Trident Capital Blog

We Need a New Generation of eCommerce Analytics

In 1996, while I was running IBM’s BI solutions organization, one of my groups developed the Surfaid web analytics solution.  Surfaid, one of the first such solutions, was later acquired by Coremetrics (that was in turn recently acquired by IBM and made part of its marketing automation solution).  Later on Omniture dominated the high-end web analytics market by figuring out the right ingredients of a web analytics solution (quick set up, effective data collection and management, informative reports for the emarketer) and the right model for delivering it (SaaS).  Google also entered the market and dominated the low-end with a free offering.  The evolution of this market over the past 10 years has taught us that web analytics will remain a relatively small component of the overall analytics and BI market. 

Ecommerce marketers and merchandisers were some of the earliest adopters of web analytics.  However, the continued growth of ecommerce combined with the increasing complexity of the decisions these business users must make is causing retailers (both pureplay and multi-channel) to look for more sophisticated analytic solutions than those offered by the web analytics vendors, or the ecommerce platform vendors, e.g., Demandware and ATG (recently acquired by Oracle),  could offer.  While web analytics solutions can be used to determine which landing pages encourage customers to make a purchase, or which pay per click ad campaigns are most effective, ecommerce marketers and merchandisers want to now understand customer loyalty, the impact of their customer retention strategies (discounts, coupons, extra services), and the customer segments with the greatest Lifetime Value (LTV).  Today’s web analytics solutions cannot address these needs.

During the summer of 2009 Infopia, one of my portfolio companies and an ecommerce platform company at the time, asked the larger of its 300 etailers about their analytics needs.  The company found out that while all of its customers were using a web analytics solution, none were able to address their particular ecommerce decision needs through these solutions.  The market demand for a sophisticated ecommerce analytic application was so strong that the company’s board decided to direct significant resources towards the development of such an application.  A year later the company sold its ecommerce platform business to Versata, changed its name to Acteea, did a pivot and is now a SaaS ecommerce analytic application company.  Acteea’s SaaS analytic application enables merchandisers and marketers to track customer LTV and define winning product and customer segment strategies. 

Acteea’s analytic application integrates into a cloud-based data mart pricing data, marketing campaign effectiveness data, adword data (words bid and words purchased), customer order data, inventory data, web site activity data (what is typically fed to the web analytics solutions), customer activity data from other channels, e.g., catalog, promotions data, and competitor pricing data.  Data integration and cleaning has become a very complex process compared to the data integration that web analytics solutions must address.  Extole, another of my portfolio companies, has developed a SaaS platform for social marketing that is quickly being adopted by etailers.  The data produced by the platform’s applications (3 to date) will undoubtedly become another source to Acteea’s analytics as it can help etailers with decisions around social commerce.

In a recent board meeting we reviewed some of the early successes Acteea’s customers are having through the use of the company’s analytic application.  For example, one of the companies analyzed keyword, adword, web analytics, pricing and product catalog data, refined its adword bidding approach and identified “driver” products that drew existing target customers into making add-on sales.  Another customer began measuring the total return on marketing investment, and cart value by customer segment which led to revamping customer segmentation based on channel-loyalty, and cross-channel behavior leading to improved quarter-over-quarter sales.  Finally, a third customer analyzed product sales and gross margin return on inventory and quickly identified the lowest performing products eliminating them from the appropriate channels, including the web site.

It is still too early to tell whether Acteea’s pivot will be successful, though the initial results are encouraging.  Regardless, the company’s work is proving the market’s need for complex ecommerce analytic solutions that are distinct from the existing web analytic toolkits that have been available.

Takeaways from the Goldman Sachs and Rutberg Conferences

I recently attended the Goldman Sachs Datacenter Techtonics and the Rutberg Wireless Influencers conferences.  Cloud computing and SaaS figured prominently in both events.  This was not a surprise for the first conference but it was for the second.  I have consolidated my takeways in the following categories:

