The channel conflict noted in this article reveals one of the big challenges/opportunities for new SaaS vendors
Under an online model, there are often issues with your existing ‘real world’ channel.
- Does the old world channel add value in an online world? Does it get you sales?
- How do you pay a sales channel if there is no up front license fee? Often SaaS pricing is sharp because they have eliminated some of the channel and distribution costs.
- Ongoing commissions for sales is a very expensive sales cost for SaaS vendors. The real cost of SaaS is driving more innovation and outstanding customer care, so a recurring fee model just for a sale is to much cost.
Flipping it around, existing real world channel needs to think about how they share in this new online world as the inventories of products they earn margin on will erode.
In the business software space this creates a huge opportunity for buyer aggregation points. The retail browsing shop of the 21st century.
In the New Zealand small business SaaS market this is where MED and NZTE can really help out. Providing a location where NZ small business owners can discover great products that can make their businesses better.
This what small businesses have asked for. (Don’t worry, I’m onto it.)Living on 3G
Coming up to the end of a quick week in the UK and I’ve been living on 3G.
Our team in the UK are on a £25 5GB per month plan which they use at home as well as work. This seems to be enough for heavy road warrior use.
3G does not feel as fast as wifi, it’s just slightly sluggish but quite acceptable. The big benefit is that it is ubiquitous. On the train, any cafe, you’re connected. It’s fast enough for demos.
The price, 5GB of data and ubiquity is such that you just use it without thinking. That’s how it should be.
The new devices are just small USB sticks. I assume they’ll be embedded like wifi next year.
Good to see that Voda NZ is going wide with 3G so that it will be available all over New Zealand.
Ubiquity is key (as well as reasonable price/data caps of course).
Berg Insight reports the number of mobile broadband enabled PC laptops is set to rise to almost 50 million by 2013 so mobile broadband is a huge enabler for SaaS offerings.
As I’ve been traveling for the past week I’m on email, Xero (of course), so able to stay on top of teh admin. You can be completely connected to the information you need while out growing the business.
So I’m really looking forward to 3G arriving in NZ. It really does transform the way you work.Latest McKinsey SaaS report
RobinB flicked me this link. Very useful if you’re into SaaS. Easy to read format.
Big points (italics mine)
- Software industry is on the upswing with SaaS a key driver.
- SaaS is becoming mainstream.
- Battle between traditional mega vendors and SaaS vendors. Questions whether traditional vendors can transition.
- Demand driven by the SMB sector. Sales models are key. Huge new market
- SaaS momentum is happening faster than expected.
- Ease of conversion is key. We see this at Xero.
- Growth in the sector should be immune from the current economic downturn.
Useful report the confirms a lot of the things we’re seeing.iPhone take two
After a day to digest the iPhone news I have a few more thoughts.
They are going after a very broad market:
- Kids. Addition of parental controls makes sense and I’m not aware of any other phones doing that. Clever.
- Consumers. They are hitting a price point that makes this a fairly compelling device at the moderate to high end consumer level.
- Small Business Owners. Integrating the iPhone with push email and shared contact services gives smb’s access to services normally associated with enterprise software. Questions remain over if they will allow hosted domains, or if the client applications will work with Google Mail.
- Enterprise. It may take another version but this is a credible first offer to Enterprise customers.
The breadth of this is also noticeable in the simultaneous launch in 20 countries, coordination of device and hosted services with MobileMe and embracing Windows users. Even the way that the country sub-sites all updated was impressive. This is an awesome execution project. Compare to HP who launched 50 new products today, including a gorgeous looking laptop, that I can’t find on HP.com.
They are also going Enterprise. Not just iPhone but broadly with Exchange support in Snow Leopard, the next update to the MacOS. This was overshadowed but is big news on its on.
Apple have become a broad execution company. What other companies are executing simultaneously on so many fronts - to this quality?
As well as this, it’s hard to think of another company that can hype up the entire world like Apple can. They have the marketing side cracked as well. Nuts.
There are a few potentially insidious bits. Coated in sugar.
