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Business & Technology
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ACKNOWLEDGEMENTS...........................................................................V INTRODUCTION.......................................................................................VII SEVEN BUSINESS MODELS.......................................................................1 MODEL ONE: TRADITIONAL ..........................................................................3 MODEL TWO: OPEN SOURCE ........................................................................5 MODEL THREE: OUTSOURCING.....................................................................7 MODEL FOUR: HYBRID. ................................................................................9 MODEL FIVE: HYBRID+ ..............................................................................14 MODEL SIX: SOFTWARE AS A SERVICE .......................................................15 MODEL SEVEN: INTERNET ..........................................................................17 COST OF SOFTWARE ....................................................................................18 SUMMARY ...................................................................................................22 APPLICATION CLOUD SERVICES ........................................................24 COLLABORATION ........................................................................................25 WEBEX STORY ..............................................................................................26 FINANCIAL APPLICATIONS ..........................................................................28 CONCUR STORY ............................................................................................28 NETSUITE STORY ..........................................................................................30 HUMAN RESOURCE APPLICATIONS .............................................................31 KENEXA STORY.............................................................................................32 TALEO STORY ...............................................................................................33 SUCCESSFACTORS STORY ..............................................................................35 CRM FOR MARKETING ...............................................................................36 VOCUS STORY ..............................................................................................37 OMNITURE STORY ........................................................................................38 CONSTANT CONTACT STORY .........................................................................40 CRM FOR SALES .........................................................................................42 SALESFORCE.COM STORY .............................................................................42 CRM FOR SERVICE .....................................................................................44 RIGHTNOW TECHNOLOGIES STORY ...............................................................46 VERTICAL APPLICATIONS ...........................................................................48 DEALERTRACK STORY ..................................................................................51 BLACKBAUD STORY ......................................................................................52
.............................73 HIGH GROWTH APPLICATIONS ............65 ECONOMICS .................................................................................76 ON OFF APPLICATIONS ................105 FACEBOOK STORY .......................................................................109 NETSUITE STORY ...............................70 BUSINESS MODELS .............................58 POWER QUALITY.........................................102 GOOGLE APPENGINE STORY ........................................................................................................................................................................................................................................90 MULTI-TENANCY ...........................OPENTABLE STORY ....67 SUMMARY ...................................79 SPECIALIZED CLOUD SERVICES (AKA PRIVATE CLOUD)...............75 APERIODIC BURSTY ..........83 SUMMARY ....................................................68 COMPUTE & STORAGE CLOUD SERVICES...................................................................124 CLOUD SERVICES .....................................................................................................................................................................................................................................................................................................................................................................................................................................................................54 SUMMARY .......................................................87 SOFTWARE DEVELOPMENT CLOUD SERVICES ...........................................................................................130 AVAILABILITY MANAGEMENT ..................................................................124 CHANGE MANAGEMENT ...................................... CLOUD DEVELOPMENT ..........................................................89 APPLICATION SPECTRUM .................57 NETWORK CLOUD SERVICES ............................................................................................................80 TODAY’S CLOUDS ARE SMALL........................................133 ii ...........................................................................................................................................COM STORY ......................................................................................................................................103 VERTICAL PLATFORM SERVICES .....................98 MICROSOFT AZURE STORY ......................................................................113 CUSTOMIZATION .......................................................................................................................................62 POWER CARBON FOOTPRINT ..................................................128 EBAY STORY ...............................111 TESTING ..................................................................................................105 SALESFORCE.................................................................93 SOFTWARE DEVELOPMENT LIFECYCLE...............116 TRADITIONAL VS...................53 CLOUD SERVICE STACK .........................................................................................................61 POWER UTILIZATION EFFICIENCY ......77 PERIODIC BURSTY ......................................................................................................96 HORIZONTAL PLATFORM SERVICES ...83 COMPUTER CARBON FOOTPRINT ............................................................................................................................................................................................................................120 SUMMARY .................................................................56 DATA CENTER CLOUD SERVICES .................................................78 STORAGE CLOUD SERVICES ...........................................122 OPERATIONS MANAGEMENT ..........
...........................................................................................................203 iii .........................................201 BUY NEW ..........181 REVENUE RECOGNITION ..................................148 TRADITIONAL SALES & MARKETING .....................140 CUSTOMER SERVICE .................................170 SALES COMPENSATION ..........................................163 SELLING NEW APPLICATION CLOUD SERVICES .................................................................................................................................................................................................................................................................................................................188 FINANCIAL ANALYSTS ....................................................................................187 FINANCIAL SYSTEMS ..154 GET NOTORIOUS .............................................................................................................................169 SERVICE LEVEL AGREEMENTS ......................................................................................................................................................................................................................................147 ECONOMICS OF SALES & MARKETING ..............................................................................................................................................141 SEARCH-BASED APPLICATIONS ....................................................................................................142 SUMMARY ......................................................................... RIGHT STAGE ...........................193 HUMAN RESOURCES.........................................................................................185 COST OF SALES: WHEN TO HIRE FOR MORE SALES .....................................................................................................................................................................................................146 MARKETING ........................................................................................................................................................................149 EMAIL MARKETING .................164 CONTRACTS ..............................................................................................184 CASH ..............................................................................................182 MONTHLY RECURRING REVENUE (MRR)............................................................................137 CARE REHAB STORY .................199 SCRAPE ......................PERFORMANCE MANAGEMENT ..........................................................................................................................................................177 FINANCE .................................................................................................................................151 E-LOAN STORY ............................................................................158 SUMMARY ..195 RIGHT PEOPLE ...156 EDUCATE & SELECT ........................................................................................197 CULTURE .....................159 SALES .........................................191 VENTURE CAPITAL .........175 INDIRECT CHANNELS .....................................................185 CHURN: COST OF KEEPING A CUSTOMER ................................................161 TRANSFORMING TRADITIONAL SOFTWARE SALES......173 INSTALLED BASE SALES ............................................................................................................194 ECONOMICS ..........................................................................139 MEXICO STORY .............................................................................................153 SOCIAL MEDIA MARKETING ........................136 SECURITY MANAGEMENT ..........................................................191 SUMMARY ...........195 RIGHT PEOPLE...............................................................152 SEARCH MARKETING ......................................................................................
.............................................................................................................................210 BEGINNING OF SOFTWARE.........................REMODEL ..........................................................................................216 iv ....................................206 WORLD OF WORK ..208 SUMMARY ..................................................................................212 INDEX............................................................................................
Some of these lectures have been captured explicitly and implicitly in this textbook. so I’d like to thank many of them for their contributions. At the application level nearly all of the companies who’ve developed business application cloud services have lectured including: Evan Goldberg. v . It was born of my desire to help both technology students understand more about the world of business as well as to have business students understand more about technology. So in 2005 when I left my role as the President of Oracle On Demand.Acknowledgements For almost fifteen years I had the pleasure of teaching introductory computer architecture to over a thousand students at Stanford University. We just completed the 5th year of the class. I launched the first seminar class on software as a service. With nearly 50 unique guest lecturers we have spanned the range of companies that are either delivering their applications as a cloud service or providing the platform to do so. with the help of Claire Stager. Zach Nelson.
Alexandra and Caroline. for inviting me to deliver 10 lectures at Tsinghua University in the winter of 2009. vi . whose hard work and perseverance provided me the means to realize many of my dreams. Brian Behlendorf. Udi Manber. Jeff Jordan. Sue. Joe Kennedy. Jonathan Schwartz. Vic Gundotra. and our three children. Steve Singh. Finally special thanks to Professor Qianchuan Zhao. Dave Girourard and Philip Rosedale. Mark O’Neil. It was the preparation for those lectures that created the first generation of this textbook. Samir Aora. Tom Leighton. And finally thanks to my wife. I am also grateful for my parents. Marc Chardon. Mary Ann and David. Werner Vogels. and Erich Clementi. Danielle. for her artwork. Greg Gianforte. The class also focused on leaders on the consumer side as well including: Tony Hsieh. Subrah Iyar. I’d also like to acknowledge Janet Stevenson. Pradeep Sindhu.Marc Benioff. and Michael Gregoire. At the platform and infrastructure level the lecturers included: Charles Phillips. Reid Hoffman. Rudy Karsan. without whom the past twenty one years would not have been anywhere near as meaningful or as exciting. Maynard Webb.
Are they just different names for the same thing.Introduction Cloud computing. or are they similar names for different ideas? This textbook is written as a primer for anyone trying to make sense of what many believe is the 3rd major wave of computing. In that light we introduce a five-layer cloud services stack to educate you on many of the new cloud services you can buy and not build. infrastructure as a service have all been used to describe new ways to build. deliver. Hence. Finally. managed services. or for those considering moving existing applications to the cloud. and client-server computing. The book is written for any business contemplating developing new application cloud services for internal or external usage. we open with seven business models for software and use these models in the discussions throughout the remaining chapters. Software+Service. after mainframe. platform as a service (PaaS). our mission is to deliver a holistic and balanced view useful for the technology student to understand the business vii . software on demand. Instead. software as a service (SaaS). this textbook is not written for the experts in marketing to read the marketing section. or experts in operations to read the operations chapter. While it contains some aspects of technology the book is first and foremost written from a business perspective. and purchase software.
Suddenly. Any student of history knows there was a massive change when Gutenberg invented the printing press. the good news was that we have two new sales people. the Managing Director of Oracle Germany asked to meet with me as the President of the Oracle On Demand business. but rather could be written down. over a long weekend. Part of the book was devoted to viii . The origins of the book can be traced to early 2002. an Oracle salesperson or a potential customer could come to understand why moving to “software as a service” was a logical and inevitable step. hoping they will be able to repeat the stories. During the meeting he told me he had assigned two salespeople to selling Oracle On Demand. In March of that year. but what I couldn’t get out of my head was “what are they saying to customers?” I realized that the way we educate salespeople is to bring them in to the corporate campfire. perhaps during a long plane ride or over a few evenings. tell them lots of great stories. abused and often lost. printed and passed out to many people. of course.challenges and the business student to understand the technology challenges. So. and send them back out into the wilderness. I hammered out the story I had been telling around the campfire with the intent that. That book was called The End of Software. knowledge could stop being just campfire stories that were repeated. I thought to myself that.
DealerTrack (2005). Salesforce. So for those of you who wonder if companies will purchase business application software as a cloud service I think you have your answer.case studies of three small private companies: Salesforce. Webex (2002). Salesforce. To get an idea of how different. Blackbaud purchased Kintera in 2008. Taleo (2005). Some of these companies have been acquisition targets. Websidestory (2004) Kenexa (2005). Successfactors (2007). consider since 1999 fifteen companies.2B. Years later. RightNow Technologies (2004). Kintera (2003). Vocus (2005). RightNow Technologies. Webex was acquired by Cisco in March 2007 for $3.com. Netsuite (2007). None of these companies was public at that time. Constant Contact (2007). Most people were debating why ASPs (Application Service Providers) failed and whether SaaS (Software as a Service) would be successful.com (2004). and Opentable (2009). the world is completely different. ix . Omniture acquired Websidestory and most recently Omniture itself was acquired by Adobe in October 2009 for $1. and NetSuite.com had generated only $5M in revenue. As 2009 comes to a close the remaining eleven companies have a combined market cap of over $15B. These fifteen include Concur (1999). have become public companies. who all deliver business application cloud services. Omniture (2006).8B.
to the consumer Internet. Chapter 2 begins at the application layer with application cloud services. In this chapter. x . Chapter 3. to outsourcing. Anyone contemplating building new applications or transforming their existing applications to cloud services can today take advantage of 1000s of cloud service provided by companies large and small. you know which model you’re trying to succeed in.Chapter 1. as a software business. but rather to make sure. This layer of the stack is of interest to the business users. each with a different audience. The cloud service stack is meant to further differentiate each layer of cloud services. The intent is not to argue that one model is better than another. Timothy. We introduce the idea of a five-layer cloud service stack and dedicate Chapters 2 through Chapter 5 to covering each of the major layers. Upgrade Magazine. from traditional software to open source. We’ll discuss all of the application areas that have benefited from being delivered as a cloud service – both horizontal and vertical. we outline the seven business models that encompass the entire software industry. “Seven Business Models” was originally published by the SIIA1 (Software and Information Industry Association) and based on a talk Scott Russell invited me to give at Diamondhead Ventures in 2005. “Data Center” begins 1Chou. June/July 2005. Seven Vices or Seven Virtues. to SaaS.
these new data centers require a minimum outlay of $100M.000 per square foot to build. This layer is of interest to the operations team at any application.g. At $1. platform. while more restrictive allow the developer to leverage the data models xi . In Chapter 5. The co-location or data center layer focuses on delivering high quality. The next layer of the stack: compute and storage cloud services is discussed in Chapter 4. While not a semiconductor fabrication line. these new platform services include much of the operational environments that were traditionally separate. Pioneered by Jeff Bezos and Amazon the ability to purchase compute by the hour and storage by the month is creating an environment for a whole new range of applications. All of the current generation of application cloud services have consumed network and colocation cloud services. Vertical platform services. Horizontal services are designed to provide many of the development environments we’ve seen in the traditional world (e. While having compute and storage available on demand is important it’s likely the cloud computing war will be won by winning the developer. “Software Development Cloud Services” we discuss horizontal and vertical platform cloud services. instead of focusing only on the developer.at the bottom of the stack. Ruby on Rails). the investment is not chicken feed. Visual Studio. security and reliability locations to house computers and storage.. or compute & storage cloud service business. However.
Chapters 7 and 8 are written for the non-sales and marketing professional. availability and customer service management. performance. you’ll need to figure out how to make sales & marketing a more efficient and xii . In Chapter 7 we cover some of the traditional marketing approaches as well as discuss some of the more innovative solutions. Whether you’re trying to leverage your existing sales teams or build a new sales team. As the price points for these cloud services decrease. Developing software in the newer models is not exactly the same as the traditional methods. In each of these areas there are numerous software companies providing these aspects of operations management as a cloud service. we’ll talk about how it’s different and why it addresses some of the fundamental challenges we’ve encountered in traditional software development. the management. Netsuite and Facebook. the challenges are even greater to find new ways to educate the buyers of your services.com. Chapter 6. security. quickly and inexpensively. After building the next great cloud service you’ll be faced with the traditional challenge of how to market and sell the service. and operations of the software. We’ll focus on change.supported by applications like salesforce. “Operations Management Cloud Services” introduces perhaps the most challenging area for traditional software people.
Finally.” may be at the end of the book. I hope this book will serve to inform you. “This is one thing that's really changing in the marketplace. In the end though. stage-appropriate leadership and the right specialist in the right organizational structure are as key as picking the right development methodology or sales compensation structure. Everybody is a xiii . All of the public application cloud service companies spend far more on sales and marketing than any other functional area. but we all should remember that every software business is a people business. As long time venture capitalist Ann Winblad said. Salesforce.com. Chapter 10. and Customer Lifetime Value) that are important to running a subscription business.powerful organization. and Oracle. any technology company requires two things to be successful: money and people. Churn Rate. Google. “Human Resources. We believe the campfire stories and lessons apply to all businesses. Having a solid culture. The chapter entitled “Finance” is meant for the non-finance professional and highlights some of the key financial metrics (MRR. including sales executives from WebEx. whether you’re a business student trying to make sense of these new technologies and business models or a technology student trying to understand what it means to launch a new business. We’ll hear from many experts in this area.
software company. not just the companies in the software industry.” xiv .
or as they are sometimes called. 1 . Anger. one of only two Popes to be given the title. Justice. Pope Gregory the Great. defined the Seven Deadly Sins. Charity. “the Great”. he also included a balancing set of values. Lust. These were: Pride. Gluttony. Not only did Pope Gregory define the seven sins to avoid. Prudence and Temperance. Hope.1 SEVEN BUSINESS MODELS In the 6th century. Envy. Greed and Sloth. Fortitude. Many would agree that managing a software company requires a little of both. the Seven Virtues: Faith. the Seven Deadly Vices.