• Reasons for adopting cloud computing and SaaS.  Corporations continue to aggressively adopt cloud computing because it provides them with:
  • Elastic scalable infrastructure at the point of need, leading to business agility.
  • Improved user experience through a more web-based user interface, accelerating the consumerization of the enterprise.
  • Ease of deployment since business users want to simplify their IT structures and use computing more effectively
  • Integration with social and collaboration tools, again contributing to the consumerization of the enterprise
  • Cost reduction.  For example, in the Goldman event it was reported that IaaS may be leading to 20% in cost reductions.
  • Measurability that enables benchmarking and analytics-driven decision-making.  Due to the Internet’s measurability, analytics on the data generated through the use of SaaS applications provides unprecedented insights around business benchmarking (see my post on Insight-as-a-Service), user engagement that can help the application developer to constantly improve various aspects of the user experience, as well as improve customer Lifetime Value (LTV) and reduce customer churn.
• Cloud computing adoption metrics.  Enterprise adoption will occur in stages.  It has started with private cloud deployments and some experimentation of the public cloud particularly around application development and testing.  Hybrid clouds in the enterprise will continue for the foreseeable future.  Virtualization is the key technology for private clouds and participating enterprise IT executives stated that (a) 50% of their servers are virtualized along with 60-70% of desktops, (b) all new application deployments are on virtualized servers, and (c) within 5 years 30-50% of enterprise applications will be cloud-based.  It should be noted that within the same period 100% of the companies with less than 100 employees will only use SaaS applications and cloud-based IT infrastructure. Corporate IT is investing on ways to increase server and storage utilization (backup storage is aggressively moving to the cloud explaining again 3PAR’s high acquisition price), improve service (computing and storage) provisioning with the ultimate goal of getting to self-provisioning, and manage private clouds. 
• Issues preventing broader adoption of cloud computing:
  • Data and application integration has emerged as the primary issue. Information Logistics as the process of moving data among the various cloud-based and on-premise applications being used by an enterprise.  We are shifting from worrying about how a single SaaS application ingests data to how a set of on-premise and cloud-based applications work together to automate a business process. 
  • Security is an inhibitor but it is no longer the top issue as it was as late as a year ago. 
  • Customizability of SaaS applications is still an issue for the larger enterprises but the SaaS vendors are providing additional application controls allowing for greater configuration of each application while they continue to focus on having all their customers run under a single application version. 
  • SLAs (defining them and adhering to them). 

• Social computing. Social computing functionality is starting to aggressively be incorporated into enterprise applications, raising the bar on what the corporate business user should expect as baseline functionality of any enterprise application.  SaaS applications have the upper hand in this area.  Compared to on-premise applications, SaaS applications can both interface easily with external social networks and applications, but can also more easily integrate and embed social functionality.  Despite these characteristics it is not clear yet whether enterprise social computing applications will be offered as standalone system or as components of other SaaS applications, e.g., Chatter.  It is also not clear whether standalone enterprise social computing applications will be easily monetizable.  Finally, Taleo, that is now starting to aggressively focus on analytics, views the data generated by enterprise social applications as very valuable.
• Mobility and cloud computing.  By 2014 the number of users accessing the internet through a mobile device and the bandwidth requirements associated with that will surpass the PC ecosystem’s, as a whole.  This will lead vendors to build applications with an eye to mobile first, which is accomplished more easily under a SaaS model.  Business users are starting to view mobile and SaaS interchangeably.  Smartphones and tablets are becoming additional catalysts for moving applications and data to the cloud.  Small business owners want to run their entire business on a tablet or a smartphone.  HTML5 will be used to deliver the right user interface experience in these devices.
• Application granularity.  Mini apps, of the type found today in mobile phones and tablets, will provide the next-generation enterprise application development model replacing the large scale applications being developed by corporate IT to date.
• Enterprise IT.  Several business executives in both conferences stated that enterprise IT organizations are:
  • No longer in the position to address corporate user needs.  Corporations need new, cloud-based application deployment models.  In another sign of the impact of mobile in corporate IT and of the consumerization of the enterprise, I heard that application stores are being carefully considered in order provide one such alternative deployment model.  By the way, this is the reason we invested in PocketGear.
  • Becoming the controllers of data, i.e., they control the data that is being served to cloud-based applications, rather than the developers of new applications.  Application development is rapidly shifting to vendors.

