Daily Archives: December 7, 2006

SaaS Future

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Phil Wainewright writes:

Aggregation, integration, mashup platforms and ecosystems are going to be hot topics in software-as-a-service circles next year, according to a group of vendor CEOs who sat on a panel at the SIIA’s OnDemand Summit in San Jose. I was intrigued to hear how much unanimity there was in their responses when asked to predict the most notable trends looking just six months out. They are obviously all thinking about how to link up their offerings with other vendors’, and what the risks and opportunities might be for them.

One of the less obvious risks that surfaced is an interesting one. There’s clearly a shared belief that integration will happen through some kind of hub though no clear view as to whether that hub will be a platform, a marketplace or a customer-facing aggregator. The inherent risk here that vendors have to be wary of is the potential to become dependent on and perhaps at the mercy of an intermediary who takes control of the customer relationship. Several vendors were evidently alive to the flipside opportunity this represents of themselves becoming the hub that others depend on.

Blogs and Wikis as Web 2.0 Platforms

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Don Dodge writes:

Application platforms are very profitable in the software business. Platforms attract developers. Developers build all kinds of interesting applications…which attracts users. Millions of users mean your platform will generate revenues for a long, long time.

Wikis and blogs are great collaboration tools, but they are now moving beyond that to become application platforms. Socialtext and JotSpot (acquired by Google) are building out suites of office productivity applications built on top of a wiki platform. Telligent and Blogtronix are building application platforms on top of the blog model.

Web 2.0 applications are more than just “webifying” existing apps. Web 2.0 applications are inherently interactive and collaborative at every level of the application. They are simple to build, easy to manage, and cheap to maintain. Increasingly they are being built on new platforms like blogs and wikis, and using new tools like AJAX and REST.

1m * $100 Plans

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VentureWoods has a nice discussion in the context of India and startups:

We are seeing more and more businesses around the theme to offer a $100 a year service to a million users. Few ideas that have got discussed here include:
1. Online DVD rentals
2. Online photo printing
3. Online tutoring (export oriented – ok more like 100k x $1000 here)

What are the views around feasibility and scale on some of these? Will these land up being more like 100k x $ 30 plans in the online context? Given that 5-10 startups are starting out at the same time, will the market fragmentation be too high?

No Bubble This Time

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HipMojo writes:

Back in the late 1990s and early 2000, VC money was funding the advertising and IT investments because the Nasdaq crossing 5,000 was a sign that the payoffs for VCs would justify the investments. When the Nasdaq popped and the dot come bubble burst, VC dried up immediately, meaning that investments in IT and ads ceased as well.

The reason was that online businesses in turn did not see a need to advertise and boost audiences anymore because there was not much in the way of online ad dollars.

After the burst, CPC ads took off and advertising began to offer some kind of ROI. Today, we might see a slowdown in CPC rates but demand is strong enough that if one advertiser stops to bid on a keyword, there are more than enough willing to step in and replace said advertiser.

Why? Because there are far more people online today than back then, broadband reaches over 50% of homes, and online ads are a $15B ad industry…

More on Pageviews

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Steve Rubel writes about the impending demise of the pageview metric:

Underneath the Internet advertising economy is a key metric that dictates how properties are valued and how online media is bought and sold – the page view. While it’s not the only way to measure the health of a site (time spent and unique users are among the others), it’s still very popular. Unfortunately, the trusty page view is on life support and I give it four years to live.

This may sound like heresy to most of you. After all, the page view has served us well. It has established a universal way to measure web sites. However, the metric is about to become a moot point.

The page view does not offer a suitable way to measure the next generation of web sites. These sites will be built with Ajax, Flash and other interactive technologies that allow the user to conduct affairs all within a single web page – like Gmail or the Google Reader. This eliminates the need to click from one page to another. The widgetization of the web will only accelerate this.

TECH TALK: Ventures and Capital: Learnings

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So, what have I learnt in the past few years with the investing?

Raising early stage capital is an incredibly tough challenge. There may be plenty of venture capital investors, but most have fund-sizes that do not easily enable investments less than $4-5 million. Most start-ups don’t need that kind of capital. I think the right amount of capital is of the order of $1-2 million. This will enable the entrepreneur to build a good team and have enough leeway to take the product or service to market. In India, this money should last about 18-24 months. Since each exercise in raising capital takes up a few months, it can be extremely distracting for the entrepreneur. So, giving enough capital for the entrepreneur to focus on the business is important. What we need in India are more early-stage investors who not only invest but also serve as a sounding board for the entrepreneur.

One of the key challenges is in bringing good people on board. And that is where an external investor can perhaps be a match-maker. In today’s India, while salaries are going up rapidly to levels which start-ups cannot easily afford, I believe that ESOP will emerge as a powerful magnet for people willing to take a little risk in their life. As I was explaining to someone the other day, joining a startup is like getting paid for half the time since the salary is likely to be half of what the person is likely to make elsewhere. So, for the person joining, the two questions to ask are: can I live a decent lifestyle on the package that is being offered, and if things go wrong can I revert back to original industry payscales after the startup experience. If the answer to these questions is yes, then the upside potential can be very high through ESOP and the rich experience in working on the frontlines of an entrepreneurial outfit.

Keeping a close eye on the cash burn is important. An entrepreneur needs to always know how much money is there in the bank, and how long it will last. The next capital can only come from two sources revenues that the company generates, or a new infusion of capital. The ideal way to build a business is to generate revenues and profits where that works as the fuel for future growth. But in some technology-driven businesses, revenues can be some time away. In that case, it is important to have validation that the technology created has commercial value. This is what will attract new investors.

In India, my experience has been that there is not enough investment happening in early-stage innovative companies. There is a herd mentality for stuffing consumer internet and mobile companies with multi-million dollar investment rounds. While that is a good sign of the maturity of the market, we need plenty of early-stage, smaller-size investments to keep the wheels of innovation churning. Many of these ventures will fail, but they will create a hotbed of entrepreneurs and new ideas.

Tomorrow: Start.Exchange

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