Selling Software as a Service

Always-On network writes:

Back when we started AlwaysOn in 2002, we were initially very enamored of “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 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 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.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.