The seven business models are complete and include every company that makes money from their software. Figure 1. as the software industry undergoes a major transformation to a cloud computing model.1 Seven Business Models 2 . There are successful companies in each of the models. You will hear some say. The models are oriented around application software and we’ll start from the traditional world of business software. it’s important to understand the seven potential business models before deciding if they are a Vice or a Virtue. the sales guys will never be able to sell it.” while others will talk endlessly about the virtues of the model and how. others have products that operate in multiple models. SEVEN VIRTUES Today. “We can’t move to a SaaS model. “It’ll be great to not have to wonder if this quarter we’ll close that big deal at midnight on December 31.” As you’ll see some companies operate in only one model.SEVEN VICES.
the customer is charged some percentage. cites five major areas that cost 3 .000 per user. sometimes referred to as the software support fee. including Oracle and SAP. The software is licensed in perpetuity with a one-time price. or around $800 per user per year. In fact in late 2009. In our case study. Why does it cost so much? Amy Konary. The business that bought the software then buys hardware. for the update/upgrade rights as well as maintenance. Many would point out that even traditional software companies have large subscription businesses.CLOUD Model One: Traditional This is the traditional software business model. Oracle’s maintenance business is over $12B annually. mastered by many companies. It’s here that the spending really goes up. and one of the earliest industry analysts to follow the change to software delivered as a service. and hires or redeploys people to manage the software. of $4. say 20 percent. The Gartner Group has estimated that the end user can spend up to four times the cost of their software license per year to manage these applications. this translates to about $65 per user per month. This cost multiplier is not limited to complex business software. at International Data Corporation (IDC). Subsequently. in our example.
problems. In our example.” The implications of this are substantial. of course. “CIOs and their departments really focus on five key aspects of the management and maintenance of their computer and software systems: availability. and change management. At a well-run Model One business. A Model One business is good since.000 per user. leaving little money on the table for new programs and projects. so called premium support. security. you’ll see license revenue breaking even. which typically can run thirty to forty percent of revenue. Some software companies also provide additional support services. Software support or maintenance is mostly limited to break-fix. the customer will end up spending $1.300 per user per month just to manage that software. sales and marketing expense. performance. can be funded. CIOs’ budgets are dominated by spending on managing software. First.SEVEN VICES. while the purchase price of the software may be $4. SEVEN VIRTUES companies millions of dollars annually. It is. in the software company’s interest 4 . access to a Web site of usage information and upgrades. with the large up-front purchase of the software. and all of the profit realized from software support. which often conflict with their partners or internal consulting groups who also provide value added services to help the customer service the software.
WebEx founder Subrah Iyar. In May 2005. By 1998. a group of programmers came up with open source as a replacement for free software. in many ways. creating the Open Source Initiative (OSI) to promote the new term.” Model Two: Open Source The free software movement began in the late 80s. a privately held company specializing in integration 5 . IBM made an acquisition of Gluecode Software. In the early stages of any software company." an in-flux of for-profit dollars has changed the landscape of free software remarkably. and the users who report bugs and suggest new features. as the customer needs and wants future functionality and. Under the name "open source. that’s why the consumer chooses to buy versus build. lecturing at Stanford in 2006.CLOUD to move customers forward on new releases so as to not incur expense in supporting multiple releases of the software. this is mutually beneficial. Most major free software projects now have corporate backing of one form or another. said “I would much rather have built a software business on the traditional model—it’s a much better business model for the software company. and many of these companies have become quite adept at working with the community that participates in the projects.
John Roberts. In early 2008 Sun Microsystems surprised everyone with their $1B acquisition of MySQL. Why? The open source model (much like Google) has reduced the entry cost to “try it” to zero. open source software companies have struggled with the business model. in June 2006. Red Hat. The purchase price was estimated at $100M. has been 6 . at least $500M has been invested in a variety of open source software companies. announced the acquisition of JBoss for a reported $420M. SEVEN VIRTUES software based in El Segundo. the world's best-known Linux distributor. While having people download. CA. which has been the lifeblood of Model One software companies. the founder of SugarCRM has shown a Google map with the heartbeat from hundreds of computers in Europe running SugarCRM software—and SugarCRM has no sales force in Europe.SEVEN VICES. All of this has not been lost on the investment community. Support and maintenance. MySQL estimates there have been 100 million installations and over 60 thousand downloads per day. and potentially use your software is far better than having them download a brochure. install. A year later. JasperSoft estimates there have been nearly two million downloads and over 20 thousand corporate deployments in 200+ countries of their Jasper Reports. Over the past many years.
Unfortunately. Some are providing additional functionality in a paid-for subscription service not available in their free version. Model Three: Outsourcing. but now the Model Three business will take on the management of that software for less than the $1. EDS (purchased by HP) and IBM Global Services have each built large. Traditional bronze. Some open source companies are experimenting with providing both appliances and an on-demand solution as a way of providing a higher degree of service than traditional software support. revenue has been elusive. other than Red Hat with their Red Hat Network.CLOUD difficult to monetize. and gold support has also been difficult to sell. In Model Three software is still licensed from the software company on a perpetual basis. since there has been little value-add other than changing the hours you will answer the phone and how quickly you’ll respond to a request.300 per user per month the customer would be 7 . it may not be for long. Recognizing that the cost to manage software systems is much larger than the purchase price of the software. But with lots of money and smart people. silver. support fees are still paid. multi-billion dollar businesses outsourcing the management of the software and systems. companies have emerged who are eager to take on the challenge.
ADP is probably the granddaddy of this business model. Outsourcers can manage the software either at the client’s site or at their own locations. was $50B. massive differences in labor rates are not sustainable.SEVEN VICES. including entire business processes. which. Second. While Model Three is good. over time. First. SEVEN VIRTUES spending. is also not sustainable. using offshore resources in India to lower the overall cost. Of course today every Model Three business is leveraging a global pool of talent whether in India. in 2007. such as Infosys. a new group of companies. with the inherent risk of human error. bringing them to 8 . IBM has recognized that they could grow their Global Services business by a factor of two. As much of the cost of the software management is buried in the cost of people. Model Three can grow big companies and high value companies. IBM Global Services generates over 50 percent of IBM’s revenue. Tiny Infosys with over $3B in revenue has traded at more than eight times revenue. there are two key challenges. These companies continue to grow and take on higher value functions. have emerged. China or Eastern Europe. EDS at the time it was acquired was over $20B in revenue. a multiple most software companies would be glad to have. the dependence of system availability on people.
that means the software is still licensed for $4.CLOUD over $100B in revenue. India. For most traditional software companies. Fortunately. they are already in the low cost countries—Brazil. This is the model Oracle pursued 9 . In our example. Model Four. “One grand research challenge for us is how to scale up services and how to invest to get year-overyear improvements. represents a bridge from Model One to Model Six: This business model attempts to leverage what an existing software company already has: products. Jim Spohrer founded an initiative inside IBM called Service Science. While the opportunity is there.” Computer science has benefited from Moore’s Law (where the capabilities of computer chips double about every 18 months). and China—so unless there are highly skilled resources in Antarctica waiting to be discovered. Spohrer has said. IBM will need to invest in technology. Could a Moore’s Law of service science be possible? Model Four: Hybrid. Russia. and an installed base. or unfortunately.000 per user with a support fee of 20 percent or $65 per user per month. the Hybrid model. The big difference in Model Four is to give the purchaser the choice of having the software company service their own software. In Model Four the traditional licensing model is retained. they would erode their margins. distribution channel.
300 per user per month. We’ll come back to answer the question as to why was it so inexpensive. performance. It’s important to note this decision-enabled revenue to be recognized on a monthly basis.300. there was a “Nordstrom’s guarantee”. security. but first let’s make sure you’re clear on the model. there would be a 20 percent rebate in that month. and rather than have a complex Service Level Agreement (SLA). the purchase of the software and support remain the same. and CRM and supply chain. the choice was between servicing the software themselves for around $1. 10 . In Model Four. and changes managed for an additional fee. Oracle guaranteed if for any reason the customer were unhappy with the service. What’s new is the customer is given an option to have the availability. SEVEN VIRTUES beginning in 1999 and resulted in the fastest growing business inside of Oracle in 2004. Customers ranged from middle market to Fortune 500 companies and spanned the range of applications from financials to HR. From the consumer’s perspective. With Oracle On Demand. manufacturing.SEVEN VICES. having a Model Three business provide the service for less than $1. no questions asked. or having Oracle service their own software for $150 a month. the customer had a one year contract that could be cancelled with 30-days notice.
g. recruiting) customers of Oracle applications implemented much heavier weight processes (e. There will be more on this in a later section. which could be separately priced and give a customer the choice of how much they valued their customizations.. This started 11 .g. sales force tracking. Model Four also allowed customers to choose when changes would be made to the application and when upgrades to major releases would occur. there needed to be flexibility to customize and integrate the applications. @C (for at customer) means a site the customer owns. which isolated changes that were made for one customer. Additionally. There will be more on this later as well. email. there was also a great degree of standardization. While there was a great deal of flexibility versus what you will find in either Model Six or Model Seven. As a result.CLOUD Unlike some lighter weight business processes (e. An innovation was provided called CEMLIs. Figure 1. process or discrete manufacturing). customers were also given the flexibility to choose where the computers would be located—either at an Oracle owned data center or at a location of their choice..1 illustrates this flexibility by using the symbols of @H (for at home) meaning a data center owned by the business providing the service.
Specialization allows for repetition. Model Six and Seven businesses follow this principle in spades. disks were network attached versus SAN attached. By the way. product level margins could be achieved because of a high degree of standardization. 12 . Standardization allows for specialization. all applications were run on a Linux multi-tier grid. A simple example is upgrades. ultimately computers could be put to work automating the key business processes in the business of servicing software. while you could choose when upgrades happened. they always followed the same process. With repetition based on specialization. and increasing parts of the upgrade process were automated. Automation ultimately results in both lower cost and higher quality service.SEVEN VICES. Which gets us back to—how was it possible to offer the service at significantly lower prices than a traditional outsourcer? Could this business be operated at “product level” margins? The quick answer is. and. whether managing computers or doing heart surgery. the key to quality and skill in any area. SEVEN VIRTUES from the hardware and moved up to the disaster recovery process. For example. yes. Oracle On Demand upgrades were done hundreds of times in a year by specialized teams.
since the sales teams were compensated not only on the sale of the license but also the first year of the service. There were many situations where there were no traditional software sales persons assigned to customer accounts that had bought a lot of software. since the traditional license model is preserved. The model is not cannibalistic. the average selling price nearly doubled for on-demand applications. In addition.CLOUD The advantage of Model Four is that the software does not have to be re-engineered. Finally. They have made a living selling “boxes and bodies” and see the vendors’ entry into this space as competitive. by having a model that split the software license from the service. any model is not without its downsides. the entire installed base of customers who had already bought the software was open for business. And. Alternate channels of software distribution do not welcome Model Four. the ability to offer a complete solution from one vendor was often a significant competitive advantage against traditional software companies who had to go to partners for the solution. Of course. The second downside is the model can only take you so far from a cost 13 . because they had bought all the software they could eat—an interesting paradox. from a sales perspective. you can use your existing sales channel. In fact.
While Model Four allows for the delivery model to change. The 14 . the revenue recognized in the first year is less than in Model One. More on that later. In our example.com. The cost. By the third year. of providing this service is in the neighborhood of $50 per user per month. Model Five: Hybrid+ Many people see the SaaS model as a change in the way software is purchased—in particular.SEVEN VICES. this model is resulting in much larger revenue stream than was true in the traditional model. adding the $65 per user per month for support and the $150 to manage the software results in an “all in” price of $325 per user per month. it is easy to see you are not far from moving the business model as well. then you would no longer stay in Model Four. this would equate to $110 per user per month. SEVEN VIRTUES perspective. if one were to assume a 36-month time to pay off the $4. This of course is the story of Siebel and Salesforce. But if someone could provide 80 percent of the function of your product at $5 per user per month. not price. Of course. which compares favorably with doing it yourself or having an outsourcer provide the service. but midstream in the second year this begins to change. the elimination of the upfront license fee.000 per user license fee. which is probably closer to $500 per user per month.
even MMORPG (Massively Multi-player Online Role Playing Games) like World of Warcraft have adopted Model Six. If you get to start from scratch and engineer an application for delivery as a service (and only a service) the cost structures drop by another order of magnitude. Model Six: Software as a Service As we discussed briefly in Model Four. not a technology choice. the cost to manage the software can be driven down through standardization. Callidus Software. Most. representing nearly 40% of total revenue. of the new business software companies started in the late 90s have adopted this model. and automation.CLOUD choice of moving from Model Four to Model Five is strictly a business choice. a provider of sales performance management solutions. As a business model. if not all. they are providing one price for the entire service. Rather than split the license from the service as we have seen in Model Four. but there is a floor. repetition. 15 . Since Leslie Stretch became CEO in December 2006 the company’s subscription revenue as a percentage of total revenue has nearly doubled. has adopted this business model.
16 . WebEx. Unfortunately. If you analyze Salesforce. as we’ll see. Siebel had to face the direct challenge of Salesforce. While these new companies’ offerings had far less functionality. SEVEN VIRTUES Software engineered for Model Six will have dramatically lower cost structures than software as a service offered by traditional software companies. Model Six is not without its challenges. and being able to plow that cash back into sales and marketing. While it is clearly a better model for the consumer of the software. one can debate whether it’s a better model for the software company. With no easy distribution channel. are at best ambivalent to the Model Six players. such as the Microsoft channel.com. rather than being able to close million-dollar deals for software licenses in Model One. companies in Model Six have to find a way to finance the early acquisition of customers. UpShot and others. Furthermore. This has typically been done in the private and public markets. and Concur you will find it took somewhere between $50M and $100M to establish the distribution channels required to achieve their meteoric growth. the cost and. as in Model Four and Five.com.SEVEN VICES. the existing channels. simplicity of purpose allowed them to compete very effectively.
We all use Google for free. Facebook. and Amazon. The second big difference is that each of these solutions is highly specialized.CLOUD many companies in Model Six reach $10M in revenue and have no ability to grow larger. these companies have chosen unique and often indirect ways to monetize their intellectual property. Why? Again. or Zappos by embedding it in the sales transaction. Amazon. Google.com. You don’t buy books. Asymmetric business models mean that the user of the software is not directly paying for the usage of the software. You only need to look at eBay’s or Google’s financials to realize that there is a healthy spend on sales and marketing. First. Of course that does not mean Model Seven companies have no cost of sales and marketing. Model Seven: Internet Model Seven encompasses all of the companies in the consumer Internet. eBay. Google by the ad. auction cars or find your perfect mate on Google. Model Seven is distinctive in a few ways. each of the companies in Model Seven has adopted business models that are asymmetric. it’s the advertisers that are paying for it. the software.com have all been very focused on a single function. Google. Whether it is eBay charging by transaction. it 17 . Yahoo and eBay are all software companies.
these applications tend to be complex. of people to adopt—clearly not possible if the application tried to do everything. In the traditional world. My cost of distribution meant that I needed to extract the greatest degree of value out of each of my customers. much more. 18 . so no new company could get in the door. Australia. difficult to install. but. and difficult to integrate—no one needs to spend much time comparing a traditional enterprise application to consumer Internet applications to see the difference. this all shows up in the speed of adoption. This has led to massive suites of applications.SEVEN VICES. SEVEN VIRTUES comes to cost. Cost of Software If you went to work for Dell you'd be well educated on the cost-or economics-of hardware. so what is the cost of software? I'm not talking about the price of the software. all the time promising full integration. and I wanted to expand to Melbourne. That model resulted in the classical software company “going horizontal”—meaning they began to offer more and more parts of the solution. but the cost. Some will say the cost of software is the cost of the CD or the manual. if not billions. in fact. I had to hire a sales/support engineer and a salesperson. the cost of software is much. if I built some interesting software in Sydney. The simplicity of the Google interface begged for millions. Unfortunately. Of course.
