobile Web

Russell Beattie has a couple posts [1 2] on the state of the mobile web and what needs to be done:

What’s wrong with [the mobile sites]? Well, first is the content: Most of it is truncated down to just snippets of information. Why? I click on my mobile web browser, I wait 30 real-world seconds for it to connect and grab information. Finally it’s there and what do I see? One paragraph of a story which tells me only the bare-minimum of information, or worse, a page of links for me to choose from so I can wait *another* 30 real-world seconds to get to some info. Great. I wouldn’t have pulled out my phone to read a mobile website unless I had 20 or 30 minutes on my hands (I’m getting an oil change or I’m on the bus, etc.). I’m bored. I’m trapped. Entertain me, don’t frustrate me!

There there’s the opposite of this where there’s just too much data. Just taking your website’s RSS feeds and slapping a “mobile” template on the page doesn’t count. First, the formatting may not be right for mobiles. Most of the mobiles I’ve seen aren’t super-picky about XML formatting (they learned their lesson from WML which would balk at lots of common mistakes) but the effort still needs to be there to close your tags, etc. Beyond that, the pages just may be too long.

But there’s more! The formatting of just about every website I saw is horrible. XHTML-MP phones can support all the basic formatting you need for a decent web page: alignment, font size, colors, tables, and standard images like gifs, jpegs and pngs and they support a basic version of style sheets called WAP-CSS. Every phone and browser renders differently, trust me, but hey, focus on the top 20% of the popular web browsers out there (which you would assume count for 80% of the web access) and you’ll be doing pretty good. There’s so much more that can be done for the mobile web.

Web and mobile are going to be different worlds for the forseeable future, so we might as well embrace this fact. So what I’d do is make an alternative area for your mobile content right away, but do it with an eye towards maintainability and findability. Creating a new mobile template for db-oriented data is actually a good idea, but just one version and watch your content lengths, image sizes and external links. If your mobile site links to another site, it better be accessible via a mobile phone as well.

John Battelle adds: “At its core is the open/closed issue. On the one hand you have an open platform, the web, that sports a robust ecology with all sorts of innovation and competition. On the other hand, over in the mobile world, you have this carrier-driven crap that is driven by one thing and one thing only: the carrier’s desperate desire to lock you in…Free the mobile web! Only when it’s connected, seamlessly and freely, to the real web will it blossom.”

Boston as Wi-Fi City

The Boston Globe writes that “Boston is on the brink of a revolution-a wireless world where people in parks and on sidewalks, on subways and in restaurants, everywhere and anywhere, are plugged in to the Internet.”

Hotels, airports, stadiums, municipal buildings, hospitals, libraries, planes, trains – our entire environment is being “unwired.” Wi-Fi is connecting whole neighborhoods and public parks, like New York City’s Bryant Park, creating so-called hotzones and hotcities. The Boston Foundation, a charitable group, has given the Museum of Science $25,000 to study unwiring swaths of the city, particularly parks and open spaces. Next month, civic and technology leaders plan to meet at a Wireless Boston summit to discuss the idea.

Can a hotworld be far off? Will we someday be able to access our digital selves from anywhere just by starting our laptop or our cellphone or even our car? Will information about you and me and everyone else just float in the air all the time? And do we want to live in such a world?

An Entrepreneur’s Sacrifice

Ross Mayfield points to a poignant story:

Rob Shostak, a long-time entrepreneur and founder of five-year-old startup Vocera, told a story about meeting one of the founders of software maker Lotus Development Corp. shortly after it had gone public. The guy had just cashed out $18 million of stock and invited Shostak back to his apartment to see a present he had bought himself. It turned out to be a modest Jeep Cherokee. Shostak followed the founder up to his apartment, expecting to find a palatial penthouse. But it was an average place furnished with only a mattress on the floor. “I was kind of dumbfounded when he volunteered, ‘Actually, they just took all the furniture out to go to my ex-wife’s place,'” Shostak said. “It was a striking and poignant moment for me to realize the cost of his commitment to the company.”

TECH TALK: The Coming Age of ASPs: Rationale

Application Service Providers (ASPs) offer applications over the Internet using their own servers to customers, who pay a regular fee for the use. For companies, there is no need to own either the application or the underlying infrastructure. For service providers, it helps them aggregate a large number of customers providing economies of scale. Using the Internet as the distribution medium, ASPs can reach out to customer globally.

HowStuffWorks has more:

There are many other ASP-like models that most of us use every day. For example:

Shipping companies – Instead of maintaining your own distribution network for packages, you pay a low incremental fee to ship a package with the post office, Fedex or UPS. BMW and McDonalds are examples of companies that do so much shipping that they actually own and operate their own truck fleets — but this are a rarity.

Telephone companies – It would be extremely difficult for a company to justify the cost of owning and operating its own nationwide fiber optic network, so we all pay an extremely low incremental cost for each minute of long distance time we use.

Power companies – It would be possible for each homeowner and business to generate power, but not for 10 cents per kilowatt-hour. Therefore, it makes sense to purchase power from a power company that distributes the high capital cost of a power plant across all of its customers. Some companies — especially companies that deal in forestry products — can actually generate their own power affordably because they have a source of free fuel or waste heat from some other process within the company.

There are cases where we do not go the ASP route. For example, a huge number of Americans own and operate their own automobiles instead of using the ASP called “public transportation.” Most large businesses can justify the costs of large copying machines, while smaller companies rely on the ASP called Kinkos.

The point of all this is simple — ASPs are all around us in many different forms. We choose whether or not to use ASPs based on economic factors that are driven largely by our frequency of use and the cost of entry and maintenance.

A formal definition comes from ASPnews.com:

An ASP is a third party entity that deploys, hosts and manages access to a packaged application and delivers software-based services and solutions to customers across a wide area network from a central data center. Applications are delivered over networks on a subscription or rental basis. In essence, ASPs are a way for companies to outsource some or almost all aspects of their information technology needs. ASPnews.com breaks the industry into five subcategories:

Enterprise ASPs deliver high-end business applications.

Local/Regional ASPs supply wide variety of application services for smaller businesses in a local area.

Specialist ASPs provide applications for a specific need, such as Web site services or human resources.

Vertical Market ASPs provide support to a specific industry such as healthcare

Volume Business ASPs supply general small/medium-sized businesses with prepackaged application services in volume. ASPs also may be commercial ventures that cater to customers, or not-for-profit or government organizations, providing service and support to end users.

Tomorrow: Business Model