I recently attended the Goldman Sachs Datacenter Techtonics and the Rutberg Wireless Influencers conferences.  Cloud computing and SaaS figured prominently in both events.  This was not a surprise for the first conference but it was for the second.  I have consolidated my takeways in the following categories:

• Reasons for adopting cloud computing and SaaS.  Corporations continue to aggressively adopt cloud computing because it provides them with:
  • Elastic scalable infrastructure at the point of need, leading to business agility.
  • Improved user experience through a more web-based user interface, accelerating the consumerization of the enterprise.
  • Ease of deployment since business users want to simplify their IT structures and use computing more effectively
  • Integration with social and collaboration tools, again contributing to the consumerization of the enterprise
  • Cost reduction.  For example, in the Goldman event it was reported that IaaS may be leading to 20% in cost reductions.
  • Measurability that enables benchmarking and analytics-driven decision-making.  Due to the Internet’s measurability, analytics on the data generated through the use of SaaS applications provides unprecedented insights around business benchmarking (see my post on Insight-as-a-Service), user engagement that can help the application developer to constantly improve various aspects of the user experience, as well as improve customer Lifetime Value (LTV) and reduce customer churn.
• Cloud computing adoption metrics.  Enterprise adoption will occur in stages.  It has started with private cloud deployments and some experimentation of the public cloud particularly around application development and testing.  Hybrid clouds in the enterprise will continue for the foreseeable future.  Virtualization is the key technology for private clouds and participating enterprise IT executives stated that (a) 50% of their servers are virtualized along with 60-70% of desktops, (b) all new application deployments are on virtualized servers, and (c) within 5 years 30-50% of enterprise applications will be cloud-based.  It should be noted that within the same period 100% of the companies with less than 100 employees will only use SaaS applications and cloud-based IT infrastructure. Corporate IT is investing on ways to increase server and storage utilization (backup storage is aggressively moving to the cloud explaining again 3PAR’s high acquisition price), improve service (computing and storage) provisioning with the ultimate goal of getting to self-provisioning, and manage private clouds. 
• Issues preventing broader adoption of cloud computing:
  • Data and application integration has emerged as the primary issue. Information Logistics as the process of moving data among the various cloud-based and on-premise applications being used by an enterprise.  We are shifting from worrying about how a single SaaS application ingests data to how a set of on-premise and cloud-based applications work together to automate a business process. 
  • Security is an inhibitor but it is no longer the top issue as it was as late as a year ago. 
  • Customizability of SaaS applications is still an issue for the larger enterprises but the SaaS vendors are providing additional application controls allowing for greater configuration of each application while they continue to focus on having all their customers run under a single application version. 
  • SLAs (defining them and adhering to them). 

• Social computing. Social computing functionality is starting to aggressively be incorporated into enterprise applications, raising the bar on what the corporate business user should expect as baseline functionality of any enterprise application.  SaaS applications have the upper hand in this area.  Compared to on-premise applications, SaaS applications can both interface easily with external social networks and applications, but can also more easily integrate and embed social functionality.  Despite these characteristics it is not clear yet whether enterprise social computing applications will be offered as standalone system or as components of other SaaS applications, e.g., Chatter.  It is also not clear whether standalone enterprise social computing applications will be easily monetizable.  Finally, Taleo, that is now starting to aggressively focus on analytics, views the data generated by enterprise social applications as very valuable.
• Mobility and the cloud computing.  By 2014 the number of users accessing the internet through a mobile device and the bandwidth requirements associated with that will surpass the PC ecosystem’s, as a whole.  This will lead vendors to build applications with an eye to mobile first, which is accomplished more easily under a SaaS model.  Business users are starting to view mobile and SaaS interchangeably.  Smartphones and tablets are becoming additional catalysts for moving applications and data to the cloud.  Small business owners want to run their entire business on a tablet or a smartphone.  HTML5 will be used to deliver the right user interface experience in these devices.
• Application granularity.  Mini apps, of the type found today in mobile phones and tablets, will provide the next-generation enterprise application development model replacing the large scale applications being developed by corporate IT to date.
• Enterprise IT.  Several business executives in both conferences stated that enterprise IT organizations are:
  • No longer in the position to address corporate user needs.  Corporations need new, cloud-based application deployment models.  In another sign of the impact of mobile in corporate IT and of the consumerization of the enterprise, I heard that application stores are being carefully considered in order provide one such alternative deployment model.  By the way, this is the reason we invested in PocketGear.
  • Becoming the controllers of data, i.e., they control the data that is being served to cloud-based applications, rather than the developers of applications.  Application development is rapidly shifting to vendors.