' Let's put it in the next release.CLOUD I'm going to use eBay to help explain how the cost of traditional software differs from that of delivering software from the cloud.” “No problem. Let's put it in the Sunday paper.” No problem.” Then we'd hire a support team. A few months or years later. and so on. What would have happened on Monday morning? My guess is the 1-800 number would be ringing with calls: “Hey. It's called 'Buy It Now. I got a new feature I want everybody to see. They'd have just gotten out their C++ compilers and ultimately created an auction product. “No problem. boss. got a really great idea. Let's assume ten years ago we wanted to start a company building auctioning software. “Okay. and my ShockWave DLL doesn't run anymore. boss. This really ruined my Windows 95 configuration. We would have hired a bunch of smart programmers. and we can solve this. some bright product manager would show up and say. set up a help desk. “Hey. I got the plan. wait a minute. Monday morning would 19 . right? We would insert the CD in the next Sunday paper. But the first question the CEO would have asked would be. how do we get it to anybody?” Some smart VP of Sales and Marketing would have said.” we would say.” so a million CDs would go out in the Sunday paper. “We're software guys.
It has completely transformed the hardware business.” No problem. While you could have built a small auctioning software business.SEVEN VICES. Burroughs. We'll hire a bunch more support guys. that microprocessor stuff is cool. distributing it. The problem is economic. all of us in the traditional software business know how to do this. In the beginning of the 80s. SEVEN VIRTUES arrive and the first phone call would start with “My Linux server just fell over after I installed your software. hardware companies like Digital Equipment Corporation. If you think about what has transformed the entire hardware industry. no way you would have been a multi-billion dollar business. we'll move them to India. and managing it would have been so prohibitive eBay would have had to charge hundreds of dollars for every auction. it has been a relentless pursuit of taking cost down by an order of magnitude every decade. but it's 20 . We've been doing this since the beginning of software. Now. “Well. and Data General dominated the scene and companies like Intel were dismissed as not delivering real computers. There is no way eBay could possibly have existed under this software cost model. What would have been the cost of that scenario? It would have been enormous. Problem solved. The cost for delivering the software.
Now. so you'd do really well to get it out there at $50. you'll come away with a number closer to $0. If you go down 101 to Mountain View and estimate what it costs Google to deliver their service. chances are. this is for a fixed set of functions. Bottom line: anyone in the software business needs to become a student of the economics of software. you're going to do really well if the cost (not price) is $50 per user per month. of course. forget about it. Now remember. Remember.CLOUD never going to amount to much. it's costing them closer to $1000 per user per month.” We all know the end of that story. so even if SAP or Oracle charges $150. and if you want to control when you upgrade. it's significantly lower than having each and every customer of the software solve the problems uniquely. 21 . you're going to have to standardize the hell out of everything. So what do the real numbers look like? If you take enterprise software-say from SAP or Oracle-and you deliver it as an ondemand service. guess what that number is? -About $7 per user per month. That's impressive. if you become a student of Salesforce. By the way. if the customer is running this software in house.70 per user per month. But that's not the end of our story. and analyze their cost (the cost of delivering the software).com.
which is what Oracle did.com did. this shift is much more than technology. we will be at the end of software. You can choose to move completely to Model Six. With increased competition and the dynamics of the open source movement. Whatever you choose to do you’ll need to think about how the choices affect the entire company.SEVEN VICES. the days of million-dollar software licenses are clearly over. You can choose to acquire Model Six companies. which is what Salesforce. with increased pressure on top line growth without fundamentally altering the cost structure of software companies. which is what Blackbaud did. and have some of your product line in Model One. You can choose to use Model One and Model Four. In the next chapter we’ll drill down a little more into some of the 22 . which is what Concur did. SEVEN VIRTUES Summary While it may not be clear to you which model to choose. You can choose to start out a new business in Model Six. some in Model Four and some in Model Six. You will have many choices. one thing is clear—the traditional software model is ending. And. since unlike the change to client-server.
CLOUD application areas and companies that have been successful in delivering their applications as a cloud service.
APPLICATION CLOUD SERVICES
It’s far easier to talk about business models and the new cloud computing services from the point of view of an application any of us would use in a business setting. In this chapter we’re going to introduce you to a variety of both horizontal (everyone can use) and vertical (specialized to a particular industry) applications. We’re going to focus only on application areas, which have companies who have succeeded in bringing their companies into the public market. I was having lunch in early 2007 with an old friend Tom Kucharvy. He said, “You know, Tim, you’ve been talking a lot 24
CLOUD about this software as a service, software on demand thing. Now when is this going to really happen?” His question got me to thinking, so I did a little homework. I went back to 1999 and looked up nine (at the time) of the business application software companies, who all deliver their software as a service, and who all have gone public since 1999. Since then some of them have been acquired (Webex, Kintera, Websidestory, Omniture), but the remaining eleven have a combined market capitalization of over $15B, so it’s safe to say, “It’s happened!” So let’s start our discussion of what areas have seen success. Collaboration Of all of the application areas, perhaps the simplest (from a business point of view) is collaboration. The way you use email vs. your friend at another company is not significantly different. As a result some of the more successful application cloud service companies have started out in collaboration. Collaborative software or groupware includes features such as email, calendaring, conferencing, instant messaging, wikis and simple project management. The granddaddy of all collaborative software, Microsoft, of course delivers email (Hotmail) but more recently introduced Exchange Online and SharePoint Online. Microsoft Office chief Chris Capossela predicts2 that 50% of
Fast Company, October 28, 2008.
APPLICATION CLOUD Exchange mailboxes will be online within five years. They might be able to achieve this, as there are reports of large companies, including Coca-Cola and Nokia, using their collaboration cloud offerings. This, of course, is a major battleground area. Google has brought its considerable resources to bear by introducing Google Apps, which includes mail, calendaring, and the ability to collaborate around spreadsheets, presentations and text documents. IBM, not to be left behind has introduced Lotus Live and continues to innovate in this area. But perhaps the company that did the most to prove that collaborative application cloud services could be a high growth standalone business is Webex. Webex Story Min Zhu and Subrah Iyar founded WebEx in late 1996 as a re-start of another company called FutureLabs. FutureLabs focused on providing software-client and client-server solutions for data conferencing. In 1995, FutureLabs was acquired by Quarterdeck. It was then that Subrah, who was responsible for Quarterdeck’s acquisition of FutureLabs, met FutureLabs founder Min. Within a year of the acquisition, Microsoft introduced NetMeeting and ended Quarterdeck’s interest in the
Webex continues to deliver one of the largest application cloud services in use today. Whether an Excel spreadsheet.5 million in revenue with about 400 customers. Fortunately. While collaboration is the modern day telephone. which. as they say. Although they started WebEx in 1996. Iyar and Min saw the potential of continuing as a service provider. is history. and the rest. perhaps the first business software any company purchases is a financial application. ironically. With over two million registered users and over 85. was also purchased by Cisco. During 1997 and 1998. In 1999. Intuit QuickBooks. by 2000. WebEx went public in January 2002. Oracle Financials or SAP every company large or small needs a financial application. WebEx generated about $2. they were generating nearly $500M.000 meetings per day around the globe. revenues were $25 million.CLOUD space. it took Subrah and Min until 1999 to actually launch the service. 27 . they spent a lot of time working with customers such as Charles Schwab and StrataCom. so they launched WebEx. Microsoft Dynamics. By their 10th anniversary.
governance. financial control and reporting. Concur Story While Oracle was one of the leaders in moving from a traditional model to software delivered as a service. who made a public offering in 2007. that application generally has few users.APPLICATION CLOUD Financial Applications Financial applications record and process accounting transactions within functional modules such as accounts payable. The most complex and expensive business accounting software is frequently part of an extensive suite of software often known as enterprise resource planning (ERP) software. perhaps for two reasons. Concur made an initial public offering in 1999 and has grown a large business specializing in travel and expense management. accounts receivable and payroll. has mirrored the “suite-approach” pioneered by Oracle and SAP and instead focused on the middle market. financial analytics. This area has not been easy to penetrate for application cloud service companies. Financial applications can help provide cash & treasury management. almost every company has a financial application and second. procure-to-pay. and travel & expense management. First. That being said two companies have been quite successful in this area. Netsuite. few 28 .
Of course if you were smart enough to purchase the stock at the low point your returns would be over 40x today. with seven of the world's ten largest companies using their services to help them manage the corporate travel and expense process. Senior Business Systems Analyst at Cummins. Concur began life as a traditional software company..CLOUD examples compare with Concur. Their customers include Vivek Ahuja. The stock sank to below $1 a share. but in June 2000. A/P & Payroll Supervisor at Stryker Medical. and the number of employees went from 700 to 300. a global measurement equipment company. a $5B+ medical technology company. This was a major challenge. While some question whether such a transition from a Model One provider to a leading Model Six service provider would be 29 . Courtney McCoy. a leader in diesel engine technology and Gloria Brown.000 clients. Since those lean years early in this decade. chairman and CEO Steve Singh made a bold decision to reinvent the whole company and make the transition to delivering their expense management software as a service. Concur had over 4. Global Operating Manager at Agilent. particularly since they were a public company. nearly the entire senior management team was replaced. By the end of the transformation. Concur has steadily held to its mission. Inc. By the end of 2006.
President and CEO of China Manufacturing Network and David Stover. a Tokyo- 30 . Nomis Solutions. Today. With this foundation. located in Charleston. CFO. Dave Lipscomb. Evan Goldberg is Chairman of the Board and Zach Nelson is the company's CEO. The company changed its name in September 2003 from NetLedger to NetSuite and made a successful IPO in December of 2007. a price optimization solution for the financial services industry. Bill Ford. is a subsidiary of Tokyo-based Asahi Kasei Fibers Corp. Netsuite’s customers include Todd Spartz.. with financing from Larry Ellison.C.. Asahi Kasei. S. few can debate the success of the bold decisions that Steve Singh and Concur made. the company broadened the application to manage both back-office and front-office sales. The company launched its first online financial application targeting small businesses in 1999.APPLICATION CLOUD possible in the public markets today. Netsuite Story NetSuite is a leading provider of integrated online software that allows SMBs to manage their entire business in a single application. CFO of Asahi Kasei Spandex America. Evan Goldberg. support and marketing. and Chris Blum founded the company under the name NetLedger in October 1998. Everette Phillips.
HR software tracks the lifecycle of many companies most valuable asset: their people. 31 . Peoplesoft. performance appraisals.CLOUD based manufacturer of polyelastane filament fibers used mainly in textiles. You might find it hard to believe but they replaced their SAP R/3 with Netsuite in 2008. Human resource applications are built to assess. Beginning with tracking of resumes of prospective employees to keeping record of employees’ compensation & benefits. Human Resource Applications Along with financial applications. and align a businesses workforce. It was founded in 1987 and ultimately acquired by Oracle for $10B in 2004. acquire. It turns out this has also been a good area for application cloud service companies including three companies that have made initial public offerings in the past five years – Kenexa in June 2005. Taleo in October of 2005 and Successfactors in 2007. develop. human resource (HR) applications were an early example of widely adopted business applications. is perhaps the best-known company specializing in HR software.
Karsan took the check. cashed the check at the issuing bank. Typically. Today. and was ready on Monday morning with his rent payment. Through these acquisitions. At a lecture at Stanford University. drove from Philadelphia to New York City. Kenexa is the oldest of the group. Kenexa has grown its business to over $160M in revenue in 2009. services and process outsourcing that enable organizations to more effectively recruit and retain employees. Karsan talked about a day in 1991 when he had mortgaged his house. the customer would have waited to the last day to pay. but for some reason the checked arrived early. Over the past 20+ years. Kenexa began operations in 1987 not as a software company. Kenexa is a provider of software: proprietary content. His message to the students was. on that Friday. maxed out his credit cards. The good news was that the company had sold a $40. Kenexa has bought and sold over twenty businesses. you might be as hard working and as smart 32 . On a certain Friday.APPLICATION CLOUD Kenexa Story While Salesforce. the landlord had told him the sheriff would be coming on Monday to evict them. but as a recruiting firm.com and WebEx started out knowing what they wanted to be. and was three months late in the office rental payments. having been founded by Rudy Karsan in 1987. But Kenexa’s path has not been without its challenges. Kenexa took the long way home.000 contract to a large insurance company.
CLOUD as the next group. and had tracked over 66 million candidates. Taleo joined fellow application cloud service companies DealerTrack. when founder Martin Ouellet created Viasite. decentralized. Following on that success. By late 2007. one million users. which would become the most successful job board in Canada. but. in the end. campus recruits. or multinational. agency referrals. one could deliver a talent supply chain management solution that provided the same bottom-line and process improvement benefits to large enterprises that supply chain management had brought to manufacturing. This was his lucky story. who had a background in supply chain management. Taleo had over 12 hundred customers. or existing employees—to all positions. Taleo Story Taleo traces its beginnings to 1996. Ouellet founded Recruitsoft in 1998 and joined forces with Louis Tetu. Kenexa and Vocus in going public in 2005. success is based on a lot of luck. whether it is centralized. Taleo’s software is used by Fortune 500 companies as well as smaller companies to match all sources of talent—be they professional and hourly candidates. Some 33 . contingent workers. Tetu understood by leveraging the power and connectivity of the Internet.
the business can’t move forward since the technology can’t move forward. if a traditional software company wants to deliver any significant function.000 rooms in over 40 countries. Hence. Mike’s lecture at Stanford in 2007 was entitled: “Does Business Evolution Drive Technical Innovation or Does Technical Innovation Drive Business Evolution?” He ended the talk by saying.000 people worldwide. He sees the challenges of the traditional software business as being interlocked with the technology. Meaning that. and. as he was an Executive Vice President at PeopleSoft before joining Taleo. given the often-high degree of customization most customers apply. and Bruce Hatz. Global Staffing Director at Applied Materials. an $8B+ provider of semiconductor fabrication equipment. the cost for the upgrade becomes prohibitive. which manages over 100. today.APPLICATION CLOUD of Taleo’s customers include Randy Goldberg. Head of HR at Roche. “Yes!” 34 . a global healthcare company employing over 75. VP of Recruiting at Hyatt Hotels & Resorts. there must be a schema change. With a schema change comes an upgrade. Christoph Thoma. CEO Michael Gregoire is uniquely qualified to see the similarities and differences between traditional and application cloud service companies.
a large pharmaceutical company based in Switzerland. I also have you in Germany. I also have you …” and he started going through more and more org charts. The office had no cubicles. opened a closet and pulled out a huge three ring binder. In short order he was headhunted by Unilever. Many companies are born on the personal experiences and frustrations of their founder.CLOUD Successfactors Story Sometimes you can tell a company is different when you walk in the door. On graduation Lars went to work for Novartis. but that is a lower job. founder and CEO. that’s not the only one. When he went to the VP of HR to inform him of his decision the VP got a key out of his pocket. no separate offices. All Lars could think was “Is this is how they manage careers?” 35 . skimmed through it. here you are. A few years back I went to the SuccessFactors headquarters to meet with Lars Dalgaard. You are going to be running Portugal in two years!” Lars said: “What? What are you talking about?” The VP came back and said. and then pulled out all a set of org charts and said. “See. “Well. and furniture that had been specially designed to reinforce that each individual was part of a team. Successfactors is no different.
The goal is to allow customer-facing employees in sales. Their customers are as small as Jay Greenstein. and marketing to make quick.APPLICATION CLOUD Out of that epiphany he founded Successfactors in 2001. Their solution is deployed to over four million end users in over 30 languages. customer support. and is one of the leading global services providers in insurance. from outside the organization) to give one view of the customer. owner of the Sport and Spine Rehab centers based in Virginia and as large as Brenda Leadley. and in 2008 placed number 133 on Deloitte’s 2008 Technology Fast 500. In 2007 they made a successful initial public offering.000 employees worldwide. CRM for Marketing Customer Relationship Management (CRM) is a companywide business strategy designed to reduce costs and increase profitability by managing a customer lifecycle from initial marketing. banking and asset management with more than 180. CRM’s goal is to bring together information from all data sources within an organization (and where appropriate. to closing the sale. informed decisions. servicing the customer and ultimately delivering more products and service to the same customer. a VP of global human resources for Allianz Group. 36 . Allianz Group was founded in 1890.
