What Do You Care What Other People Think?

Client Software as a Service

I spent a couple of hours with Dan Udoutch and Venky Venkataram from AppStream yesterday - smart guys with an awesome product.  Dan was at Netscape in the early days and has been all around the Valley since then (including CommerceOne from early on to the famed $350 share price and then Intersperse) and Venky ran engineering at ZoneLabs - enough said.

AppStream has some very cool technology that streams just enough of a Windows or Java application down to the desktop that it can start up and respond to standard user flows - then pulls down more of the application dynamically as the user activates other features in the app.  There's no interruption in the user experience, and the app runs locally on the client, with normal permissions, Start Menu entries, all the normal Windows app behavior you'd expect.  This is cool technology because the user wouldn't even notice it was there.

They combine this with robust management, provisioning, and metering for applications across large user communities.  Since applications are streamed on demand, apps can be versioned automatically across a user base, without any action required from the user.

What this enables is full client-side software as a service - where the definition of SaaS is "freeing the customer from daily operation, maintenance, and upgrades of the application".  When I step back from the SaaS phenomenon what I see is a value shift in which customers want their applications to "just work". 

There are a number of applications for this - one that springs to mind is security policy management of application versions; NAP and NAC both require a local SHA (System Health Monitor) that reports the versions of current apps on the client back to the Health Server, which then allows access to the network or sends the client a list of remediations required; the client then goes to a remediation server for detailed instructions which typically require patching or upgrading specific applications.  AppStream would allow this whole cycle to be bypassed (for managed applications) as the application would automatically stream down the latest version when the user starts it up.

I think this could be transformative as the pendulum of SaaS swings back to blended client & server implementations.

SaaS Startup Offering

I've been working hard to develop a strong Microsoft-based offering for startups building SaaS companies, because the economics are with LAMP right now.  In listening to startup engineering managers and business managers (i.e. VP Engineering and CEOs) I consistently hear the following:

1) Speed of development is important (hence PHP and Ruby on Rails, although I hear some say they're happy with the agility of ASP.NET).

2) Operations cost rules all (scale-out includes many instances of the OS, App Server, DB, etc., not to mention virtualization).

With partnership from Doug Pratt (who runs the Empower program which is designed to meet the needs of startups - and given the 15,000 enrollees who have gotten development licenses to every piece of software we make ("back the truck up") for $375, I think we can say it was a good offer for ISVs) I've been able to learn a lot about our licensing and pricing issues relative to SaaS companies.

Unfortunately it is far short of what SaaS startups need - first of all, they need permission to run the software as a service, which is prohibited under the Empower agreement, and second, they need to be able to scale out without paying more.  The Service Provider License Agreement (SPLA) is a usage-based pricing model for Microsoft infrastructure which is a closer fit to the SaaS model (has per-user and per-CPU modes of billing) developed by the Microsoft Comm Sector Hosting team.  They have also built out a hosting solution and we've seen ISVs like Vertafore use it to lower their costs & scale faster.

Shannon Clark writes about this in response to Robert Scoble's list of Web 2.0 entrepreurs' complaints he heard during his "two days in the Valley."

So what if we launched a SaaS Empower program that included architectural guidance on how to build multitenant applications on .NET, had a slew of free runtime/production licenses for our server software, and connected you to a SaaS Marketplace or Solution Finder on Microsoft.com?  Would that be enough to move you to use the Windows stack?  What if we included Provisioning, Metering, and Billing engines (to be run by you, not us)?

The complaints department is open.

Conversations with the Marketplace

I hosted an extraordinary set of guests last week at a SaaS CEO Roundtable - CEOs from Intacct, Echopass, OpSource, Blue Roads, and Newsgator, the CTO of Ellie Mae, VP of Net Ops from BeVocal, and VP Marketing from Five9 (who previously ran marketing from inception to post-IPO at Salesforce.com).  I invited them to advise Microsoft on what we should be doing in the industry with regards to SaaS companies - and we had Microsoft executives from the Comm Sector Hosting group to ensure that our discussions would be actionable.

First of all, the discussions were honest, direct, and insightful - covering the span of marketing reach, cost of sale, and cost of operations - and after 5 hours, we walked away from the table prepared to make a real difference at the business level to these companies, and to include, rather than focus on, technology as what we offer to the marketplace.

