Panel Discussion at the AlwaysOn OnDemand Conference

Yesterday I participated in a panel discussion on how the startup model has changed in the era of open source, Amazon’s cloud infrastructure and SaaS.  The panel was part of the AlwaysOn OnDemand conference.  Three of Trident's SaaS portfolio companies made it to the AlwaysOn OnDemand 100, the list of the top 100 SaaS companies: Host Analytics, Pivotlink, and Tricipher.  Other panelists included Gordon Ritter of Emergence Capital, Ravi Mohan of Shasta Ventures, Mark Gorenberg of Hummer Winblad and Sanjiv Parikh a venture advisor.  Because of the participants the discussion delved primarily on the strengths and staying power of the SaaS model, the characteristics investors are looking for in SaaS companies, and areas of new investment opportunity.  Below are some of the discussion’s highlights:

• In its purest form, cloud computing represents a fundamental platform shift in that allows everything to be offered over the internet as a service, elastically/dynamically, and paid ratably.  Many companies (mostly large vendors of on-premise software solutions), are either trying to marginalize this shift by calling it a fad, e.g., Oracle, or are trying to leverage the recent hype around cloud computing to position their products as cloud-based because they feel that in this way they will remain relevant.  At Trident we have a well-defined set of criteria that allow us to determine whether a company has a true SaaS product and the associated business model and practices.  The other investors participating in the discussion have similar criteria

• The panelists agreed that corporations are adopting SaaS applications because they provide a) their employees with universal access to the solution (anytime, anywhere), b) quicker time to value, c) reduced Total Cost of Ownership (TCO), compared to equivalent on-premise applications, and d) unique and needed functionality that is enabled only by the cloud, most importantly collaboration.  These adoption factors were most recently also validated through a survey conducted by InformationWeek.  To continue providing superior TCO, SaaS companies must continue to rapidly evolve their products, business models and distribution models.  Customers must feel that they are getting something of value immediately (even if they are just testing the free version of a SaaS product) thus creating the right conditions for future upselling opportunities.  Cloud-based infrastructures enable the rapid iteration through product offerings and models.

• Strong teams with knowledge of the SaaS the model is a top characteristic of the SaaS companies seeking investment.  Technological and business model innovation is another top characteristic.  What type of technological and business model innovation does the cloud enable, other than a delivery mechanism, that will cause a customer or a partner adopt a SaaS solution? By understanding the target customer’s pain-points investors are also trying to determine whether a SaaS company is trying to automate an important business process that can be uniquely automated through a cloud-based solution or whether the SaaS solution will just replace an existing on-premise solution by introducing additional efficiency.  Understanding of the target market (as investors we don’t want to hear that a SaaS company is targeting the generic SMB market; instead we expect a more sophisticated segmentation of a company’s target market since the purchasing and adoption criteria of a mid-size enterprise are completely different than those of a small company).  Finally, there was a brief discussion regarding the metrics a company must have achieved to be considered an ideal candidate investment, such as MRR, LTV, and CAC.

• Regarding new areas of investment interest we mentioned vertical SaaS applications particularly in industries such as health care and pharma even though security and compliance of data were identified as potential impediments to broad and quick adoption of such solutions.  I mentioned that my personal investment interests are around SaaS applications that automate Internet process in the areas of online advertising and e-commerce as well as in analytic applications and cloud-based infrastructure that address big data problems.  Identifying applications that utilize the data captured by SaaS applications was mentioned as another promising investment opportunity.  The panel touched upon the investment opportunity for a new generation of SaaS applications and cloud-based infrastructure created by smart phones and the new generation of tablets.

Comments

[Michael Flanagan]

Next big breakthrough in software for Supply Chain
From an historical perspective most disruptive technologies are most often adopted by those who cannot afford the current mainstream offering or their business models. For example Mainframe computers were largely displaced by Mini-Computers which were largely displaced with effectively Personal Computers. More recently we see the adoption of Voice over the internet VoIP over PBX offerings. These changes flourish on the fact that there is less complexity, more adorability and huge underserved markets that desire the capabilities. History is repeating itself… please welcome Software as a Service.

Software as a Service – Sophisticated capabilities for the masses
Software as a Service or SaaS – Cloud Computing – Hosted Solutions there a lot of buzzwords, rebranding and marketing spin out in the marketplace lately. So, let’s try to breakdown the characteristics of SaaS
Characteristics that define SaaS:
Services are offered in a Subscription model – you’re not happy, cancel your subscription
A true multitenant model where subscribers share the applications capabilities is much different from a hosted or Application Service Provider (ASP) model that only outsources information technologists’ tasks.
No maintenance or support contracts – SaaS Providers upgrade and support you to keep you as customers
Access from anywhere – connect to the service with a browser and an internet connection
No special hardware or software required – If your personal computer runs a website you should have everything you need to use the application.
You have complete administration rights – manage your users’ access and customize the application and your customizations will migrate from release to release with no extra charge
Integrate with on-premise applications – Open Application Program Interfaces (API’s) for every piece of the application.
Recently Panorama Consulting Group conducted a survey for their 2010 ERP Report. They surveyed 1,600 organizations that have implemented a new ERP solution in the past four years and compared on-premise deployment implementations side-by-side with SaaS deployments.
The first thing they discovered is that on-premise implementations take an average of 6.8 months longer than SaaS/hosted implementations

Future Applications in the SaaS model for Procurement and Order Fulfillment organizations
Broader adoption of Electronic Data Interchange (EDI); a promise unfulfilled: for the Buy-side of businesses today smaller companies have not been able to leverage benefits of the EDI transaction process sets where in these very same businesses EDI has been forced-adopted (a cost of doing business) on the Sell-side of the businesses because their customers mandate compliance. The dirty secret is that large populations of businesses are simply going to EDI translator’s sites and printing Purchase Order messages and subsequently typing them into Order Entry, Shipping and Finance systems, an example where new technology did not reach across the supply chain.
Properly architected SaaS applications enable EDI adoption through straight forward web-services connection where the buy-side of businesses can quickly adopt the capabilities.

FACEBOOK for Supplier Relationship Management – can I friend my suppliers?
Social Media for supplier collaboration: Imagine if your company had its own secure collaboration space, a Collaboration Cloud if you will. Where stakeholders could participate, share content, garner status and subscribe to relevant feeds. Share application capabilities with suppliers for purchase commitment dates, progress steps, issues concerns… and all of it will fuel better and faster business decisions. This would replace the Phone FAX and E-mail where in their time where disruptive technologies but now have proliferated the data but with very little tie to the business transaction.
All stakeholders will be able to easily contribute and consume relevant information in a ubiquitous environment where everyone is more productive.

Summary
Where technologies continue to develop that support innovative solutions companies will develop new disruptive solutions and each time the adopting community will be continue to flourish on the fact that there is less complexity, more adorability and huge underserved markets that desire the capabilities. History repeating itself…

[coach suitcase]

I am very pleased to leave my messages in your posts, I guess I am not the only one having all the enjoyment here!

[Rml EDI]

Most dynamic and well structured EDI solution providers have already adapted the SaaS model to fully integrate with the end users ERP system. With regard to the Collaboration Cloud this has already been suggested using the tag 'Cross-Business Data Integration'