As a part of their solution. based in Lanham. The company. Vocus provides a proprietary information database of over 800. Today they have over 2000 active customers representing organizations of all sizes across a wide variety of industries. CRM for marketing includes solutions to track PR effectiveness. analysts. and publicity opportunities. including in-depth journalist profiles. contact schedules. sales and finally service. If the software can increase the number of qualified leads for sales then it’s CRM for marketing. podcast interviews. This group includes products from Vocus. email marketing. web analytics and soon new innovations in social media marketing. Maryland. Web-based software for public relations. media outlets. went public in December 2005 and provides on-demand.CLOUD This area has been very fruitful for application cloud service providers. sends out press releases. and helps communicate with the media and the public. Vocus Story Vocus was co-founded by Rick Rudman and Bob Lentz in 1992. Their database contains information about the media.000 journalists. In the next three sections we’ll divide up CRM into CRM for marketing. 37 . Their platform monitors news. Omniture and Constant Contact.
By replacing the notebook with Vocus they are able to not only access records of interactions with journalist but also be able to measure the results of news coverage. one of the largest nonprofit organization in North America. joined Goodwill Industries International. 38 . After a successful career in television news at ABC.APPLICATION CLOUD pitching preferences. Omniture Story Josh James and John Pestana met as undergraduates at a computer science class at Brigham Young University. all media relationships were tracked and managed in a notebook (no. and other relevant information compiled by its dedicated media research team. For a business that is over $2B in revenue that’s no small step. together. from identifying key contacts. not a computer—a real notebook). and gathering Web visitor data primarily for small businesses. The Vocus application is used by a wide variety of organizations. They focused their first business on Web design. to closing the loop with digitized feedback and management analytics. as international spokesperson and Director of Media Relations. address the communications life cycle. The Vocus database is integrated with a suite of on-demand modules that. developer’s tools. to distributing information. When she joined. Christine Nyirjesy Bragale.
the company was renamed Omniture in 1998. resulting in a 70 percent increase in conversion rates. and dynamic Web pages. redundancy.” Today. “In the early days. Novell uses Omniture SiteCatalyst on their corporate intranet to track the use of applications. we had to fight through numerous issues. some large enterprise customers saw the value of their software and it didn’t take them long to shift their focus to providing Web analytics solutions for those larger customers. like security. static Web pages. before people even knew what to call it.CLOUD While it was a good business the cancellation rate for these small businesses was so high they had to constantly run to stay in place. We decided the best thing to do was to go after the larger companies and then use them as references. they refined their checkout process from seven down to three Web pages. Reflecting the new business focus. and availability.com was losing customers in the checkout process.” Josh recalls the early days when they were offering software as a service. Using Omniture’s SiteCatalyst software. In another application. Luckily. Overstock. Omniture is used in a wide variety of applications. Based on this data. Novell can 39 . Omniture is derived from the words “omniscient” and “future.
The company had just seven employees and a handful of clients when Gail Goodman took the reins in 1999. acquired WebSideStory and now finds itself as one of the gorillas in Web analytics. remove them. or adjust resources so that they don’t have to spend money on pages or applications that are not being accessed. I had never raised venture capital.APPLICATION CLOUD better expose pages. Gail’s advice to would be entrepreneurs: "Get a lot of advice. Adobe was so impressed they made Omniture an offer they couldn’t refuse. "just like a freight train. which he likens to a freight train. Since your competitors cannot see the bookings. so I 40 . Constant Contact Story Constant Contact. was incorporated as Roving Software in 1995. Goodman raised more than $20M in her first year and launched the company’s first product: a permission-based email tool. Inc. Josh loves the subscription business model. only the revenue. but don't feel like you're a slave to every piece of advice you get. which had themselves. it’s rocketing past you—and there is no way to catch up!" In 2009. But. it seems as if the business is growing slowly at first. by the time you hear it. I networked like crazy. Omniture acquired Visual Sciences.
the church has experienced a tremendous increase in the number of people signing up. their communications pastor made it his mission to update the way they communicated their message to the congregation. happened in summer 2001 with less than one payroll in the bank. It was just a very dark week or two.CLOUD talked to lot of people who had done that.churches." Constant Contact’s customers span the range. Some of it wasn't.. “My most rewarding business moment … was reaching 100. beginning with an unlikely category .000 opt-in subscribers weekly but it also reaches people 41 ." By 2004. Bethany Church of the Nazarene has an active. Bill Miller. Since they started sending out their new monthly newsletter. Some of the advice I got was on target. the company has over 150." And "my scariest business moment . writing the shutdown plan. Today. Reflecting on her years as CEO Goodman said.. the company changed their name to Constant Contact and in October 2007 completed its initial public offering. Not only does their newsletter reach 3.000 worldwide clients that depend on its Web-based email marketing service to communicate with their customers.000 customers and having a really fun party. dedicated congregation the church inspires through innovative and creative communications.
the lead conversion%.com. Salesforce. and with a team of three software developers.com.com Story The largest and most visible player in the application cloud service market has been Salesforce.” said Bill. As a result much of the initial focus of traditional CRM companies. medium and large enterprises. “It is an incredible feeling to know that people in another country want to be a part of our extended family.com in 1999 to pursue a simple idea: deliver enterprise applications on the Web. Marc founded Salesforce. salesforce. The company began. With that vision. has been building software to increase sales productivity. Marc Benioff founded Salesforce.” CRM for Sales In most companies the largest single expense is sales. like Siebel and the leading application cloud service company. not in a garage. converted leads by month or who is the tops sales rep this class of software has been adopted by small. “Knowing that the news of our congregation and the work we’re doing has a far greater reach through our newsletter than it ever could have otherwise is encouraging and has a positive effect on everyone involved with Bethany. CRM for Sales seeks to standardize the sales process and make it repetitive. but in a 42 .APPLICATION CLOUD in multiple countries. Whether it’s having visibility to a lead by status.com.
but was funded instead by Marc and Larry Ellison. From those early days.CLOUD rented San Francisco apartment. There will be a few stories about salesforce. For the insider’s view of the creation of salesforce. 43 . by 2005.com throughout the book. The company made an Initial Public Offering in 2004 and. 3 Benioff. It received no venture capital investment. was generating over $150M in revenue. Marc constantly changed from a business suit to a Hawaiian shirt and debated himself on the merits of the old and new ways to deliver software. Salesforce. they were the highest valued of all of the application cloud service companies..com Went from Idea to Billion-Dollar Company-and Revolutionized an Industry. Everywhere he went he wore a pin that had the word software crossed out.com’s growth has been meteoric and has symbolized the movement to software on demand. Jossey-Bass (October 19. “Our growth validates the belief in ‘The end of software.’ as well as raises new questions for existing software companies. M. 2009). At a now-famous keynote speech. Behind the Cloud: The Untold Story of How Salesforce.com check out Marc’s new book3. next door to his home.” says Marc. Marc gave his company a mission—to bring about the end of traditional software. In 2009.
At the highest level.S. Whether thru web. GDP (gross domestic product). service is all about information. delivered.1 shows the dramatic shift from manufacturing and agriculture to services over the last 50 years. and software are all industries that don’t 44 . healthcare. economy is a service economy. the U. as you need it. Figure 2. We all know that high quality service is relevant information. Figure 2. chat. IT services.1 Growth of the U.APPLICATION CLOUD CRM for Service Once you have a customer keeping a customer is increasingly defined by the quality of the service delivered. personal to you. email or phone. Financial services.S. Services Economy Today’s services economy accounts for 80 percent of the U.S. education.
2 United States Census (1996) Services economy jobs include software designers.CLOUD manufacture or grow a single thing. hedge fund managers. doctors. Furthermore.2 shows the results of the 1996 census. lawyers. Figure 2. and customer service professionals and all of these jobs are fundamentally different than working on the assembly line in the early 20th century. scientists. 45 . 70 percent of the service employment involves highly skilled people. this shift has not been an increase in the number of kids flipping hamburgers. contrary to conventional wisdom. Instead. and administration and management functions. This includes executives. Figure 2. One of the earliest companies to focus on customer service application was RightNow Technologies.
” BookSurge Publishing. they doubled their revenues and employees every 90 days for two years before 4 Gianforte. This is the worst time to raise money from a valuation perspective. Based in Bozeman. Gianforte didn’t start RightNow with venture capital. You sell your precious equity very dearly before you have a proven business model. Montana. "Bootstrapping Your Business: Start and Grow a Successful Company with Almost No Money.APPLICATION CLOUD RightNow Technologies Story Founded by Greg Gianforte in 1997. G. HP. He published a book4 in which he builds a strong case against relying on venture capital (VC) funding: Raising money takes time away from understanding your market and potential customers. 2007 46 . RightNow went public in August 2004. RightNow focused on helping customer service organizations improve service delivery using technology. Money removes spending discipline. Gianforte knows he is pushing a contrarian view. and Microsoft all originally started without VC funding. If you have the money you will spend it—whether you have figured out your business model and market or not. In RightNow’s case. Let your customers fund your business through product orders. but he reminds the reader that Dell. Often more time than it would take to just go sell something to a customer. and makes a passionate case for starting businesses the old fashioned way.
“Customers want solutions that are up and running in days or weeks. Some of RightNow’s customers include Ken Harris. not months or years. Using their case management. tracks. a 50 year old natural nutrition company. and they are looking for ways to reduce overall ownership costs.CLOUD they took any outside money. Boyd Beasly. Senior Director of Customer Support at EA. 47 . and manages customer service interactions from initial contact through resolution. It fundamentally changes both the relationship between the software vendor and the customer. RightNow provides a suite of customer service and support solutions that captures. and. a $6B+ manufacturer of power tools. and the economics of purchasing and owning software. even then. Web self-service. and collaboration modules. the employees retained more than 75 percent ownership after the company raised $32M. companies can more effectively deliver support and service for their customers. email management. Consumer Services Manager at Black & Decker. assigns. CIO at Shaklee. “Delivering applications as a cloud service is more than just another way to implement software.” says Gianforte. a $3B+ leader in electronic gaming and Chuck Udzinski.
2005) 48 . “Guns. 1 edition (July 11. Having the ability to store food meant that the society could develop specialization. some peoples began to produce food either through herding large mammals or growing crops. but we black people had little cargo of our own?” The answer is that. Diamond’s book centers around answering a question he was asked by his New Guinea friend Yali: “Why is it that you white people developed so much cargo [goods] and brought it to New Guinea. organizations are able to get these advantages over on-premise applications. and today we are just in the early stages of this next evolutionary stage for software.. and still others 5 Diamond. Norton & Co. The lucky ones had the right circumstances to do both. due to conditions in a few isolated places in the ancient world. Germs. and Steel: The Fates of Human Societies”.”5 may make you see the world a little differently. Being a food producer meant that the population could grow. The cloud is altering the way enterprise applications are being consumed. Specialization meant technology could develop.W. others could grow food. Germs and Steel: The Fates of Human Societies. Jared. Some people could make weapons. “Guns.APPLICATION CLOUD Utilizing cloud delivery models.” Vertical Applications Reading Jared Diamond’s bestseller. W.
financial. it became immediately obvious what it did and.CLOUD could erect buildings. So how specialized can software get? We’re conditioned to think that business software is about ERP and CRM. HR. But if you walk into any ongoing business. This is no surprise to us in the modern world of work. what they needed to do. No one had to teach anyone how to use the system. auction a Pez dispenser and search. that if we provide purchasing. to the teams building the software. 49 . Consider the fact that CitiGroup today employs more programmers than SAP or Oracle. you’ll discover that the ERP/CRM footprint is less than ten percent of their overall software. and sales force automation solutions. A slightly tongue in cheek example of specialized software is Flock IT. but what does specialization mean in software. and why does specialization matter? Probably the best example of the power of specialization is Google. we’re sure history would be quite different. If Google had started out to build software that enabled you to buy a book. we’ve built all the software a business needs.
Unless he had enough capital and a high enough price on the software. he just couldn’t afford to do this. Had he wanted to expand to Sydney. In the not so distant past. do we have to think this way? On a global basis.3 Specializations Flock IT is a company specialized in poultry management software. the cost of supporting and selling this software (pre-Internet) would have been so high that the founder could only support customers in his hometown of Brisbane.APPLICATION CLOUD Figure 2. are there not enough people managing poultry to use this software? And once you see this possibility. doesn’t the future 50 . Australia. But post-Internet. Search Yahoo! or Google and you’ll find thousands and thousands on Flock ITlike companies. he would have had to hire a support engineer and a salesperson.
it was this much-needed competition. In their first year.CLOUD look like lots and lots of specialized software: search..000 dealers in the United States. DealerTrack Story DealerTrack was founded in January 2001 with the initial financing of $20M coming from three forward thinking financial institutions: J. If anything created focus at DealerTrack.P. but by late 2002. RouteOne. and Wells Fargo & Company. the old system was both slow and manually driven. a dark cloud came onto the horizon. Dealertrack for automotive dealerships and Opentable for reservation taking restaurants. Ford and General Motors decided to finance a new company. pig management. cattle management. The company began to add more dealers (60 percent signed up in year three) as well as more 51 .. DealerTrack brought on line over 20 percent of the 22. with each lending institution using a different form—cumbersome for both the consumer and the dealer. Morgan Chase & Co. to the tune of $100M. They saw whenever a consumer applied for an auto loan. Chrysler. and poultry management software? There are many examples of specialized applications including those provided by Blackbaud for nonprofit organizations. auctioning. AmeriCredit Corp.
they have a large support and maintenance revenue stream as a by-product of selling in traditional Model One. and today the company is connected to almost all of the 22. More interesting. In addition a few years ago they began offering their traditional products in Model Four. DealerTrack has established an electronic channel. Blackbaud Story Founded by a soccer-playing Englishman. Their story contains elements of all of the seven business models.S.APPLICATION CLOUD products for the dealers. Blackbaud is the market leader in software for non-profit organizations. but the application cloud service model also gives the company the ability to release new products quickly and nimbly. which gives him tremendous pricing leverage. 52 . Chairman and CEO of DealerTrack. When Mark O’Neil. he will say there is no other way to run a software business. which they are doing at the rate of three per year. Below is a chart of the growth of that business. a real “information superhighway. talks about delivering software as a service. First.000 dealers in the U.” that allows them to continue to distribute new software products. Not only does he get tremendous economic/cost leverage. DealerTrack went public in 2005.
thru acquisitions in 2006 of eTapestry and 2008 of Kintera. On the enterprise side Opentable provides restaurant owners with a reservation management system designed to replace existing paper reservation systems. Upon completing the reservation you receive OpenTable rewards points. On the consumer side. OpenTable allows you to find and make reservations at restaurants based on time.4 Blackbaud’s Four Product Lines Finally. OpenTable Story As one of the newest public companies. Blackbaud has two Model Six companies engineered for multi-tenant low cost delivery. which can be redeemed for discounts at member restaurants.CLOUD Figure 2. Opentable is a great example of the blurring of the boundaries between consumer and enterprise software. The solution is an integrated software and 53 . date. and price range. cuisine.
APPLICATION CLOUD hardware solution that computerizes restaurant host-stand operations. 54 . datacenter. In many ways the business looks like a combination of a Model One and a Model Seven business. Instead Opentable charges the restaurant a monthly fee to be part of the Opentable network as well as a transaction fee that varies depending on whether the reservation originated from Opentable’s site or the restaurant’s site. you don’t pay for the service. Given the relative unreliability of the network connections this is all implemented on a standalone PC. integrates with the POS system and allows for reconfiguring the tables for larger and smaller seating arrangements. Sales are done using the traditional door-to-door approach and once the buyer says yes. a consulting arrangement occurs to implement the reservation system. customer preferences. Todays cloud services not only include the business applications we’ve just discussed but also network. Cloud Service Stack Many of these application software companies were architected in the late 1990s. On the other hand the consumer side of the business is a classic Model Seven business. As a diner. But if you were going to start today there is a much larger array of services that you might consider using. The system keeps track of VIPs.
