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.

Comments

[Ross Mayfield]

No.

[Kevin Tunis]

With Scoble talking about SaaS and all the other stuff I have been seeing this week, I just had to chime in. My company Knowledge Mgmt. Solutions, Inc. has been offering Microsoft software since 2000 in which we sign a SPLA agreement and the next year in 2001, we sign an agreement for Passport with the idea to use Passport as a secure means to access Microsoft software in a web-based solution. In response to Sam Ramji's post he talks about launching a SaaS Empower program; this I would very much be interested in discussing further. For instance, we are offering a dedicated server for 71.00 USD per month and under the SPLA program we are offering Visual Studio for 51.88 USD per month per user, this allows small to medium developer companies to use the full capabilities of Visual Studio for the time of the project that they are working on without having to purchase the retail version and allocate pricing for that expense - this takes total cost of ownership to a zero cost of ownership. This is a breakdown of the 51.88 as we have to license it, for Windows Standard Edition Server 3.60 USD, for Windows Terminal Server 3.29 and for Visual Studio Enterprise Edition 44.99, we than add a percent on this for managed hosting in a shared environment; but if customer leases a server we then set up the server to allocate which user is what offering whether it's Office, Exchange, Project or any of the other software offered at Microsoft. Even at the end of last week, we were discussing this with Microsoft and the upcoming Microsoft Solution for Applications as a means for deploying, managing and provisions sites for service providers, hosters and business. Shoot, for that matter if we could actual find a team within Microsoft that does this now and would work with us - send us a check, restructure the licensing and we can get this up and running within the next 6 months. I would very much like to hear from other service providers, hosters, businesses and developers as next week we begin discussing licenses with Microsoft for these offerings. You can contact me at [email protected] of call my cell at 620-272-3927.

[Don]

For us, it's not a question of how to get us to move *to* the Windows stack, it's how to stop us from moving *from* the Windows stack to the linux stack.

We have a nearly feature complete ASP.NET 2.0 implementation of our product. We believe that the Windows stack offers lower TCO, higher security, and faster development time than the linux stack. And we estimate that switching to linux would set us back at least six months and involve significant technological risk.

So why are we even considering moving to linux?

Because there is no Empower for SaaS.

Lower TCO and better security are irrelevant if the cost of provisioning our server racks shuts the company down before we ever go live. We have to provision our server racks before we launch, and that means we are building racks pre-revenue. Every dollar of spending we can defer until we after have revenue is worth its weight in gold. On a risk adjusted, time value of money basis, the additional upfront investment required to provision our racks with the Windows stack dwarfs any possible future TCO differential. We are forced to launch on the linux stack even though in the long run it's a terrible decision and once we're live we can't switch back.

The Empower program is brilliant. Help startups defer their technology licensing costs if they launch on and using Microsoft platforms. It's a classic win-win strategy. It just happens to be built around an outdated business model.

The startup cost of a traditional ISV was largely determined by the software development cost, so traditional ISV's needed to be able to defer their development software licensing costs. The startup cost for SaaS is completely different. What matters to the SaaS startup is the server launch costs. Everything you talked about in your post sounds great, but what we need is a way to defer the licensing costs that are relevant to the SaaS startup. We need a way to defer the cost of the licenses that run on our go-live servers for, say, the first two years (allowing one year of free public "beta" marketing campaign and one year of revenue generation to be able to afford all those licenses).

Empower is already providing this type of win/win deferment of licensing costs, it's just defering cost of licensing a different set of SKUs. Sure, MS would lose some licensing revenue from an SaaS startup during those first two years just like it loses some revenue from traditional Empower ISVs during their early days. But is that really worse than losing the licensing revenue from that same SaaS startup forever?

We designed AND built our application to run on the Windows stack. Now we want to release it on the Windows stack. But we can't do that without someone who can bring about a version of Empower that is relevant to a SaaS launch

[ppk]

I tried to send you some feedback (via email), but it was rejected by your spam filters. If you have any suggestions, please let me know.