The distribution network of iTunes is potent and quite reasonable priced at 30% margin which includes hosting and credit card payments. As it goes to so many countries all ISV’s need to think - do we have an iPhone app strategy just to get access to that channel. That is very interesting for SaaS vendors. Software + Services to get the distribution.
The application notification service ties Apple into such a wealth of information. Yet it makes sense to solve the background application issue. This is a scary/brilliant part of their strategy. Very, very clever.
The MobileMe applications were slick. The demo’s looked like some of the the best web apps I’ve seen to date. More importantly, here is a compelling Software + Services model.
So Apple gets hardware, software, clips the ticket on apps, and has regular SaaS revenue. A multilevel, vertically integrated cash machine.
Who is doing this stuff at Apple? The very few exec’s they wheel out don’t really blow you away and have gaffed a few times. It can’t just be SJ. There must be a very tight strategy team in there somewhere.
Will I get an iPhone? Depends on the soft keyboard experience. I assume they’ve learnt a lot in the last year and it will be improved. The BlackBerry is still the ‘power email’ device.
I don’t think Vodafone locally know too much yet but the burning questions are
- What if you’re already on an Enterprise plan?
- Visual Voicemail?
- Mobile data rates?
A lot of stuff came together today. A few holes but the breadth of execution is unprecendented. Fanboy or not, that’s what impresses me.Moving the goal posts
Another exciting day in Xeroland as we start to move the goal posts with our latest release.
The last major change in the desktop accounting space was the move from DOS to Windows that happened in the late 90’s, early 00’s - compounded by Y2K where the IT industry did a great job convincing everyone that planes might fall out the Sky (he wrote nervously from Queenstown airport).
Unlike the last technology shift, moving online changes everything.
Over the past year we’ve been rapidly completing the broad functionality expected in a general accounting system. Sure it’s pretty but there was just a huge number of things we needed to do to be a substitute accounting system. We are getting close. So now we can start to change the rules and change people expectations of what small business accounting systems do.
This is important for SaaS. It’s not just about changing the delivery and pricing model, it’s about how being online changes everything. Shifting the goal posts.
In the old world, most desktop accounting software is often locked away in the back office, retrospective, period based and can require triple handling of data. It is only used by a small number of people in the business (thank goodness). The first step of moving online was about matching the features of the existing providers, that have been around for many years, while adding the initial online benefits of being collaborative and near real time.
The next logical step is breaking out of the back office. Linking the accounting system to normal business processes and bringing aspects of the accounting system to frontline staff.
So todays release was as important for us as we added an Employee role to our security model. A relatively small and logical addition to Xero but very significant to our strategy.
It’s very exciting to get to a point where rather than catching up, we can lead. Also after a year the company matures significantly and processes evolve. I’m blown away but how much stuff our team are getting through in each release.
Now the fun really begins.Partial iPhone applications
Adding an iPhone interface to Xero obviously makes a lot of sense. It’s a web application but optimized for iPhone delivery. It’s not the full Xero application so we want to hear what scenario’s will be useful.
As m.xero.com is a web interface, what we have done requires a connection. Probably OK for most scenarios but there are some ocaasions where it would be useful to have a native iPhone application. Expense claims would be a good example.
However the way that Apple are controlling the distribution of iPhone applications, my understanding is that we cannot just put up an iPhone expense management application for our customers to download. We have to put it up through the store.
This is fine for iPhone only applications.
As a SaaS offering we already have a billing link with our customers. We may not want to charge extra for an iPhone application. We’d just want our customers to download something from our website to improve their experience.
Does anyone know how Apple is planning to handle these partial iPhone applications that extend other services that not primarily based on the iPhone?Xero Network (or B2B in 2007)
We had a bit of coverage in the paper this morning including this story on what we’re calling the Xero Network
As Ben noticed we’ve been surfacing a bit more of some functionality we’ve been wanting to do since we started Xero but we had to get most of the core accounting platform done first.
Firstly some background.
