Riding the Long Tail Curve  

The marketplace needs the rich variety that small software vendors, existing in countess niche markets and local and regional markets, can provide.  Without it, customers are faced with too few choices, often from firms whose success in the volume mainstream market is achieved by appealing to what “everyone” needs, rather than building applications with features for the needs of particular markets.  In the Long Tail, smaller software vendors can focus on their very specific customer needs, using their expertise in these markets to build applications that are perfect matches for just a few customers.

If we can use the facilities of the Internet to organize the long tail of the software market, so that customers find just the right solution and ISVs meet just the right business partners, we can radically increase customer satisfaction and the value of customers’ solutions, without reading an Internet roadmap or solving any mathematical equations.  The tools are there.  We need only use them.

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SaaS Comes Of Age

I’ve been writing about the SaaS (Software as a Service) market for a very long time.  Of course, it wasn’t always called SaaS.

I’ll spare you the long version of this discussion, thinking about comparing SaaS to time sharing.  But we did try it in the late nineties as the ASP market.  We quickly tried to loose that name, talking about SPs, and other kinds of service providers, as we walked through the many failures in the ASP market.

The ASP idea didn’t fail because it was a bad idea, but rather because of execution.  No one had figured out the rules of the game for successfully executing in this new market (except for a few smart guys like Salesforce.com) and they paid the price.

This time around, most firms who are following the SaaS model understand the execution rules.

1. Applications must be written to run successfully as multi-tenant clients on servers and should be written to exploit the Internet environment.  Interestingly, this gives new firms (who are writing new software) an advantage over existing software companies, even very successful ones, who often want to repurpose their existing software and may be limited by its quirks, the loyalty of existing customers to particular features, or the cost of making extensive changes.
   
   

2. Most software ISVs shouldn’t be in the hosting business.  It’s not their core competence and it wastes their capital in inefficient ways.  There’s lots of good hosting available out there and the hosters will frequently provide mentoring and access to customers as well as servers and Internet access.
   
   

3. Marketing is a cost.  In the ASP round, many ISVs with very nice software made the mistake of thinking they needed only to place it up on a website and wait for customers to appear.  They didn’t.  But good marketing in the Age of the Internet is easy to achieve (see the Long Tail article above). It’s a matter of having the cost in your business plan and executing tha part of the plan with discipline.
   
    

4. Focus.  You can’t be everything to everybody, so don’t try.  Focus on a particular market where your expertise will give you an advantage.  Then use the great reputation you get in that market to grow.

The Ramp Rises

Now the ramp for the SaaS market seems to be rising.  There are a number of reasons that lead me to believe this is happening right now.

1.  Almost every new software product I see is based on the SaaS model.
   
   

2. VC’s have gone wild over making their software investments in the SaaS side of the market.
   
   

3. We are seeing a number of SaaS success stories – even companies with not just cash flow and revenue but profits!!!
   
   

4. Big software and infrastructure vendors have jumped on the SaaS bandwagon, giving it credibility.  That includes IBM for infrastructure and hosting and Microsoft for starting to offer hosted services.  Of course, popular consumer offerings from Google and Yahoo have already started to change the nature of the SaaS market.

I could go on (and on), but I think the right thing to say is that soon we will turn the corner and more customer application dollars will be spent on SaaS than on traditional software.  Of course, we will have to figure out how to count in all the software being offered against web business models where the customers doesn’t pay directly for the use of the service, but we’ll figure it out.

Keep track of your own usage.  And remember Google searches count.

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Will Microsoft Define Office Work One More Time

Microsoft first showed me Office 12 (now renamed Office 2007), under NDA in June, 2006.  My reaction was completely divided.  On the one hand, I was impressed by the new and quite engaging interface Microsoft’s UI designers proposed.  On the other hand, I couldn’t imagine that a company with 300 million (!)users was embarking on a plan to launch an upgrade product with an entirely new interface.

Over the summer I spent a lot of time thinking about it.  Obviously, professionals who spent a lot of time with Word (or any of the other Office applications) could learn most of the basics of the new interface in a few hours.  But (enormous but) someone would have to tell them or Microsoft and its customers would have enormous help desk costs  getting users moved from their prior Office product to Office 2007. 

The Question Is:  Is This An Upgrade Or A New Decision?

Some users were going to need training and that was going to open Pandora’s box, I thought. 

When a company is firmly in place as the market owner (as Microsoft is with its Office Suite, with 93% of the business market in the U.S. and significant shares elsewhere, it’s really important for customers to think of advances in the product to look like upgrades to something customers are already committed to.  That makes it easy to decide to keep using the same product.