Mobile Data Analytics

Over the past couple of years I have met with several startups that offer analytic solutions for mobile data.  I have not invested in any of them.  I had felt that the data captured from feature phones and early generations of smartphones was not rich enough to lead to interesting and distinct analytics.  For example, while data captured from a mobile web browser such as sites visited, pageviews, time spent browsing could be analyzed, we didn’t need a new company to do that.  Omniture could do that just fine.  However, the new smartphones capture more interesting data.  These data sets could drive the creation of a new and interesting analytics.  As a result, I am becoming interested in mobile data analytics and have been actively looking for investment opportunities in this sector.

The new smartphones are becoming sensor platforms, as well as being computing platforms.  In addition to photo and video camera, touch screen, GPS and accelerometer, new types of sensors are being connected to smartphones.  For example, Bling Nation has introduced a sensor that adheres to a smartphone and is linked to the user’s PayPal account.  Our own portfolio company Zeo has announced that it will connect its sensor to the iPhone in order to capture sleep-related data.  Some of the data sets generated by all these sensors that I find interesting include:

1. The time-series of GPS and accelerometer data for each subscriber.  By analyzing these time-series one can predict where and when the subscriber will be next and offer relevant services at the predicted location, e.g., parking availability with offers from parking garages.
2. Data generated from the use of augmented reality (AR) application can create new advertising opportunities, as well the opportunities to serve up relevant content the user had not thought to ask for.
3. Configuration data on the complete software stack running on each phone (from firmware to operating system to application software).  This data can then be used, for example, by an app store to recommend new available applications that will be augment the user’s productivity.  Such configuration databases today exist only in corporate IT settings.
4. Mobile payments data combined with geolocation data.  Analyzing this data can lead to predictions about customer brand or product loyalty.

Entertainment-related applications, e.g., gaming, and health care applications, e.g., prescription dispensing, will also benefit from the analysis of this type of data.  I am not certain whether new data management systems will be necessary for such data sets, though I imagine that the data will be big and complex, particularly as various time-series are captured, and will be stored in the cloud.

The wireless carriers may not be in the best position of collecting this data, not only because of their lack of experience with diverse data types, but also because they are regulated businesses.  Google and Apple are in a much better position because they already collect much of this data through their Android and iOS platforms respectively.  While these companies may also be best able to mine the data, they won’t enter this business in the near term.  Instead it will be startups that will first experiment with creating interesting data sets out of the collected data and analyzing them.  My assumption, also driving my interest in the sector, is that companies like Google will wait to see how these “experiments” go and proceed to acquire the more interesting of the analytics startup companies.

Users will need to give their permission for this rich data to be collected and combined.  Vendors, including wireless carriers, will get the users’ permission by offering free services (something for which consumers have shown interest and affinity), better experience (optimized bandwidth, improved application performance, more accurate recommendations around applications, products, services, social connections, etc), and more accurate targeting of ads in ad-supported services.

The mobile space remains highly fragmented and the talent to create and analyze these data sets may be hard to find.  The new smartphone platforms present opportunities for collecting valuable data sets that will lead to the development of unique analytics which will in turn drive important and novel decisions.  Startups can lead the way to create these analytics and the enterprise platforms that manage them.

Related articles

• A sea of sensors (economist.com)

During 3Q10 SaaS Continued to Strengthen in the Enterprise

Continuing on a trend I started last year (see examples here and here), I wanted to add my commentary on the quarterly performance of our SaaS portfolio companies in the heels of the 3Q10 pubic company reporting season.  The public SaaS companies that have already announced, e.g., Success Factors, NetSuite, Taleo, DemandTec, demonstrated good results that fell within analyst estimates, in what is typically considered a tough quarter for IT vendors.  Our portfolio of 10 SaaS companies had a decent quarter; no blowout results, but no craters either. 