When we looked at the small business market, an observation that came through very early was that while it was massive, most of the global technology players do not sell technology solutions to small businesses.
That is because the Enterprise Sales model does not scale down to small businesses (as NetSuite is finding). Of the global tech solution giants only Microsoft appears to sell across the SMB market - primarily desktop productivity tools.
So flipping that around I believe small business has not yet had the full benefits of technology applied to them. Most tech smarts has been applied to Enterprises.
The SaaS model allows increases the viability to sell to, and support, the enormous but fragmented SMB marketplace and provides an opportunity to deliver enterprise level features to small business.
We also observed that small businesses do not do integration projects. As an example small businesses should probably have a basic CRM system but as supplier and customer data is already in their accounting system they are forced to do an integration exercise. Which of course they don’t.
So another benefit of SaaS is that we can do that integration work for them, so they don’t need to think about it. That is what we are doing with the Xero Network.
This is exciting because working with other software providers we are making things easier for small business customers - saving them time and money.
This model allows us in the SaaS industry to work together, sharing each others customers and working together to make our solutions more compelling.
Of course there is nothing new here. This is Business to Business (B2B) computing but applied so that we have host to host connectivity between our systems to that our customers don’t have to know about integration. B2B is a big part of SMB SaaS behind the scenes.
There are numerous models. All of them start to drive community effects. In our system we can do ‘Xero to Xero’ transactions, ‘Partner to Xero’ transactions and most excitingly ‘Partner to multi Xero’ transactions where a single system generates transactions on behalf of many individual users. Like in the real estate industry.
As mentioned we believe that SaaS providers should work together, so we’re including a list of partners inside our applications and will include them in our marketing programs. It will be the case that we have multiple partners doing the same things. We also know that our partners will work with multiple accounting systems so I think the best approach is be open and up front with all partners and let customers decide what combinations of solutions suit their needs.
To implement this we have developed a portal that allows our partners to get our documentation, code samples, manage their profile and most importantly test their interfaces with us. We are all busy so we wanted to make it so that we could engage pragmatically with our partners and they could be largely self sufficient (i.e. not have to wait for us).
As we are just passing around messages (which may be files or XML fragments) we can expand the services we offer through the interface quite quickly as partners think of more things we can do.
So I’m really excited about this. It’s a big step forward. I want to especially thank the team at iPayroll who we have been working closely with. They played a big role in helping us to refine our invoice message format.Shipping day
Shipping days are always a buzz at Xero. You can code away for as long as you like but it counts for nothing until we ship and go live.
The quote attributed to Steve Jobs ‘Real Artist Ship‘ has stuck with me for years.
Shipping is the final step in a number processes. Releases in a Software as a Service (SaaS) world are completely different from Enterprise Software.
At AfterMail, which was Enterprise Software - so installed on each customers site, we tried to upgrade the software no more than 3 monthly. That is because each client site needs to be upgraded. Shipping a new release creates all sorts of downstream work for customers and partners. Often we would do a number of releases before shipping the new version. The more customers you have the harder it becomes. You create more and more drag as you go along.
The consequences of a bad software release were huge as it often means that another version has to be shipped and will require repeating the upgrade process. This might mean a partner has to jump in the car for a few hours to get on site again. They don’t like that!
Sometimes we had to do mini-releases or patches.
It’s common for established software products, like the desktop incumbents that we are displacing, to only release new versions annually or even go 2 years or more between releases, such is the effort to upgrade.
One of the many big benefits of SaaS is that we only have a single version of the application in production. Every customer is on the same current version. So we can do lots of small releases with minimal impact to customers. At Xero we try to release every 2-3 weeks 1 or 2 major features and as many improvements as we can get in.
These bite sized chunks are easy for customers to digest as well.
It’s an evolutionary and responsive process. The cycle starts with the prioritization debate which I’ve mentioned before.
The development process starts with our BA’s and interaction designers building a specification for each new feature or improvement. We use Flash as a prototyping tool, starting with fairly low-fidelity screen walk-throughs which refine to more detailed working models.