If a vendor replaces a favorite existing product with something noticeably “new,” the user may view this as a new decision.  New decisions frequently signal the user to look around and see what other choices might be available.  Microsoft might think that there aren’t any other choices so it doesn’t matter.

What Are The Alternatives?

I was thinking that there were really two very different issues here:

1. There are other Office Suites.  Corel keeps enhancing the WordPerfect Office Suite and it’s actually gaining small bits of market share.  It’s less expensive and if customers, especially in the SMB, education, and government market decided to look around before deciding to re-up with Microsoft they might nice WordPerfect.  There are two other kinds of choices.  One is to choose an Open Source solution like Open Office; it’s been improved nicely over time (and remember this doesn’t necessarily  mean using Linux – OpenOffice comes in the Windows flavor, too).  Or users could explore an on-line SaaS version of office function like HyperOffice.  (www.HyperOffice.com). This would be particularly appealing to small businesses (low cash outlay, pay as your go, as well as to companies that have users on the road since everything is available from a browser anywhere.
   
   

2. Philosophically, however, there’s a much bigger question.  Companies might choose to see what their users actually do.  One consulting firm in Europe does desktop studies and reliably finds that most users spend most of their time in the browser doing email, browsing the web for information, and interacting with a line of business (LOB) application.  That doesn’t leave them much time to actually use the features in an Office suite.  We suspect some companies may figure this out and start giving many users a simpler environment, based on a portal interface, and provide office suite function on an as needed basis.  That will probably mean continuing to buy office suites for some users and using on demand office software for the occasional needs of the rest.  Another SaaS application, of course.

Microsoft has tried to make Office 2007 too attractive to pass up.  In addition to new features in the suite itself and the new interface, it also acts as the foundation for collaboration and other higher function applications that involve Microsoft servers and services.  The new interface includes hundreds of built-in templates, allowing users to achieve professional graphic looks for their documents, spreadsheets, and presentations without investing the time to learn how to do it – or just the time to make it happen.

Microsoft also makes it really easy for customers on subscription with Microsoft to get the software.  It simply becomes available at no additional charge to the subscribing organization.  It remains to be seen whether these organizations will vote for the new features or feel that the cost of managing a migration, especially one which requires additional training and support, is worth the expenditure of organizational resources.  We’ll be sending you a survey shortly about this, looking for some insights.

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Links:  News Of Events From Amy And The Industry

In this section, which we think could become a very important one, we tell you about events we’re somehow involved with.  The thought is that you can, if you like, participate too.

Part of the charm of working in the computer industry has always been its incestuous nature, the notion of constantly crossing paths with people whom you’ve met before.  In a single week, I may hear from a long-ago client, a student I once taught at an IBM executive school, a former client (now in a new company), looking for a consultant, and an old friend, calling to say he found me on Google. (That actually was a week in December.)

So here are some places I’ll be or some things I’m interested in that you might want to know about.

OpSource SaaS Summit
Silverado, Napa, CA, March 1-3, 2006
For information www.opsource.net/news/events  
Speaker

IBM PartnerWorld
Las Vegas, NV, March 12-16, 2006
For information http://www-1.ibm.com/partnerworld/pwhome.nsf/news/pw2005_index.html 
Speaker

LinuxWorld Conference and Expo
Boston, MA, April 3-8, 2006
For information www.linuxworldexpo.com/ 
Would-be Attendee (except I can’t be there because I’m having surgery that week – bad timing – you go and tell me about it)

Check Out Our Weblog  

Weblogging is becoming more of a mainstream activity, with articles about it in the New York Times and other “serious” business publications.

Amy Wohl’s weblog often behaves as an extension to this newsletter, writing about events, which happen in between issues, or events that require a different kind of commentary.  Both sites are linked and you may subscribe to the weblog at http://amywohl.weblogger.com if you’d like to automatically receive new posts and be able to participate in discussions.  

I have a new weblog on SaaS, Software as a Service, which I firmly believe is going up the ramp this time.  Join me and watch the fun at Amy Wohl’s Opinions on SaaS, http://amys.typepad.com/amy_wohls_opinions_on_saa/

I also write two weblogs for IBM, one at DeveloperWorks at http://www.ibm.com/developerworks/blogs/wohl/index.jsp and one on Software as a Service (SaaS) on PartnerWorld at  http://www-106.ibm.com/developerworks/blogs/dw_blog.jspa?blog=494 .   
I’m not doing much new there, but new things do appear from time to time, especially on the DeveloperWorks blog. 

You can find a good set of links to other interesting weblogs at this site http://www.well.com/user/jd/weblog/roundup.html. 

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Presentations

View the slides from Amy's presentation at Desktop Lindows Summit 2004 
Breaking Barriers to the Acceptance of the Linux Desktop