Reviewing the public SaaS company results I was noted the following:

1. The economy continues to negatively and disproportionally impact small companies that had been the traditional sales target for SaaS vendors.  As a result, these companies have slowed their purchasing or renewed their subscriptions.  Many such companies are going out of business. However, the SaaS adoption by larger enterprises is accelerating.
2. Bookings growth in the 15-30% through a combination of landing new customers and aggressively expanding within existing customers.  During the continued economic uncertainty the land and expand sales strategy is helping many public SaaS vendors, e.g., Success Factors, Rightnow, DemandTec.  The same is the case for our SaaS portfolio companies as well.
3. Churn rates are improving as customers feel increasingly comfortable with the SaaS solutions they have already adopted and the vendors are emphasizing churn reduction in order to provide downside protection to their sales efforts that continue to be challenged in this economy.
4. While the adoption of SaaS CRM and HRC solutions continues to accelerate in larger enterprises, according to recent surveys by Goldman Sachs and Morgan Stanley, SaaS ERP applications are slower to adopt.  Enterprises expect to customize the ERP solutions they adopt.  This expectation is counter to the SaaS philosophy, thus leading to the slower than expected adoption of SaaS ERP by larger enterprises.

In our SaaS portfolio

1. At least 50% of the total number of deals signed by our SaaS companies during the quarter came from large enterprises, across industries such as manufacturing, publishing, retail, CPG, travel and services, continuing a trend that started late last year. 
   1. These tended to involved multi-year contracts (2- and 3-year).  The multi-year contract approach is used by the large enterprises to ensure price stability.  We have advised our companies to try to resist such deals because we see them as an attempt by enterprises to replicate the perpetual license model while shifting all the IT costs to the vendor.  It is also important to note that in all of these deals with larger enterprises the CIO, or some other IT executive, was always involved in the decision process.
   2. The Total Contract Value (TCV) is increasing but not necessarily in the ways we want.  In particular, in addition to the multi year contract expectation, larger enterprises require the vendor to provide significant amount post-sale professional services (often as much as 40% of the TCV). Therefore, while with the higher TCV the SaaS vendor’s cash flow is improving, the MRR (the most important measure of a SaaS company’s performance) is not benefiting commensurably.  Increasing TCV in this manner also compresses margins as such deals require a more expensive and lengthier sales process.  As a result we advise our companies to view sales opportunities of such TCV profile as upside rather than making them the core of their quarterly sales performance.
   3. Our companies are starting to see more opportunities to expand their deployments to other departments within their larger customers as well upsell new modules of their solution.  As a result of this trend, more of our companies are expanding their account development/management teams and further modularizing their solutions to create reasons to upsell.
2. Regardless of the customer size, and similar to 2Q10, several of the deals closed during the last 2-3 weeks of the quarter.
3. Like with the public SaaS companies, reducing customer churn became a more important quarterly goal than ever in the past and a way to provide downside protection to new sales.  These days in earlier stage companies we expect 7-10% churn.  Our companies have been able to bring churn down to 2-5% during the quarter.
4. Continued accelerating interest in SaaS applications by international customers.  This quarter our SaaS portfolio received strong interest from and signed deals with Western European (British, French, Dutch, German), Brazilian, and Asian (Chinese, Singaporean, Australian, New Zealand) companies.
5. Webinars, particularly they include a presentation by an existing customer and, maybe even, a partner, proved the most effective lead generation channel during the quarter.
6. The demand for BI, and analytic solutions is increasing.  In addition to the increasing demand that is seen by our SaaS BI and analytics portfolio companies, all of our other SaaS application companies are asked by their customers to at least provide out of the box reporting functionality as part of the offering. 

During the quarter we sold one SaaS company (Tricipher to VMWare) and added a company (Acclaris) to our portfolio.  Our portfolio company Infopia sold its ecommerce SaaS platform business to Versata/Trilogy, changed its name to Acteea (www.acteea.com) and is now focusing on a SaaS ecommerce analytic application that is already being used by several B2C and B2B ecommerce companies. We expect to see continued M&A activity by both public SaaS vendors that are looking to increase their solution footprint as well as on-premise software vendors that realize that they must provide SaaS solutions and acquire SaaS expertise in-house, e.g., Dell's acquisition of Boomi.

4Q started strong for our companies with several closing deals in October.  We anticipate this to be a strong quarter, repeating the trend of the 4Q IT budget flush.  For the time being the outlook for 2011 remains more muted.

Related articles

• NetSuite reports blow out quarter. Hints at more accounting partners (accmanpro.com)
• Cloud ERP Adoption Barriers - Functionality or FUD? (diversity.net.nz)
• Dell heads for the cloud with Boomi buy (v3.co.uk)