These allow us to nail the design decisions before a line of code is written. These prototypes might take a few hours to a few weeks. During this process we talk to lots of customers and show the prototypes internally until we have agreement on what we want to do.
The design is handed over to development and the coding begins. Development time can be very fast. A big bit of work might take 2-3 people a month.
At any one time we have a number of features being built and tested on our internal servers.
2 weeks prior to a release we pull together the features that are ready into an integrated build where integration testing starts. We have functionality being built that may not ship for several release cycles.
Integration testing includes running a suite of automated tests.
Once the QA team is relatively happy, we then deploy to our secure live staging environment where we can test the migration scripts, complete regression testing and test the application for a couple of days.
Once QA have signed it off then we proceed to live deployment.
As we have evolved our processes and teaming models we have noticed that we can write code faster than we can test. In an application such as ours when we are dealing with peoples money it just has to be right. So we invest heavily in testing and try to give our testing team enough time to complete their testing work programs. They have the final call as to whether we can ship or not.
The actual process of deploying to production is fairly straight forward, and a dream compared to AfterMail.
- We generate the database change scripts
- We publish a release build of the Xero applications
- We upload those files to our release server
- If there are database changes we use ASP.Net app_offline feature. We try to release at 6am to ensure minimal disruption to our customers.
- We xcopy deploy the applications to the application servers and run the sqlserver change scripts. The process might be a fast as 5 minutes.
- We then bring the new version online and run through a bunch of standard regression tests just in case something strange happens.
- We then put up a blog and tell the world, like we did this morning.
As we are shipping every couple of weeks, as soon as we ship our testing team flips straight into the integration testing of the next release.
Releasing software is the end result of a big, but quick, set of processes. It’s a real buzz to see features that we’ve made be used and commented on by customers
So hopefully you can see why we get excited on Shipping Day.Netsuite IPO
Of course I’ve been watching the Netsuite IPO.Â The IPO was ran as a dutch auction as Google did before it.Microsoft Global Case Study
Another little thing we’ve been working on over the past couple of months is completing this Microsoft Case Study, with a Redmond based team.
I do believe in the Software + Services model. Obviously there is benefit to Microsoft in involving client technology but there are important user benefits as well.
At a simple level, Office is a great example of introducing a rich client. We make sure we can get most data into Excel.
I think in the life cycle of SaaS we are in the early stages where we are pulling everything back to the server into the multi-tenanted SaaS model and implementing new applications over base SaaS frameworks.
Framework services include things like rendering, security, authentication, service points, reporting, provisioning, monitoring and a bunch more things. Communication with the core business logic is implemented in a Service Oriented Architecture (SOA) fashion so it becomes conceptually straight forward to access applications in other ways.
Next year we’ll see the introduction of off-line functionality inside the standard browsers, so new scenarios start to open up. Also I think we’ll see obvious scenarios where having the power of a client makes a lot of sense as well. Say for intensive computational work or for offline useage. These clients will access the server based logic we are all building now. In the browser cross platform client technologies like SilverLight and Flex make it even more compelling.
I think we’ll see more parts of applications delivered for the mobile web or even as mobile applications.
I’m certainly not precious on doing everything on the web but before we go to far in introducing rich clients we need get the applications written for the server first.
So I believe we’re still very much in the early phases of SaaS. The re-architecting and framework development that is going on now build the foundations for all sorts of delivery scenario’s over the next few years.Richer online applications
Has anyone noticed what Adobe’s been doing lately?
Adobe is quietly and steadily becoming a bigger player in Internet computing. I’d written off Flash as great for marketing sites but Adobe is driving Flash into a Virtual Machine. I would not have expected to see word processors and photo editors delivered over the web.
Adobes approach differs from Google. Google is sparse and light - more traditional web apps with lots of wizzy AJAX and CSS. Adobe is taking more of a design led approach with rich Flash applications. But there will be an front load time.
Microsoft should be leveraging their client advantage doing a Software + Services model. Collaborative Word. Imagine being able to jointly work on a Word document across the web. That’s what I want out of Word.