55 . software development and operations management cloud services. which give you access to computer and storage resources. Compute & storage services use data center cloud services to house.5 Cloud Service Stack Software development cloud services are either service used by software developers to build new applications. power and secure the physical hardware. ß Figure 2. Operations staff to manage either traditional applications or application cloud services uses operations management cloud services. Amazon Web Services pioneered compute & storage cloud services. storage.CLOUD compute.
developing one for in-house use. 56 . The next several chapters will focus on the different layers of this new cloud stack. This organization will serve to frame the next several chapters. or trying to be the next public company the good news is these new cloud services can speed the delivery and lower the cost of getting new applications into the market. What’s exciting today is the creation of 1000s of new cloud services which new providers of applications can now take advantage of. Summary The early pioneers of SaaS/Application cloud services have demonstrated there is the ability to sell and deliver applications in the new business models.APPLICATION CLOUD Finally all of these services are connected thru network cloud services. These early pioneers had to build much of the infrastructure and software to deliver and sell these applications. So whether you’re taking an existing application and delivering it as a cloud service.
3 DATA CENTER CLOUD SERVICES The compute. storage and network hardware that power all cloud services ultimately must reside in a facility. connected to the network. We’ll move on to discussing one of the key attributes in the reliability and cost of any cloud service: power. we’ll 57 . We'll begin where the name “cloud” began. or if you consume application or platform cloud services this chapter is written to highlight the major areas you’ll need to understand. Staying with the physical infrastructure. If you choose to build your own compute and storage cloud service. which are the basic network connection services.
By that we meant. and will require at least one disaster recovery site. Network Cloud Services Many have forgotten. 58 .DATA CENTER CLOUD SERVICES highlight some of the key attributes in building highly available and secure facilities and conclude with the fundamental economics of building data centers. this is not the case so it will be important that the application deployments are location independent. we weren’t sure how it worked but somehow bits were transmitted from one point to another. entire books can be written on network cloud service so for our purposes we’re going to focus on one valuable idea. reliable and fast then operating out of two data centers on the planet could work. If networks were indeed uniformly cheap. It is here that the world of appliances and application cloud services intersect. Clearly. but the reason we all call this cloud computing is because we always drew the network (and the Internet) as a cloud. However. Anyone operating an application cloud service will one day need to operate globally. reliably and efficiently. At $1.000 per square foot it’s some of the most expensive commercial real estate you’ll ever see.
Beyond that. then you’ll locate people in the Americas.CLOUD At some point in the day or night. and the cost. Figure 3. Once you’ve done that. Companies like Akamai 59 . If you want to provide for a disaster recovery site. Back of the Box Your next question will be where to locate the computers. you will need to establish a “Back of the Box” Network to connect the computers to the operations staff. you’ll need to figure out where your users are concentrated. the people managing the application will be remote from the physical location of the computer.1.1 Front of the Box. performance and reliability of your “Front of the Box” Network. you’ll need at least two sites. as shown in Figure 3. Europe and Asia time zones. versus keeping a team in the US on three shifts. If you want the people managing the software to be working the first shift.
if you’re application needs to run in Chile. it becomes only a financing question as to who owns the actual data center. as soon as you realize that standardizing the infrastructure of software and hardware to run in Shanghai. there is a fine line between application appliances. faster connections. it really doesn’t matter where the building that houses the computers is located. in the end. Again. But. Furthermore. 60 . and a multi-location deployment of any application cloud service.DATA CENTER CLOUD SERVICES have built a large business helping companies provide more reliable. of course. as opposed to the operational technology. the cost of bandwidth might be such that you’ll need to locate the computers in Chile. It becomes more a matter of who pays for what. some downsides to not being able to keep all of the hardware in a few locations. In particular. As a result. as it will be much more difficult to take advantage of spare capacity afforded by other users consuming the same compute and storage resources. this should be no problem if you have architected a location-independent application. it will be more expensive. Furthermore. There are. San Francisco and Paris is critical to global deployment.
A few years ago. In fact at least 4 times per year the power will be out for a minute or more.CLOUD Power Quality Computers and networks cannot operate without power. As a result. (TR-1006274. 2001. there is always the possibility you will lose power. Available through EPRI). there have been several efforts to assess the national cost of power interruptions and power quality. Unfortunately there was a clog in the fuel line. Madison WI. After two minutes. of course periodically run a test to see if the generators are working—and make sure you run the test long enough. quality data centers will be equipped with UPS and diesel generators. even though they had tested the generators every quarter. You should. The Electric Power Research Institute (EPRI) estimates the cost at over $119B per year. June 29. 61 . and no matter how reliable your electric grid. the systems failed. a large data center had to rely on their diesel generators. but during testing 6The Cost of Power Disturbances to Industrial and Digital Economy Companies. and the National Power Lab data also shows that a typical facility will on average have a voltage fluctuation lasting between one cycle to over thirty minutes 38 times per year. During the past decade. It turned out their quarterly test duration was for 30 seconds.6 EPRI.
Their analysis showed data centers could be over 40 times as energy 7 The Green Grid. and no more. Rumsey Engineers Bruce Myatt. 8 Data Center Energy Efficiency and Productivity By Kenneth G. as we will see the effective usage of power has both economic and carbon impacts. PUE was established by The Green Grid. and Bill Tschudi. EYP Mission Critical Facilities 62 . Lawrence Berkeley National Laboratory Peter Rumsey.DATA CENTER CLOUD SERVICES there was enough fuel in the line to run the test for 30 seconds.” Technical Committee White Paper. Presented at The Uptime Institute Symposium 2007 9 Best Practices for Data Centers: Lessons Learned from Benchmarking 22 Data Centers Steve Greenberg.58. Power Utilization Efficiency While having high quality power is important. The Power Usage Effectiveness7 (PUE) metric is defined as the ratio of the total power consumed by a data center to the power consumed by the IT equipment that populates the facility. Brill . To give you a sense of the range of possibilities. 2007. the Uptime Institute gathered data from many of the 85 members of the Institute’s Site Uptime Network®. an association of IT professionals seeking to dramatically raise the energy efficiency of data centers through a series of short-term and long-term proposals. “The Green Grid Data Center Power Efficiency Metrics: PUE and DCiE. In another published work9 a team from the Lawrence Berkeley National Labs benchmarked 22 data centers. In their sample size the average PUE was 2. Evan Mills.
0. which as it turns out is the inverse of the PUE.3 summarizes the PUE from all Google-designed data centers with an IT load of at least 5MW and time-in-operation of at least 6 months.5 to 3.CLOUD intensive as conventional office buildings. Figure 3. Figure 3.2 shows the Computer Power Consumption Index for all 22 data centers in their study.2: Computer Power Consumption Index for 22 Data Centers (Inverse of PUE) Again. They created a metric defined as the Computer Power Consumption Index. because large Model 7 companies consume large numbers of servers per employee it makes sense that companies like Google are pushing the state of the art. Figure 3. The 22 data centers ranged from a PUE of 1. 63 .
PUE values are impacted by seasonal weather patterns.DATA CENTER CLOUD SERVICES Figure 3. Data Center A is the oldest facility of the group and has one of the highest average PUE values. For example.3: Google Data Center PUE Why is there variation among the data? Power and cooling architectures differ between facilities. Also. 64 . In addition. and over time their designs have become more efficient. and the facilities themselves are located in different climates. which influences the PUE performance. Data Centers E and F are two of the newest and have among the lowest values. the data centers shown were built at various times since 2005. and thus the PUE during cooler quarters tends to be lower than in warmer ones.
In total power demand. electricity consumption in 2005. For this answer we turn to the Emissions & Generation Resource Integrated Database11 (eGRID). and the World. and 14 such plants for the entire world. Estimating Total Power Consumption by Servers in the U. Dr. When cooling and auxiliary infrastructure are included. Some power has a much higher carbon footprint than other.6 percent of total U. Jonathan G. 10Koomey. respectively.gov/egridweb/ 65 .S. The total electricity bill for operating those servers and associated infrastructure in 2005 was about $2.10 Not all power is created equal.S.epa. eGRID is a comprehensive source of data on the environmental characteristics of almost all electric power generated in the United States. and the world. that number grows to 1. February 15. this is equivalent to about five 1000-MW power plants for the U. The total power used by servers represented about 0.7B and $7.2 percent. an amount comparable to color televisions’ power consumption.S. 2007. Jonathan. Stanford University. the other major area of focus is the reduction of overall power and cooling requirements.2B for the U.CLOUD Power Carbon Footprint With the increasing cost of power and the need to reduce carbon emissions. Koomey completed a study on the global power consumption of servers. 11 http://cfpub.S.
4: Sub-region power grids Interestingly the sub-regions have a nearly 4:1 difference in the amount of carbon generated per Watt (40-170 pounds/Wattyear). If you go thru the database you will find specific power plants that range from 0 to 876-lbs/watt year. otherwise eGRID divides the country into a number of sub-regions. Surprisingly there are coal-fired plants that are cleaner than some oil-fired plans. Figure 3. 66 .00876.DATA CENTER CLOUD SERVICES The annual total output emission rate is the measure of the carbon emissions as it relates to the generation output. If you know which specific power plant your data center is connected to then that CPF can be used. Units are in lb/MWh and are converted to lb/Watt-year by multiplying by 0.
Figure 3.000 sq foot data center at an estimated cost of $550M. In 2007 Microsoft decided to build a 470. 67 . which shows what many who have been students of this area already know.5 Datacenter Capital Costs This brings us to the on-going operational costs of a data center.6 is an analysis done by IBM. At ~$1. GDS-China is in the process of building five new data centers in China. And just so you don’t think this is purely a US phenomenon.000 per square foot these are expensive capital investments. In Figure 3. Figure 3. In 2008 Amazon. Sixty percent of the cost is mechanical and power systems.5 you’ll see an IBM estimate of the cost breakdown for the various components.CLOUD Economics Building data centers is expensive.com broke ground on an 116. with a plan for fifteen more.000 sq foot data center at a cost of $100M.
that power or energy costs dominate the operational costs of a data center. Summary Network and datacenter cloud services represent significant capital investments to build out. Power and Cooling Costs More than IT equipment it supports”. Increasingly the location of the data centers will be dictated not only by the proximity to 12 Belady. Electronics Cooling Magazine. R E Tax 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Year Source: IBM engineering estimates.6 Datacenter Operational Costs Christian Beladay’s analysis12 shows that as of 2008 energy costs alone have exceeded server costs. So in the end it may turn out that future data centers will just be value add to anyone generating power. 68 . Moreover the cost of power can fluctuate by a factor of at least 6x. C. 2008 Figure 3. $300 Cumulative Cost of Operations ($m) $250 $200 $150 $100 $50 0 Energy Cost Staffing Bldg. from 3 cents per KWh in Idaho to 18 cents in Hawaii. & Mgmt. “In the Data Center. Maint.DATA CENTER CLOUD SERVICES That is.
. providing computers and storage technology purchased by the hour.CLOUD networks.e. but also by the availability of low-cost. 69 . or the month. i. the next layer of the stack is to provide compute and storage cloud services. low-carbon high quality power. We’ll discuss this more on the next chapter. These data centers will in many ways be the bridges and roads of the next generation of all industries. Utilizing these datacenter services.
Jeff. Why would he want to do this? Amazon doesn’t release the public numbers on how big their business is but it is widely believed they’re close to.4 COMPUTE & STORAGE CLOUD SERVICES The cover story in Business Week in November 2006 was entitled Jeff Bezos’ Risky Bet13. 13 Jeff Bezos’ Risky Bet. but also compute and storage. To which most people thought he was crazy. founder and CEO of Amazon was announcing to the world that not only was he going to sell books and CD’s. if not over. Business Week November 2006 70 .
GoGrid or Layered Technology. large and small into the marketplace. Now in reality (small joke) virtualization as the technology has been available since 1972. or big players like Microsoft with Windows Azure or IBM everybody is headed into this space because fundamentally everybody needs to buy compute and storage.CLOUD a billion dollars in a little bit over four years of operation. Figure 4. While many may have been skeptical at first. Virtualization is the ability to take a single physical computer. when IBM created the VM operating system.1Virtualization In order to cost effectively implement compute & storage cloud services we need virtualization technology. give you the illusion that 71 . a Joyent. their success has brought many players. and through a layer of software. So whether that is small players that you may never have heard of.
2 Compute & Storage Cloud Service Business Model Amazon’s innovation was not virtualization.SOFTWARE DEVELOPMENT CLOUD SERVICES actually you have multiple computers there. but also a simple user interface. their innovation was the business model. VMware has built an entire business around this and has been enormously successful. and you were only required to buy it for an hour. While virtualization is a necessary technology. Of course in order to execute on this business model they had to achieve not only a high degree of standardization and automation. 72 . Figure 4. it is not sufficient. For the first time you could purchase the usage of a computer for 12 cents for an hour.
Reserved pricing allows you to reduce your hourly rate in exchange for an upfront fee.3 on YouTube and see how quickly and simply a server is provisioned. is discounted to 4 cents with an upfront payment of $227.3. For example. which today you can get a computer priced per hour. Compute Cloud Service in Less time than it takes to get a Latte Take a look at Figure 4. 73 .CLOUD Figure 4. the compute service. Business Models Amazon not only created the on demand business model. which is priced on demand at 12 cents per hour. In the last generation provisioning a server could have taken longer than growing and harvesting the coffee beans. they also created the reserved and spot pricing models.
SOFTWARE DEVELOPMENT CLOUD SERVICES Spot pricing is their latest business model.Why do I need a computer for 12 cents an hour? There are four different classes of workloads .four different types of applications that are uniquely suited to this business model. We’ll look at each one in turn. Figure 4. how it fluctuated. periodic bursty. and on-off applications. In Figure 4. aperiodic bursty. These are high growth.4 you’re seeing an example of what happened over a period of days in terms of those spot-pricing model.4 Spot Pricing So you’re probably wondering . Every hour on the hour you can bid for a compute service and if your bid is the high bid during that hour then you get the computer for that hour. 74 .
They started several years ago by spot auctioning brand name items. As an example consider the company. you start to realize they would have had to buy more and more and more computers in order to satisfy that processing need at the rate they were growing. I need more power. but it is widely believed in a little over two years. For those of you who either purchase high end women's fashion.” Clearly it could have been done. Clearly this is possible. The Gilt Groupe runs entirely on a compute and storage cloud service. Traditionally the CIO for Gilt Groupe would have been in the CEOs office saying.500. or know people who purchase high-end women's fashion. If you think about how many transactions had to be processed in order to generate that kind of revenue.000. “I need another server. but was not in this case. I need another rack. They are a private company. As a member you can buy a Prada handbag. Gilt Groupe.CLOUD High Growth Applications The first category is high growth applications. Some believe it’s the largest company solely 75 . and instead of paying $2. I need another data center. you could now pay $1. the business grew to over $150 million. you probably already know who is the Gilt Groupe.
more storage. The story here revolves around three dates: April 15th. What many of don't know is on April 15th. is building on compute and storage cloud service. What many 76 . In the case of Dockers register and you'd get a free pair of pants. and the end of January.SOFTWARE DEVELOPMENT CLOUD SERVICES running on a compute and storage cloud service. the Intuit website failed under high load resulting in 350. who thinks they are going to be the next Groupon or the next Gilt Groupe. The end of January is Super Bowl Sunday. you don't want to be out there trying to buy another computer. This is why nearly every startup company in Silicon Valley. Aperiodic Bursty The next major category of application is characterized by aperiodic bursty workloads. In the case of Denny’s if you registered you’d get a free breakfast at Denny’s. several years ago.000 people who could not file their taxes. and more data center space. Because in the event of high growth. Hallmark sends more e-cards on Valentine’s Day than any other day. February 14 is Valentine's Day. You may have never thought about it. but it is the number one day for e-cards on the planet. You don't send a Valentine's Day card on February 13th and you certainly don't send one February 15th. A few years ago Denny’s and Dockers ran multimillion-dollar ad campaigns to drive people to their websites. February 14th.
meaning applications that runs. while technically feasible no one does it. and then doesn't run. hence. They are in the business of providing tumor diagnosis. runs and then doesn't run. On Off Applications The third category we’ll call on-off applications. For this case. 70% of the time tumors can be diagnosed by visual inspection under a microscope. So these are all examples of the need for performance testing at scale. This is a perfect application for compute & storage cloud services. The oncologist is given protein levels that are high or low and based on his or her experiences they determine what kind of tumor it is. Of course you could have bought computers located in New York and San Francisco and Miami to test these sites. Pathworks 77 . Now you can cost effectively ramp up a simulated load for an hour or a day using 1.CLOUD people don't know is that within minutes of the Dockers ad running.000s of computers and only pay for the time you use them. But purchasing hundreds of computers just to test for one day has historically been cost prohibitive. we’re going to talk about a service provided by Pathwork Diagnostics. the Dockers website actually collapsed from too much load. 30% of the time the state of the art is to run chemical analysis.
