BELL CONSULTING GROUP INC.

AlwaysOn SaaS panel Summit at Stanford Tech Startup Entrepreneurship

The panelists were:

    Lyle Fong, CEO, Lithium
    Lisa Lambert, Managing Director, Software & Solutions Group, Intel Capital
    Steve Papermaster, CEO, nGenera
    Tien Tzuo, CEO, Zuora
    Maynard Webb, CEO, LiveOps (formerly eBay)

Lambert: "Security is still a big issue with SaaS.  We needed a SalesForce.com to show the way but we're not there yet."

Papermaster: "There has been a lack of innovation, applications are moving to the cloud but they are not adequately focused on customer needs.  There have been some early successes, but we are at a breakout point in terms of the business model for SaaS".

Kwan: Customer acceptance?  Issues, like security? Ready for enterprise-class deployment?  Tzuo: getting customers comfortable has been a big issue but the tide turned 1-2 years ago.  Zuora not addressing the same questions that Salesforce had to - security, customization, integration.  We're past the inflection point in the S curve".

Webb: We are doing 4 to 5 9's reliability in SaaS; SaaS providers get a unique window into how their customers are using and stressing their platforms, giving them an edge to innovate.  The more the SaaS community can leverage that, the better off we'll be".

Lambert: "The SMB's couldn't afford enterprise class software and were pretty much left out of the equation.  Fundamentally, SaaS solved that problem for them and they've adopted it.  It makes more sense for a small business to buy a solution on a monthly basis.  I expect SaaS to be a great offering for small businesses who want the opportunity for more productivity, but don't want to pay a big price for it.  Salesforce, Omniture, etc.

Papermaster: The demographic that is now entering into companies, only knows on-demand applications - the web.  Their way of doing business will drive the enterprise to adopt SaaS.

Fong: (challenging that): "Companies aren't making decisions now based upon whether the application is on-demand, or on-premise.  They are going well beyond just bypassing IT, and looking at the problem solved and the business needs.  On-demand is no longer a stumbling point.

Kwan: are the barriers to entry for SaaS less sticky?  what are the barriers?

Webb: SaaS is a very disruptive technology; once someone is on an enterprise platform it is difficult to move off of that; e.g. database applications. 

Tzuo: (agreeing), "yes it is hard for enterprises to move off the big applications/databases.  SaaS is really a different mindset for solving problems; different class of companies.  Provisioning, customer service mindset; not just a set of components but a total value delivery system".

Lambert: "SaaS is low cost, easy to use, and easy to maintain.  SAP, Oracle, IBM have a huge task to go from a monolithic enterprise software mindset, culturally and wrt business model; and architecturally to transition into an "on demand" mindset".

nGenera: "Traditional enterprise apps are clumsy, difficult, expensive with large groups of people tasked with simply keeping them running and operational.  Moving that into the cloud, the technology disappeaars; but they become even more sticky; as the focus is on the value delivered, the actual function of the software versus the technology; so the users invest even more heavily in using and committing to it; createing high retention and renewal rates for great products".

Kwan: "It appears there is a lot of first-mover advantage in the SaaS space.  Is that really the case?"

Papermaster: "only for the major applications and opportunities".

Webb: "Only for the major applications at key inflection points".

Kwan: what about the valuation of SaaS startups by VC's, and what is the state of vc on this - do they get it?

Fong: Yes, we just did a B round and they are looking at our key financial metrics; using that as a leading indicator of company health and growth.  

Lambert: We vc's are inherently risk-averse.  Today it is pretty apparent that there are multiple IPOs with very large market caps coming out of SaaS.  This is a business model that works, that scales, and point solutions are not a death wish.  There will be both on premise and off premise applications and they need to integrate down the road.  But the case has been made around the business model, value proposition, and ability to scale.

Kwan: Could there be higher margins for SaaS, as the apps scale up?

Papermaster: Customer acquisition costs are very high; this is an issue with SMB SaaS that worries me.  In the enterprise applications where we (nGenera) are focused, it is less of an issue.  These are game-changer applications with a lot of financial leverage.

Webb (Board Member at Salesforce.com): Saleforce has maintained great margins; doesn't see it as an issue.

I asked a question using AlwaysOn's web streaming interface which the panelists can see on their monitor, and Kwan posed it as the closing question.

Lambert: we just invested in ToA Technologies in Cleveland... "Time on Arrival".  It's a SaaS scheduling company, e.g. scheduling the service technician to come to your home within a 30 minute window instead of a 4-6 hour window (great idea!). 

Papermaster: Green applications, SaaS on-demand, smart grid are where I  see the next wave of applications.  Utilities providing better customer experience; Silverspring Networks taking on-demand apps deep into the utility market and improving customer experience, managing electric power cost on demand.  Those kinds of plays, applying SaaS to very big, disruptive markets.

Zuora: We have ZERO infrastructure in our startup company - no file servers, print servers, etc.  We use all the Google Apps; our intranet is powered by Google sites; that is the SaaS application we use the most.

Webb: The world of work.  That is the SaaS application that I'm most excited about. 

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This was an excellent AlwaysOn panel!  Well done.