Microsoft of course has SilverLight - but will we see a SilverLight Word? I’m not sure that makes sense.
But no doubt Adobe has become a player and a charting quite a different model. It’s not a two horse race anymore.New bank rec
We were pretty excited with our first bank reconciliation screen but with great feedback we found we could go further and save our customers even more time in their day.
We also added a number of new ‘no touch’ bank feeds. I’m really excited by this as it starts to demonstrate that SaaS is more than just moving old applications online but provides all sorts of new opportunities when business is connected.Beating the streets in the UK
After a quick (4 days, 3 nights) in London, itâ€™s hard not to get excited about the UK. This is the 4th company Iâ€™ve pounded the streets for. I did my OE in the USA and only started coming up here 10-12 years ago. In the last 2 years I think I’ve been up 7 times. Each time you learn a bit more about how things work, your networks are better, youâ€™re better resourced and itâ€™s just easier.
For NZ software companies especially I really recommend the UK. The usual reasons are good cultural fit, that the New Zealand mafia is everywhere and always keen to help good companies, itâ€™s a massive market, yet itâ€™s very easy to get around.
More specifically there are some exciting things going on here. I had the morning with Microsoft out at TVP. There is a definite buzz around SaaS and this year seems to be a tech boom. Anecdotally they believe the UK is well ahead of other markets with SaaS adoption. That seems to be backed up with IDC recently upping industry forecasts.
Not my primary space these days, but as Iâ€™ve mentioned before I think a great opportunity for NZ software companies is Enterprise SaaS. It is red hot in the UK right now with multi million GBP funding happening at the concept level.
The carriers here are becoming sophisticated in the application space with big investments in their partner ecosystems. NZ could learn a whole lot here. The UK Telcoâ€™s seem to be the ones setting the pace with a lot of other carriers monitoring their programmes.
Just spending another few days in the UK fills you with opportunities and alters your perspective. I really recommend that other NZ companies get on a plane and make it happen. And there is plenty of help to tap you in. NZTE and especially the UK Beachheads team are very well placed to give you ideas, make introductions and validate strategy. For some reason the pipeline of NZ software companies is pretty thin. Where are you all?
Saw the new iPod Nano. Ridiculously, magically, small. The screen is amazing. BlackBerry 8800’s and Curve’s are the phone of choice on the trains. Other trinkets for the traveling man that caught my eye included the new StarWalker Blue, which is just about to be launched (apparently there is a Charlie Chapman collectorâ€™s model due soon). Also spotted the big boy sized Navitimer World for the first time and that’s making a case to leap onto my wrist.
Just landed at LAX for the ’sports’ leg of the journey.Google Gears
Stephen from the SMH just gave me a heads up on Google Gears, an open source browser add-in that enables offline applications.
To start the ball rolling, Google has “Gears-enabled” its RSS feed reader, Google Reader.
This is a significant move from Google into the Browser. Very, very clever!Â The timing is significant, being well before Firefox 3.
The tech world will be all over this over the next few weeks to see how elegant the implementation is.
This is a very significant shot by Google. First out can create a standard. This is a race. You can imagine the scramble going on inside Microsoft today.
What do you think?Prioritisation
Alastair Grigg has been on the team now as COO for a month or so and has really helped us establish our processes as we scale up.
Ali discussed this at the SaaS conference earlier in the week and I thought it was worth sharing wider.
We are currently working on fairly rapid release cycles of 2-4 weeks. We are getting great feedback from customers and also have a roadmap that we want to make sure we keep progressing towards. For a given level of resources we have a level of capacity. Inevitably this leads to a prioritization debate which I can assure you is very good sport.
We physically manage this by having weekly Product Steering Group meetings where we review this feedback, customer queries, any support issues and sales team feedback.
Ali came up with a model that has really helped us with managing this process.
The work program for the current release we are working on and the release following is largely locked down and generally not open to changes unless there is a major need. This workstream then is largely a Project Management activity. We know what needs to be done and this is managed accordingly. This gives our development team a level of certainty on what they are doing.