In the morning the results are provided to their traders. This case study comes from a financial service firm. During the trading day.which is their product life cycle . bond markets. twice a year . Again. hundreds of these test.SOFTWARE DEVELOPMENT CLOUD SERVICES takes a different approach. 78 . For six weeks. Then at night they ramp up to 3. eight hours a night. they run 300 servers pulling data from the stock exchanges. They take the data from hundreds of these samples.000 servers executing risk analysis algorithms. economically now instead of owning 3000 computers their ongoing cost is 1/5 (40 out of 200 hours) but there may be an even more important advantage. and using complex machine-learning algorithms to probabilistically determine across a larger sample size what is the probability it is one kind of tumor or another. They run five days a week. Could they have bought a thousand computers and put them in a data center? Yes of course they could. but let's ask the question: What were they going to do with them the other 40 weeks out of the year? Periodic Bursty The final class we'll talk about is periodic busty applications. and currency markets.they utilize a thousand servers and to run giant machine learning algorithms.
write. Furthermore. Storage really has a little bit of a different character. But obviously there is an opportunity for storage cloud services to exist independently. most of what we’re seeing storage services that is in essence connected to the compute services. This is because you need object stores to store the machine instances for the compute service.CLOUD Let’s assume I'm the guy who talked my boss into buying 3. plus the ratio of read vs. Furthermore assume three weeks later I went into her office and said: “You know boss. and how random or how sequential is the access. We’ve started out with very simple object level stores. 79 .” Do you think I'm going to have a job tomorrow? Storage Cloud Services Let’s spend just a minute and talk about storage cloud services. How much are you supporting high performance transactional applications versus just storing photos et cetera.000 servers and put them in a data center. latency. Stay tuned there are lots of new solutions. To consumer and deliver those storage cloud services you’re going to have to consider the type of access. the experiment really didn't really work out. throughput.
its way more than ten. So unless in the traditional world we built these different kinds of compute & storage for no reason. In today’s offerings there are perhaps ten different types of computers and storage. location. These cloud services might be specialized by four different characteristics: performance. Let’s start with performance characteristics. Rather than get into a word game I’d like you to realize that the few compute & storage cloud services available today are not the end of the road. or go to the EMC or the NetApp guys how many different kinds of storage do you have. but in no case is anyone discussing buying or selling an hour of computing. IBM sales rep about how many different kinds of servers. 80 . Many times private cloud is just used to mean a virtualization project. But if I was to go talk to the Dell. there will be compute & storage cloud services with different performance characteristics. HP.SOFTWARE DEVELOPMENT CLOUD SERVICES Specialized Cloud Services (aka Private Cloud) Much of the discussion about cloud computing has centered on public and private clouds. which are not available today. Sun. In other case private cloud is code for “these cloud services are not secure enough”. There are many reasons why you might need compute & storage services. security or business model.
You need to identify these and ask the right questions. In a post Wikileaks. so it will make sense to locate compute & storage near the source of the demand. post Patriot Act world it’s clear each of the G20 countries will have compute & storage cloud services – a Canadian. penetration testing? Do you need to be HIPPA compliant. So both for geopolitical and technical reasons there will be compute & storage cloud services specialized by location. a Chinese. There will also be compute and storage cloud services specialized by security characteristics. compute & storage cloud services will be specialized by location. How are you implementing identity management? What's your audit trail retention policy? How are you doing security testing. PCI compliant.CLOUD Second. Spain or Israel. But even if the geopolitical issues could be resolved network bandwidth is not ubiquitous nor universally inexpensive. You can choose where your computer storage is going to be and the cost can vary based on that. et cetera? So there's a 81 . whether that’s Vietnam. a French compute & storage cloud service. Instead there may be security characteristics you need to accomplish your requirements. You are seeing this with Amazon today. Remember even the public cloud companies are not trying to deliver an insecure service.
com to the Openstack initiative from Rackspace to large companies like CA Technologies and VMWare are all providing components that will enable you to build your own cloud. Compute and storage cloud services will be specialized by security characteristics. Finally there is the question of different business models. Just to give you a small example. So just a simple example of a compute and storage service specialized by location. We’re going to see compute and storage cloud services specialized by different business models. but this is far from the end of the story. Specifically they are testing of a new system to handle calls coming in through the Internet. 82 . From small companies like Eucalyptus and Cloud. Consider a compute & storage cloud service delivered by Bell Canada.SOFTWARE DEVELOPMENT CLOUD SERVICES whole range of different security characteristics that may be particularly important to you. Today many companies are producing software to enable the creation of these specialized compute & storage cloud services. Priced at a premium to Amazon they are today being used to provide testing services for First Media who provides dating services. We've talked about three different ones pioneered by Amazon.
Consider real time translation. IBM projects that by 2011. The NYSE stock trading system processes about 10M trading transactions per day.000 servers and many see that as large – but is it really? Just to put this into perspective consider a few other massive computing systems. the world will be ten times more instrumented then it was in 2006 and the number of Internet connected devices will grow from 500M to 1 Trillion.CLOUD Today’s Clouds are Small Google’s cloud contains over 500. Now let’s imagine that every mobile phone in the world executed on transaction per day that would be over 4. Visa is believed to process around 100M credit card authorization transactions and Google about 200M searches per day. Indeed when you now see the iPhone and Android as merely the “eyes and ears” of the cloud to quote Vic Gundotra of Google. turn-by-turn navigation or determining the supply chain that brought you the lettuce in your local market and you’ll quickly realize today’s clouds are small.000M transactions per day. then the potential number of transactions will only grow. In fact. Computer Carbon Footprint As compute & storage infrastructure grows and as our concern for global warming increases it will turn out that for 83 .
Ernesto Sanchez-triana. Kulsum Ahmed. in a presentation14 by Simon Commander of the London Business School and Rupert Harrison of the IFS School of Finance they measured the number servers per employee in Brazil at 0. Simon Commander (London Business School) Rupert Harrison (IFS School of Finance 1st June 2006. 15 Environmental Priorities and Poverty Reduction: A Country Environmental Analysis for Colombia (Directions in Development) (Paperback) by Kulsum Ahmed (Author). The CCF is computed as follows: CCF #Employees SPE TBY PUEavg CPFavg Where SPE = Servers Per Employee TBY = Technology Birth Year factor X 400 watts PUEavg = Average Power Utilization Efficiency of the data centers CPFavg = Average Carbon Power Footprint of the sub-region grids (lbs/watt-year) Servers Per Employee (SPE) The number of Servers per Employee may be a simple measure of how much a company is powered by technology. Interestingly.02. In this section we discuss a simple way to calculate the Computer Carbon Footprint™ (CCF) of any company. Yewande Awe (Editor) 14 84 . In a book15 published by the World Bank in 2007 the on the economy of the country of ICT adoption in developing countries: Firm-level evidence from Brazil and India.SOFTWARE DEVELOPMENT CLOUD SERVICES modern technology-powered companies the carbon footprint of the company’s computers is the new smokestack of the 21st Century.04 and in India at 0.
Koomey.33 45 India Brazil Columbia Google Figure 4. Of course probably nothing compares to the modern largescale Internet companies. 17 Assessing Trends in the Electrical Efficiency of Computation over Time. Year 2007 2007 2007 2006 Servers Per Employee 0.04 0. Hiding in Plain Sight: Google Seeks an Expansion of Power. of Lawrence 16 Markoff. This is done by establishing a base line of power consumption at 2006 at 400 watts and then if the servers are on average older or younger. 2006.32-3.32 to 3. June 14. 2009 85 .16 With Google employing approximately 10.33 computers per employee.02 0. We base our analysis on a recent paper17 authored by Jonathan G.000 people in 2006 it would put their SPE (Servers per Employee) at 45. 2009 Released on the web: August 17.000. The New York Times. In 2006 the number of servers Google deployed was estimated to be 450.4: Servers Per Employee Technology Birth Year (TBY) TBY is designed to compute the approximate power consumption of all of the servers. Submitted to IEEE Annals of the History of Computing: August 5. increasing or decreasing the power consumption. Saul. John and Hansell.CLOUD Columbia the range was reported to go from 0.
5 0. 86 .SOFTWARE DEVELOPMENT CLOUD SERVICES Berkeley National Labs.6. a pace of change in computational efficiency comparable to that from 1946 to the present. Technology Birth Year 4 3 2 1 (Baseline) 0.5 years.75 0.25 2003 2004 2005 2006 2007 2008 2009 Figure 4. Under the above assumption that computations per server doubling every 1. in 2009. More precise calculations would include the data in Figure 4. Henry Wong from Intel Corporation. Marla Sanchez with Stanford University and.5: Technology Birth Year factor While every server consumes a different amount of power we will use 400 watts as the average power consumption of a server in 2006. The paper explores the relationship between the performance of computers and the electricity needed to deliver that performance. The paper documents that computations per kWh grew about as fast as performance for desktop computers starting in 1981. Stephen Berard from Microsoft.5 years then the same unit of performance would require 4x more power 3 years earlier in 2003 and ¼ the amount of power 3 years later. This will also make our estimates conservative. doubling every 1.
000 also buys you 10.pdf 87 .6: Weighted average power (Watts) of top 6 servers.com/Downloads/svrpwrusecompletefinal.. I told the class about the donation and started by telling them $3.000 worth of compute and storage time. But when I said $3. Of course it begs the question of what would you do with 10.000 computers for 30 minutes.000 computers for 30 minutes for $3. which a group of 18 Koomey. As you might guess I was greeted with a big yawn. by sales18 Summary A couple of years ago I had the opportunity launch the first class on cloud computing at Tsinghua University in Beijing. everybody paid attention. February 2007. China. Nobody has been given 10. Estimating Total Power Consumption by Servers in the US and the World. Amazon was generous enough to donate $3. but that’s precisely the point. California or Ireland for about 3 ½ years. So just like client-server computing began with low cost personal computers and low cost Unix servers. 2007.000 buys you a server in Virginia. http://enterprise. J.000 computers for 30 minutes. G.amd..CLOUD Class Volume Mid-range High-end 2000 183 423 4874 2003 214 522 5815 2005 218 638 12682 Figure 4.000 until now.
The move to client server was not about porting mainframe or AS/400 applications.SOFTWARE DEVELOPMENT CLOUD SERVICES programmers found new uses for. cloud computing. so it will be with. We hear the same thing today – cloud computing is not secure enough. “No one will run their business on Windows”. reliable enough. Will history repeat itself? 88 . “Oracle isn’t scalable or secure enough for enterprise computing”. but there were economically differentiated. but instead about an explosion of new applications driven by a wider group of people. In fact these technologies were not superior to the established mainframe and minicomputer technologies. In those days many people said: “Unix isn’t reliable enough”. scalable enough.
who is not an expert a working knowledge of the issues. This chapter is not written for the computer science major. tools and economics of software development. but instead is meant to give everyone else.CLOUD 5 SOFTWARE DEVELOPMENT CLOUD SERVICES With the increased availability of compute and storage cloud services just as the battle for the desktop was won by winning the developer. so it may be in the fight to win the cloud. We’ll cover the fundamental parts of the software 89 .
We’ll see how new technologies are bridging the worlds of developing new applications. how it is delivered will vary according to the software and its usage.1 Application Weight 90 . it’s worthwhile noting all applications are not created equal. One dimension in variation is what we’ll call the application weight. and managing them.SOFTWARE DEVELOPMENT CLOUD SERVICES development lifecycle and touch on some of the new horizontal and vertical platform cloud services which are providing software developers with a set of tools tuned for the world of cloud computing. While all software can be delivered as a service from the cloud. Application Spectrum Before we launch into discussing some of the key success factors. which heretofore have been highly separate disciplines. Figure 5.
At one end of the spectrum. although both are manufacturing processes. These processes are much more customized. At the other end of the spectrum is eBay makes changes 52 times a year. The way Coca-Cola manufactures soda shares little in common with the process Chevron uses for refining petroleum. Web conferencing and Internet search. No one has figured out how to make these as customizable as changing your Yahoo home page. it’s been the case that lightweight business processes have been earlier to move to Model Six or Seven. 91 . This is also true of eBay-style auctioning. manufacturing or financial applications deployed in the traditional model have resulted in upgrades occurring once every couple of years. The implications of application weight are many.CLOUD By weight we mean the complexity of the business process. areas that Oracle and SAP have specialized in. on the frequency of change. The lighter weight business processes allow for a greater frequency of change. Email is a very lightweight business process. first. often at great expense. meaning the way each of us uses email is pretty much the same. An example of a heavyweight business process might be discrete or process manufacturing. As a result.
usually have very few users. it will have many implications for your product and delivery options.2 Usage Spectrum Corporate applications.SOFTWARE DEVELOPMENT CLOUD SERVICES Another evaluation you’ll need to make when positioning your offering is to map the number of users for your software against the frequency of use. and. the more dramatic the change in both the number of users and the frequency of use and therefore on the degree of specialization and focus for the application. 92 . This usage spectrum is shown in Figure 5. The closer you get to the consumer Internet. figure out where in these maps you’re going to fit. Figure 5. those users use the application infrequently. furthermore. As you think through your product offering.2. like SAP Financial Applications.
a given table can include records from multiple tenants stored in any order and a tenant ID column associates every record with the appropriate tenant. to be deployed as a service in the cloud and gives the customer some. if you have a lightweight business process. and you intend to write the application from scratch. of the flexibility they have come to expect in an on-premise deployment. Of course. because multiple tenants share the same database tables.CLOUD Multi-tenancy One area that is hotly debated is that of a single-tenancy versus multi-tenancy model. If you’re coming from the world of traditional enterprise software. architected for traditional deployment. The multi-tenancy approach allows you to serve the largest number of tenants per database server. one should consider a multi-tenancy model. you only architected for singletenancy. but not all. this approach may require additional development effort 93 . However. Adopting Model Four or Five allows software. In this approach. The approach does not require rewriting or building new software and allows one to offer the service to the 100s or 1000s of businesses that have already bought the application.
don’t get embroiled in the religious war here—there are numerous tradeoffs to be made. therefore. vastly simplifies the development and management of the software. as well as a change management technique. how is that different than single tenancy? Bottom line. Of course.SOFTWARE DEVELOPMENT CLOUD SERVICES in the area of security to ensure that one tenant cannot access another’s data. This is often done to do A-B testing of new releases. the multi-tenancy approach forces there to be one code line and. this is only possible in areas where you have lightweight business processes. Most of the multi-tenancy service providers run multiple sites. But just when you thought it was a black-and-white decision. In the limit. let’s make it more confusing. Perhaps more important. depending on whether you’re starting with an existing application or building from scratch. whether you have a lightweight or heavyweight 94 . and it has exponential advantages when you serve millions of users in a highly fluid environment. if General Motors wanted one of those sites to run only GM auctions. Furthermore each of these applications can be on a different revision level. eBay has maintained one code line since they were founded.
choose a Toyota. not a McLaren F1.3 Standardization 95 . If something is standardized.000. you can specialize.000 for the car and the need for a McLaren mechanic. Underlying this whole debate is a much more fundamental principal that’s illustrated in Figure 5. So how does this apply to software? Figure 5. and finally the margins and pricing you’ll need to be successful in the market. lowest cost automobile. ultimately. If you want the highest quality.3: dramatically reducing the cost and improving the quality of anything starts with standardization. Specialization leads to repetition and. at $1.CLOUD business process. computers are far better at repetition than people. you can’t argue its low cost and high quality. While the idea of a hand-built automobile with a production run of fewer than 100 cars certainly has exclusivity going for it.