Second, they broke down SaaS companies into the following 4 non-contiguous stages of existence:

1. Garage & dorm room: enthusiasts and college students building new experiments
2. Early stage SaaS: professionals with limited funding (credit cards or angel investment) building SaaS from scratch
3. Transitional SaaS: successful packaged software companies moving into a SaaS delivery model
4. Mature SaaS: successful "SaaS from scratch" companies now in late-stage (expansion capital or gone public)

This was a pretty useful segmentation from my point of view - different stages obviously have different business & technology needs.  It turns out that our Windows-based Hosting Solution is a good fit for Transitional SaaS companies, as underscored by the Ellie Mae CTO, but that we have some work to do in the other categories.

Finally, it was clear that in order to be a great platform company in the SaaS world, we need to figure out how to provide broad customer reach for SaaS partners - make a real shift here towards being a sales and marketing platform, providing ways for SaaS ISVs and VARs to connect.  If you have some constructive suggestions on this, drop me a line.

I'll make some notes about what the Indirect Channel for SaaS is looking like before too long - it's going to be very different from the current "sell the customer some hardware, packaged apps, and services and take points on all of those" that we see in the software industry today.

Many thanks to the companies and executives who took spent their valuable time with us - and thanks to Brad Feld for the prompting on getting this topic out on my blog...

Startups - We are Open for Business

The most common reaction I get when I tell people what I do ("work with VCs and startups to help them get business relationships going with Microsoft") is amazement.  Not surprise - that would be just raised eyebrows - I usually see something between slightly open mouths and the full slack jaw ;)

But no, really, it's true.  I've worked at 5 startups - my first was NetStudio, started by an ex-Microsoft Office Program Manager, and my last was Ofoto.  NetStudio was crushed by Microsoft (remember "PhotoDraw"?) and Ofoto was acquired by Kodak.  They were both significant experiences for me.  In moving to Microsoft, I saw an opportunity to help "do the right thing" for other startups - provide transparency into the plans of the world's largest software company in order to help the world's smallest software companies succeed.

And we are wearing it on our sleeve.  Dan'l Lewin, the head of the Emerging Business team and Microsoft's senior exec in Silicon Valley, was just featured in AlwaysOn.  Cliff Reeves (my manager) and Don Dodge (my teammate) are actively talking about what they really think and do, and how to get in touch with them.  We invest in startups with our hearts and minds, and work hard to make the ones we focus on to succeed; we invest with marketing programs, customer introductions, and product group relationships.  We stay away from investing through direct equity stakes because we've seen that this can be destructive to growing markets.  We are passionate about startups.

Rick Segal pokes some fun at the whole idea but I think in his heart he really likes us ;)

I'm in the process of defining a program to make it much easier to launch & run Software as a Service companies - more entries on this to come - but if you have structured thoughts on what would make a difference to the SaaS ecosystem I welcome your comments and emails.

Giving Startups Equal Billing

Bruce Burns talked with me about a month ago about a new market development program he was initiating - the SecureIT Alliance - and now that it's announced I can finally write about it.  More information is here, but careful before you click - it's a Word document.

I got excited about it right away - of the dozen or so security vendors I've worked with in the last few months, all of them had one "ask" in common - "how can we be published somewhere significant as a trusted Microsoft security partner?"  The big challenge in startups is not only differentiating from the crowd, but in turning large partners into channels - whether marketing/lead-gen channels or true indirect sales (even harder!).  In this process the friend-or-foe antigen response among the sales force is often the most dangerous phenomenon.  What we want most in big-company business development is for the default reaction to be "friend" ... much harder than it sounds.  It turns out to be much easier to deal with other big companies in this way than with startups.

I told Bruce I had to have a half-dozen slots reserved for great security startups - we could have an alliance of market leaders and the next-generation innovators, something that would be good for both.  He saw it the same way, so we (Emerging Business Team) jumped to get our partners in.

So I was happy, but not shocked, when Voltage Security, Vormetric, e-Security, Network Intelligence, and Forum Systems accepted our offer and entered the alliance.  These are great companies, and I am really looking forward to this ... and I think the alliance members will only benefit from having more next-gen innovators enter.  If you're a VC-backed security startup and want to join, contact me and we can figure out how to get you started.  There's a community developing here - and it is going to drive revenue and real customer context.