The content of the next few release after that are where we have the debate about what comes next. This is Product Management. It is where we balance tactical and strategic initiatives by selecting the features we are going to work on and release. This is where the Priorization Debate occurs.
In order to make sure that we are executing our long term strategy we also record the basic themes of the Releases that are a few months out. This is Product Strategy which shapes the long term Roadmap.
As we add more resources we can introduce more parallel workstreams and accelerate delivery of the roadmap.Xero Limited Release
Things are progressing well at Xero. We’re updating the software frequently responding to excellent customer feedback.
We have to feather the throttle for a while longer (our Limited Release phase) while we build out the operations and support team but we are currently looking for more feedback on Invoicing and Accounts Receivable.
If you are consulting firm (in New Zealand) that does a lot of invoicing for services, we’d love to hear from you.Interaction Specialist Auckland
A startup I’m involved with, based in the Icehouse, is looking for a full time User Interface Specialist.
This is a fantastic opportunity in a start-up SaaS company where stunning design and excellent UI is a key to success. You need:
- HTML and CSS Expertise
- Knowledge of Java Script Libraries such as Prototype and Script.aculo.us
- A passion for stunning design
Small team, lots of room to grow, in a great environment. Contact Steve.SaaS and the long tail of decision makers
Preeti Bajaj from Vision Software said something to me yesterday about Software as a Service (SaaS) that hadn’t occurred to me before.
There are many Line of Business applications that are very useful to business units but are not high enough priority to get the attention of the CFO for funding or get through IT for implementation. Both of whom are often gatekeepers to a software licencing deal.
From a technical point of view the SaaS delivery model may allow business units to obtain solutions with minimal involvement from IT and at a cost that may be under business unit discretionary operating expenditure.
Therefore this opens up a ‘long tail’ of opportunities that would just not get off the ground under the traditional enterprise installation model. Under a SaaS model, many more applications are viable and the markets are much larger than in an enterprise installation model. There are many more niches.
Some of you may have noticed a bit of coverage on my next big thing: Xero. Idealog and Computerworld have covered us just recently and you can find out a bit more what we’re doing in my Welcome to Xero blog post.
Xero is an online accounting solution for small businesses, delivered on a Software as a Service (SaaS) basis. I believe it is one of the biggest market opportunities out there and a global opportunity we can credibly go after from New Zealand.
We’ve been heads down on this for some time. We have a number of beta customers on board and will soon move into a limited release. A challenge for SaaS offerings is building out operational capability. As the software is getting to where we need need it we are now beginning to ramp up that investment so we can deliver a customer experience in line with the quality of the software. For that reason we’re bringing in customers in small batches, learning where they need guidance, rinse and repeat.
Xero is all about people. Making a difference to the people that run small businesses and providing an opportunity for our best talent to build a world class company. The next step in my career is to build a long term company and culture that attracts and fosters talent, to earn export revenue.
Xero is design led. We recruited early some of the top interaction designers we could find Philip Fierlinger and Grant Robinson.
We’ve put an awesome technical team in place with Craig Walker, Kirk Jackson, Andrew Butel, Fletcher Brown, Adam Burmister and Jeff Wegesin.
We’ve invested heavily in product management and customer care with an exceptional group of customer advocates: Michelle Perera, Andy Leeb, Catherine Walker (Orange Girl), Catherine Robinson, Donna Wylie, Larissa Paris and Louise Roebuck.
We managed to attract Kate McLaughlin from the National Business Review to run Xero marketing and communications and the very talented Darryl Gray is in house brand guy.
Small business accounting identity Hamish Edwards brings the domain expertise to ensure what we deliver is not only technically world class but really does improve the performance of a sector that makes up 95%+ of all businesses.
It’s early days but we think we’re doing something special.
Through this blog I’ll try to share the experience. Hopefully you can enjoy some of the fun.Offline Webmail POC
Following on from the Firefox 3 discussion, Adam emailed me a screen cast proof of concept of an offline web application …