Now.SOFTWARE DEVELOPMENT CLOUD SERVICES If we were to take a paintbrush and walk around to every computer that has deployed an SAP or Oracle enterprise application. all of the states in between represent progressively greater degrees of standardization. and management processes should be an effort to move closer and closer to the left-hand side. originally published in June 1975.3. databases. Over at the other end of the figure. hardware and management processes. Software Development Lifecycle Few books on software engineering have been as influential as Fred Brooks' Mythical Man Month. So if you look at Figure 5. we’d end up coloring each one differently. think about eBay. Every choice you make in hardware architecture. software architecture. With greater degrees of standardization comes the ability to specialize. and ultimately automate the greatest cost you have—the human labor required to manage these systems. with three sites. and middleware. Much of the book was based on his experiences as 96 . each running the same software. each deployment would have a different change management process or disaster recovery process implemented by different groups of people. as each installation would be on different server and disk architectures. repeat. Furthermore each would be deployed on a different software stack—different versions of operating systems. every box on the right-hand side has a different color. Beyond that.
and 19Brooks. and underperformed against expectations for the first several releases. Assuming a 24-month release cycle. In the book. and a 1/4th in system test time before it would be ready for release. again no real surprise to the old-timers. 1/6th in coding. he recounts that the project could not be considered a success. a 1/4th in unit test. reliability.CLOUD the development manager of IBM's OS/360. three months writing code. the very nature of software makes it unlikely that there will be any. IEEE Computer. 97 .” Many in the software business can testify to their personal experiences that validate his comment. “Not only are there no silver bullets now in view. at the time. Brooks later published a landmark paper19 in which he wrote. No Silver Bullet: Essence and Accidents of Software Engineering. April 1987. No inventions that will do for software productivity. well over budget. He writes of flaws in the design and execution of the system and ultimately concludes that the project was late. Fred. you'd spend six months in requirements. and the last 12 months testing. Brooks documented what came to be known as Brooks’ Law: “Adding Manpower to a late software project makes it later. He furthermore estimated that any software project would use a 1/3rd of its scheduled time in requirements. the largest single software development project ever undertaken.
SOFTWARE DEVELOPMENT CLOUD SERVICES simplicity what electronics, transistors, and large-scale integration did for computer hardware. We cannot expect ever to see twofold gains every two years.” Throughout the past 30plus years, the industry has struggled to find a way to uncover Brooks’ elusive order-of-magnitude improvement in software productivity. Rapid prototyping, object-oriented programming, program verification, and Software Engineering’s Capability Maturity Model (CMM) all have been thought to be the “silver bullet,” but, unfortunately, each attempt has come up short. While building and deploying high quality software is certainly no easy task, as you will see in this chapter, the movement to delivery of software as a service is fundamentally changing the way software is designed, developed, and tested. Maybe this isn’t the silver bullet Dr. Brooks talks about, but you be the judge. Horizontal Platform Services Once you know the kind of application you want to build it remains to consider how you’ll build it – what your coding framework will be. As shown in Figure 5.4 you have three large choices: horizontal software, horizontal services, and vertical services.
Figure 5.4 Software Development Cloud Services
Horizontal software refers to a framework where you may use any of the software (open-source or traditional Model 1 software) on a compute and storage cloud service. In this model you can choose to use the database, middleware and languages of your choice. All of today’s application cloud service providers, who did not have horizontal or vertical platform services to choose from, use large amounts of horizontal software on compute and storage services they have had to manage. Which brings us to horizontal services. Horizontal platform services offer you less flexibility, but allow the cloud service provider to manage the platform software thereby reducing cost and complexity. Further restrictions in flexibility (e.g., definition of a particular database schema) result in more vertical platform 99
SOFTWARE DEVELOPMENT CLOUD SERVICES services in which you’ll further trade off flexibility, for greater productivity and lower cost assuming you’re application maps well to these vertical platform services. In order to understand the advantages of these platform services it’s useful to further understand the traditional application environment. Figure 5.5 shows the traditional silos between the group that writes the original application, the group, which has had to port and test it in multiple operating system and database environments and finally the operations management group which has to manage the application after it’s delivered.
Figure 5.5 Traditional Application Development & Deployment
What this new generation of platform services is attempting to do is to merge these worlds together since now the builder of
CLOUD the software is no different than the people who have to operate the software. As an example these platform services provide: Maintain a current level of the underlying software Automatically replace a failed server One-button click to replicate production application for testing and staging Automated change management – from code check in to production Add capacity when load thresholds trigger.
Engine Yard is a good example of providing horizontal platform services to the Ruby-on-Rails community. Google’s App Engine, while it has a number of programming model restrictions, does give you access to the highly scalability of Google’s compute and storage services. More importantly, versus a traditional LAMP stack deployment frees you from the operations management hassles like disk space management, security patch management and backup and recovery. Finally, Microsoft, who ruled the client-server programming model, has introduced Azure to provide an easy on ramp for the millions of Microsoft programmers around the world to build next generation application cloud services using many of their familiar tools. 101
there are key people to carry on his vision. 2005. Ray Ozzie. “We’re going to look back at this era and wonder how we did without this other kind of computer in the cloud. “This coming 'services wave' will be very disruptive. The Internet Tidal Wave. While Gates might have left day-to-day operational responsibilities.” Gates compares the push toward such services. “The next sea change is upon us. Then he wrote a now-famous memo. the opportunity to lead is very clear. “We have competitors who will seize on these approaches and challenge us—still. In a recent interview Ozzie said. to the changes he saw nearly a decade ago.” Windows Azure seeks to provide the Microsoft Visual Studio programmer with compute and storage services similar to those provided by Amazon as well as SQL and . dated Oct. in order to best formidable competitors.” Gates wrote. which range from online business software offerings to free Web-based email. which prompted a massive shift at Microsoft toward Internet-based technology.” Gates wrote. founder and then Chairman of Microsoft urged company leaders to “act quickly and decisively” to move further into the field of offering software as services. Bill Gates. First and foremost is Chief Software Architect.Net services with 102 .SOFTWARE DEVELOPMENT CLOUD SERVICES Microsoft Azure Story In a widely publicized email to top executives. 30.
We don't run arbitrary compute jobs. Google AppEngine Story In mid-2008 Google introduced App Engine. Speaking at App Engine Campfire One in April 2008. or anything like that. We also don't give you a raw virtual machine. “App Engine is different than a lot of other things out there. App Engine Tech Lead said. or RAM or a number of CPUs. specify how you want it to run in response to requests.” Ultimately. and then we run and serve it for you. or machines. App Engine is not a grid computing solution. You don't reserve resources. As an example the SQL Azure service provides availability monitoring on five-minute intervals as well as updating lower level system software as required. Instead. App Engine’s goal is to provide a simpler alternative to the traditional LAMP stack. Kevin Gibbs. App Engine is their first attempt to provide a platform for others to build cloud-based applications. we provide a way for you to package up your code. While with Google Apps they provide office applications in the cloud.CLOUD integrated operations management. It's a fluid system that runs your code in response to load and demand. By providing a more vertical (more constrained) offering the tradeoff will hopefully 103 .
While there are some early applications being demonstrated. One feature you won’t find is joins. but there also needs to be an operations environment. the system used for Google. making all of them appear to be a single storage table.SOFTWARE DEVELOPMENT CLOUD SERVICES be greater productivity at the expense of flexibility. since they are typically a source of performance problems in a distributed system. As we know. Bigtable is schema-less. If you want flexibility you can always go buy your own computers. meaning it can support arbitrary new properties or columns. it is still early days. which can be created as you code. Toward that end an administration console is provided to give you access to the application. 104 . not only does there need to be a programming environment. Bigtable is a fault-tolerant. You can make use of numerous Python modules and libraries using any Web framework. Unlike SQL.com. The database is not SQL instead it is based on Bigtable. distributed system that can span tens of thousands of hard disks on thousands of machines. It is designed to move data around and restructure the system automatically to account for hotspots and increased storage. App Engine starts by writing server side code in Python.
com Story In traditional business software. Good examples of vertical services include Netsuite’s NSBOS. but also a marketplace (AppExchange) to encourage new CRM applications. Finally with so many users of Facebook.com has led the way in turning their platform into a service others can use.com’s force.com and Facebook’s platform.com seeks to provide not only the technology. Salesforce. Salesforce. by opening up the platform (most notably Facebook Connect) can leverage a wider development community to extend their services far faster than they can with their captive R&D group. Vertical platform services assume you are building a specialized usage of the wider platform provided by the vertical platform cloud service. Salesforce with force. Salesforce. 105 .CLOUD Vertical Platform Services Further down the spectrum of decreasing programming model flexibility for increased productivity and decreasing cost to manage are the vertical platform services. Netsuite seeks to allow application builders who want to specialize their ERP oriented platform for more specific markets. This typically means you’re leveraging at least the data model and hopefully some of the higher level abstractions provided by that data model.
writes that two events changed Salesforce. Phil Wainewright.com 106 . The Visualforce framework includes a tag-based markup language. Visualforce is a framework to build custom user interfaces. enabling productive code reuse and standardization.com platform added Visualforce. similar to HTML. At the time. Apex can also create classes.com application and extend it.com platform with a procedural language so that users can go beyond declarative programming to write code where needed. The result. A year after the introduction of Apex. who blogs about SaaS for ZD Net. which required transactional integrity. There was no firm plan to extend the core application platform beyond its formsdriven database model. according to Phil. The other key event was that developers began to build applications that were not the conventional formsbased apps. The first was an attempt to use the platform to write a quote application. Underlying the Force. was the creation of the Apex programming language ultimately leading to a complete platform for building application cloud services.com’s approach. Force. which can be called from other classes and triggers. Apex provides Force. the objective was to enable customers and partners to customize the Salesforce. ironically almost at the same time that Oracle acquired Siebel.SOFTWARE DEVELOPMENT CLOUD SERVICES AppExchange was launched in late 2005. You can use this language to create triggers. which fire when any user performs certain data operations.
The Force. Riskonnect’s software. Two interesting case studies are Riskonnect and Stakeware. The Force. which he started in 1994. Of course. While similar to SQL in some ways. for a more intuitive navigation of data.CLOUD platform is a multi-tenant database. as well as optionally providing user interface representations in both the parent and child records. “This is 107 .com platform supports two query languages: Salesforce Object Search Language (SOSL) is a language for searching all across all persisted objects. the real test is the types of applications that can be built and delivered using the salesforce.com database differs from relational databases in the way record relationships are implemented. Salesforce Object Query Language (SOQL) is a queryonly language. it's an object query language that uses relationships. not joins. the database deals in terms of relationship fields. primary keys and defining relationships in terms of these keys.com cloud. launched in 2008. A relationship field stores the ID of the parent record in a relationship. helps people visualize and understand risk at very high levels. foreign keys. He’s had a long history in risk management software beginning with Risk Laboratory. Instead of developers’ having to deal with keys. Bob Morrell founded Riskonnect in July 2007.
The Mexican Government. StakeWare enables corporations to gather. But many people don’t need that. The software also includes the ability to monitor and analyze emissions to help provide appropriate trade-offs when lowering the carbon footprint as well as the management of sustainability policies across supply-chain. lecturer.com application.” Morrell said.SOFTWARE DEVELOPMENT CLOUD SERVICES essential because too many consultants only use complicated calculations. how would other factories and the supply chains respond. Riskonnect allows users to drag and drop information to compare risks visually. Natan Zaidenweber founded StakeWare.” 108 . and manager working in projects for The World Bank. organize. Each of these examples is just further proof of what Marc Benioff said: "Software developers from a developing country can build just as great an application on our platform as somebody who lives in Palo Alto. and Shell Oil. An example would be if one factory goes down. and analyze stakeholder data. in 2004. identify key issues and related indicators that are relevant and material to include in the standard G3 sustainability report. Zaidenweber has over 15 years of experience in sustainability as a researcher. another force.
Dave Morin. twittered the number was now 175 million. How many times have you signed up for a site or a newsletter with fake identity? On the other hand it’s difficult to have a fake Facebook identity. it’ll be difficult to pretend you’re Angelina or Brad. nor are incented to represent themselves. Of course not only are basic profile 109 . Share information and actions on the application with their Facebook friends. a database query language. who runs the application platform team. This is a particularly valuable service since in the cloud many people will not represent. after all unless you have no friends. Connect and find friends who also use the application. That kind of growth and scale can in part be attributed to Facebook opening up its platform and providing a full suite of APIs—including a network protocol. Their most recent effort has been to bring the power of Facebook to other applications by providing the ability to: Connect any existing Facebook account and information with any application. and a text markup language—that allow applications to integrate tightly with the Facebook user experience. a little more than a month after announcing it had 150 million active Facebookers.CLOUD Facebook Story In February 2009. with their true identity.
110 . Now if we all were so lucky. When iLike launched 10. a successful application on Facebook can grow to millions of people in a short time. an application can dynamically show which Facebook friends already have accounts on the application. or removes a friend connection. the individual can control who can see what pieces of their information—the same rules that they set on Facebook can be applied through your application. If you’re interested in seeing early examples of applications using the Facebook platform take a look at TechCrunch. photos. A case in point is the story of iLike. groups. For example.000 per day. In addition. ensuring that users' information and privacy rules are always up to date. Citysearch.000 people. and more. As an individual moves around the Web. events. friends. their privacy settings will follow them. if a person changes their profile picture. With such a large population of people on Facebook. VLane. With access to the social graph. In less than a year. and Howcast. this is automatically updated in the application. iLike announced they had passed three million and were growing at a rate of 300. By the end of the first day they had 50.SOFTWARE DEVELOPMENT CLOUD SERVICES information available but also the profile picture.000 people joined in the first 12 hours.
and the NetSuite application itself.CLOUD NetSuite Story In 2005. Developers can create custom forms to give users access to specific fields. and create completely new custom record types for objects unique to a 111 . a public cloud development environment that includes a set of Application Program Interfaces (APIs). NetSuite opened its architecture to partners and outside developers to further its reach through its NetSuite Business Operating System (NSBOS). give application developers data storage flexibility. we can now economically reach the Fortune 5. The resulting specialized application and data reside inside the NetSuite platform and share database and server resources within the core solution. NSBOS targets building out the core NetSuite offering with additional specialized functionality beyond the services delivered by the core application.000". a mechanism to distribute applications. To use Zach Nelson’s words: “By using the cloud. This tight integration enables the platform and applications to remain in sync as the underlying NetSuite application is upgraded. called SuiteFlex.000. The NSBOS APIs. As a more vertically focused cloud service.
most of software development time and cost involves testing. a leader in electronic data interchange (EDI) supply chain developed a specialized application that allows smaller suppliers to tap into their network of over 1. But without an EDI solution they were limited in which retailers they could work with. benefited. both small CPG manufacturers. With NetSuite providing the underlying cloud services. from inventory to shipping and invoicing.CLOUD chose to build on NetSuite. they built a multi-plant MRP application. Neither could afford traditional ERP and EDI applications and the IT resources necessary to keep them running. in just nine months. SPS Commerce. Circle of Friends and Mad Croc.300 retailers. Testing As Fred Brooks noted. By adopting the vertical application cloud service they could quickly and inexpensively manage their entire trading relationships. Whether that’s a standardized delivery model in Model Four or Five. moving to the model reduces the number of variations and creates greater standardization. So how does moving to an on-demand model change anything as regards testing and QA? First of all. or using one line of code 113 . thereby allowing a small supplier to quickly and inexpensively meet the complex EDI requirements.
the model lets you begin to leverage tests of specific customer configurations and execute those tests very early in the development cycle. instead of trying to create and manage tests for this application release (and the three previous releases) and insure that they work on Oracle. Think about that. So. the QA team can limit their focus to one line of code (hopefully). IBM and MySQL databases on HP. you can use the actual customer systems to develop real-world tests. The tests are more representative and come at a much lower cost. if you introduce a bug into production. “For Concur. For instance. Now. since the application will have already been tested in the development labs. rather than wonder whether an upgrade will work. Rather than employ an army of test developers in your engineering organization. 100 percent of your customers experience that bug immediately. Furthermore. reducing the degree of freedom reduces the number of overall tests that have to be developed and executed. and one hardware platform. you’ll know.SOFTWARE DEVELOPMENT CLOUD SERVICES when you move to Models Six or Seven. Collapsing the supply chain between the customer and the producers of the software has even further economic benefits. IBM or Sun hardware. that 114 . Concur co-founder Michael Hilton said. But there are also major new responsibilities and issues. one database.
as Hilton points out. customers don’t have to deal with it right away if they don’t want to. It forces you to care a lot more about the user experience. Again.CLOUD means over six thousand companies and over four million end users are affected by any defect. But there’s a flip side as well—you can fix the issue and 100 percent of your customers have that issue resolved—no more waiting for the slow trickle of customers to download and install the patch. so users can easily digest them. ease of use and change management. Lots of things end up being optional. At Concur. “This fundamentally changes how you develop. That means that. every month.” It has fundamental impacts on how you think about quality assurance. we do meaningful functional updates to our service every single month.” 115 . You end up releasing things in smaller chunks. if the feature is big enough. our users are getting new innovations and benefits without having to do anything. meaning that. not a release every 24 months. the testing/QA function will need to re-engineer for the new reality of a release a week or a release a month.” Of course. just as we will see in the next chapter on operations. And you end up releasing more often.
Some engineers would try to be PC (politically correct) and say. Modification. “We don’t support extensions. While this subject is almost nonexistent from a consumer perspective.” was the famous Henry Ford quote often used by people describing early offerings. Localization and Integration. Extension.” The conversation was confusing. As Oracle On Demand was blessed with a natural channel to medium and large-scale businesses. architected an innovative approach while at Oracle that changed the argument from techno-babble to a business decision. Marian defined the CEMLI framework. and described 17 classes of reason why 116 . “We don’t allow for customization. “You can have any color you want as long as it’s black. In 2000. we allow for configuration.SOFTWARE DEVELOPMENT CLOUD SERVICES Customization One of the major objections to the SaaS/application cloud service model has been the belief that there is no ability to customize. any conversation with corporate IT will inevitably lead to the discussion of how to customize the application. CEMLI stood for Configuration.” Or others would say. it remained challenged on how to address this question. today Senior VP of R&D at Risk Management Solutions. we support configurations. Marian Szefler.
of course. not all CEMLIs were created equal. First. Figure 5.CLOUD someone other than Oracle R&D might need to add software to an Oracle application. by creating these classes. and discussed by both the customer and Oracle—the framework eliminated the politically correct dialogue that preceded it. Adding a new report was far less invasive than adding a 117 .6 lists the 17 classes and is. Second.6 CEMLI Framework The framework shown in Figure 5. unique to Oracle applications. grouped. “CEMLIs” could be counted. You should take away a few ideas from this. one could have a precise conversation. for the first time.
like Toyota Corollas. The classes were ranked by how “toxic” they were. “Do you want to spend X for the uniqueness. In fact. Finally. not a technical or religious one. So now the CIO could ask the business.” 118 . the customer could choose how much they wanted to spend. where standard products. something you want to avoid at all costs. By isolating CEMLIs and separately pricing the management of these. you were coming closer and closer to making fundamental modifications to the software. former CIO of Unocal. for what degree of uniqueness.SOFTWARE DEVELOPMENT CLOUD SERVICES trigger. The cost for servicing the “one” is many more times than the cost of servicing the “many. There were cases at Oracle where the cost to manage the CEMLIs was larger than managing the entire Oracle application. used the cost to manage CEMLIs to move the number of CEMLIs down from 1500 to 300 over the period of 18 months. or can we use the standard product and save money?” This is no different than in the real world. the CEMLI framework created an environment where the degree of customization became a business decision. meaning the likelihood that a mistake in this class would cause data corruption or a down system. The model created a framework for the business to justify why the particular CEMLI was worth the extra expense. Fred Magner. for example. as you got to higher degrees of “toxicity”. are far lower cost (and higher reliability) than custom crafted cars like a McLaren F1.
when some of these very same prospects have returned to look at Taleo to replace those same customized solutions purchased earlier from other vendors. When you think about traditional enterprise software companies. Taleo CEO Michael Gregoire said. 119 . Concur created a model that allows them to easily move customizations into core code. “This approach did result in us having to pass on some very large opportunities in our formative years when prospects insisted on a customized approach.” Concur’s Michael Hilton sees the investment in architecting a solution as one reason traditional R&D and consulting are now connected. Both teams need to be working in the same organization. In our model. He said. However. This approach provides customers the ability to avoid the customization version lock trap while still enabling customers to meet their unique business requirements. “It’s just part of our development model. a lot of times the teams that write customizations (typically consultants in the field) are completely separate from the core R&D teams. years later.CLOUD Anyone in enterprise software has faced these challenges. Taleo has addressed the customization challenge by creating a single line of code for all customers while baking in the ability for customers to do extreme configurations. our approach has been validated. that doesn’t work.
followed by ten years with NetSuite. What’s more. First. we built out a fairly complex architecture to deal with customizations.SOFTWARE DEVELOPMENT CLOUD SERVICES utilizing the same tools and processes. and works together seamlessly. having spent eight years with Oracle. Perhaps no one is better qualified to talk about the differences between the traditional development and development in Model Six than Evan Goldberg. As you’re delivering the service. while still operating in our multi-tenant environment. let’s get back to R&D. as Founder. there is no “middleman” between the producer of the software and the consumer. In a lecture at Stanford University. He speaks from an excellent vantage point. It took us a couple of years to really get it right. it is much easier to talk to the customers. what features aren’t. so that everything scales. At Concur. migrates. compare with the old system. at the same time. you can tell what features are being used. and CTO. Our large clients can have their unique needs meet. Goldberg pointed out there are numerous product design benefits to Model Six. They can use data to determine what 120 . since the software can be instrumented.” Traditional vs. Chairman. Amazon. but the benefits are extraordinary.com takes special advantage of designing an operational environment that allows them to experiment with new features and. Cloud Development But.
The immediate feedback loop afforded by the model allows the software engineers to. as a designer. something. delivering software as a cloud service allows for testing through actual customer usage. The 121 . Finally. With an ability to focus on single version. The ability to monitor real-time performance and develop and inventory tests based on actual usage are significant advantages over the traditional model. the engineering staff doesn’t need to spend a lot of time on simplifying installation.” The last group Goldberg addressed in his Stanford lecture was the QA organization. “they were never good at. As we’ve already pointed out. And. Goldberg said. given that installation is occurring on the companies’ computers. software engineers can put all of their energies into that release. you can build on top of previous innovations rather than worry about which customer has which features. as Goldberg put it. where it may be months before a particular patch can make it into a production system. versus working on back porting to multiple releases on multiple platforms.CLOUD features to keep and what to retire. “Kill Bugs Dead!” There is instant gratification to solving complex problems. versus the traditional model. because there can be universal adoption of innovations.
worrying about the operations of your software was a distant issue.” He noted that. In the case of NetSuite. Whether it’s database architecture. Goldberg ended his comments by putting up a slide that said: “Operations: Welcome to the New World. Summary We’ve attempted to highlight some of the more important differences between traditional software development and the new world of developing software for cloud deployment. for a VP of R&D in a traditional software company. the average has been over three releases per year.SOFTWARE DEVELOPMENT CLOUD SERVICES challenge that QA shares with the other disciplines is that each release of software is happening much more quickly. 122 . it’s a new world. we can’t depend solely on human power so all aspects of engineering are going to have to automate. or how you’re going to have to re-think testing and software release. With such a rapid rate of change. There was always the support organization and the customers own operational people that stood between you and any issue. how you architect for customization. But in any of Models Four through Seven. that idea is a distant memory.
perhaps most importantly. you’re going to need to understand how to manage the security. problems. performance.” 123 . the availability of your software. we’ll spend time on the key success factors in the management and operations of software. As Evan says.CLOUD In our next chapter. “As the VP of R&D. change and.
vice president for Oracle. and a great surgeon performs hundreds of surgeries to master her craft. Today. the key to excellence in anything is specialization and repetition. a student recites multiplication tables to learn to multiply. This is true for all human endeavors. an application cloud service provider manages hundreds of systems and therefore has to repeat numerous processes multiple times. cites an example of where this repetition ultimately 124 .6 OPERATIONS MANAGEMENT CLOUD SERVICES Repeat after me. Swimmers swim thousands of laps to perfect a stroke. Don Haig. This is no different in the world of managing software applications.
can often separate the talented from the average: How often do you do this? Research has established that busy hospitals generally deliver better care.CLOUD helped his customers. CIO. the research shows. Navy Captain Brian Kelly.” Yes. In Oracle On Demand. But recent work adds more detail. “Take software updates. citing the 125 . We have an expression in my business—‘You don't want to be the first guy to get your cabbage worked on’. TRICARE Military Health Services. the users of Oracle applications. When a customer is managing their own systems. complex surgeries are done for the first time by people who read the book the night before.” Upon hearing this example. who was trained as a neurosurgeon. CIOs really don't like to do updates. A simple question posed to surgeons. an event that most organizations have to manage with some frequency and yet is an annoying distraction from their core business. but understand they need to stay current on the latest release of a vendor's software. “You don't need to explain this further. they will do this upgrade once and only once. upgrades have been repeated hundreds of times per year. said. Consider the following research in the medical profession in light of the complexities of managing IT infrastructure. but in most IT departments today.
” Do we ask the same of our operations staff? How many times have the operations staff upgraded from Release 1 to Release 2? Some surgeons are convinced that measuring patient volume alone is too crude a measure for grading surgeons. “The more often I do a procedure. “Then. ”It’s something every surgeon should keep track of and show patients if requested.” said Mackey. they don't know how to react. “It is now a very legitimate question to ask a surgeon: How much experience with a procedure do you have? What are your complication rates?” Tufts Medical Center's surgeon-in-chief. a vascular surgeon who performs frequent carotid endarterectomies. I'm quicker to recognize it and correct it. But increasingly.OPERATIONS MANAGEMENT CLOUD SERVICES specific risks patients face in the hands of low-volume surgeons. William Mackey said. the profession sees constant repetition as key to mastering complex surgeries. who don't frequently and regularly perform certain procedures. a delicate procedure to clear a key artery of blockages. the more I fall into a standard routine.” Many studies of recovery from computer outages show the outage is often extended because the operator has seen something out of the ordinary. Dr. 126 . if I encounter something out of the ordinary. Since it may be the first time they've seen the issue.
each with a different answer to the question. How many times a week have they performed a particular procedure? Is the procedure even written down? Can it be repeated? The good news is that if a process can be repeated 100s of times it can be automated. and database and application operations teams. network. after “Where do I get a beer?” was likely. authored a study where high volume meant 40 or more procedures annually. Litwin. “Who’s going to keep score? Who knows how to score?” You can be certain the same conversation was occurring in all ten bowling lanes.CLOUD So what’s a high degree of repetition? Dr. while all ten lanes were bowling. Consider a corporation's system. and we’ve repeated it a hundred times. And computers are far better and lower cost than people. since scoring was left to whoever said they remembered 127 . Mark S. rest assured. did a score of 200 on Lane 1 compare to a 180 on Lane 2? It was anyone’s guess. the first question. So. a University of California at Los Angeles urology professor. If we know the performance management process. If you went bowling ten years ago. or the upgrade process. then why not program computers to automate the process? To better understand what it means to automate key processes consider a simpler problem.
performance. they get to receive the benefit of new R&D. From an R&D point of view. In the remainder of this chapter. versus putting it on the shelf and avoiding the upgrade at all cost. and problem and change management the VP of Operations. this is good. the story is quite different. 128 . and the computers score and tell you whether you get to bowl again. or play Wii Bowling. or VP of R&D will need to focus on. Change Management One of the advantages of Models Four through Seven is the increased simplicity of moving customers forward to the latest release. And from the customer’s point of view. Now. It might not improve your bowling. Consistency and standardization are being enforced through automation. availability. but you can make sure that the scoring process is being implemented consistently. if you go into a high-tech bowling alley. Ten years later. You can be guaranteed that a score of 200 in Lane 2 and a score of 180 in Lane 3 are scored identically. we’ll go through some key processes in security.OPERATIONS MANAGEMENT CLOUD SERVICES how. you enter your name. since your developers can focus on one code thread versus being forced to pay attention to multiple threads and platforms.
with costs that were on average 25 percent over their original budgeted amount21. 21Peterson.. Consider these four fundamental principles when designing a change management process: 1.. ERP Trends. The Conference Board Report. and Cooke. Instrument the environment.J. Communications of the ACM.P. Factors that range from weak project leadership to minimal employee product training have resulted in many ERP projects being delivered late and over budget. Volume 49. 2006. according to AMR Research. L. Gelman. 129 .CLOUD We should also note that upgrades or changes to enterprise business software have always been an expensive and difficult proposition. platform and system software sits at the nexus of the cost and reliability of delivering applications as a cloud service – there may be no more important process. 20ERP II: best practices for successfully implementing an ERP upgrade. pages 105-109. Number 3. Two Northern Illinois professors documented20 the cost and challenges of upgrading Enterprise Resource Planning (ERP) applications. Change management for applications. Architect the software for change (roll-in & roll-back) 4. Standardize the frequency of change 3. D. The cost of a typical ERP implementation in a Fortune 500 company was estimated as between $40M and $240M. 2001. Limit the locus of change 2. W.
architecture and release management. Reedy has some good counsel for anyone building software that is delivered on demand.OPERATIONS MANAGEMENT CLOUD SERVICES And for the key process From-Software–Change-InitiatedUntil-Completed measure the duration in minutes. then Lynn Reedy is a master traffic engineer. eBay architected a system that was based on the idea that 100 percent of the code base was sent to all of the pools of resources. As you are able to improve the predictability and improve the speed you’ll not only reduce cost. Reedy led the group that was responsible for all of the initiatives that pertained to the company’s work in software development. First. usability testing. eBay Story If information moves along an information superhighway. Furthermore. product specification. don’t engineer for one big box. As the Senior VP of Product. instead componentize the application so you can deploy on lots of little boxes. Development and Architecture at eBay. A pool is a set of computers dedicated to a particular function. user interface design. she says to insure a high availability application. but also increase the reliability. make sure you’re not dependent on one large database but find a way to segment and componentize. 130 .
QA tested the feature for two weeks. With the eBay Train approach. pick up the changes every two or three weeks. the feature was released to QA. 131 . all database changes resulted in fields being added. when software development was done for a new feature. Once it was scheduled for a train (along with other features).000 regression tests. the new threads were forced to merge and.CLOUD For example. eBay architected the system for change. then 25 percent of the pool and finally 100 percent of the pool. it could also be rolled back. eBay architected the software so that code could not only be added. The pooling architecture allowed change to be made gradually. Even within a pool. eBay’s change management process. referred to as the eBay train. a new feature would be added to one box. there is a “sell your item” pool and a “My eBay” pool. As a result. As a result. Software needed to be both forward and backward compatible. you need to do this while maintaining availability of the service. when you make a change. This put the impetus on the new development to resolve problems or conflicts with features coming from other organizations. For large projects. thereby. And remember. with new software headed out on the next train. the feature was subject to a battery of over 100.
just depending on the quality of people and process for high productivity and reliability would not be enough. resolution took minutes. eBay personnel took weeks to understand why a component “threw an exception. even in the event of earthquakes. eBay’s second major investment was in automated rollout and rollback. in the event of a failure. tornadoes. the company invested in numerous pieces of infrastructure software. Any exception within the system would show up as an error on the CAL graphical user interface (GUI). As a result eBay maintains at least three data centers in the United States. As a result. or hurricanes is a day-one requirement.OPERATIONS MANAGEMENT CLOUD SERVICES eBay knew that. These components would be seen as a “red pool. eBay’s usage of automated rollout and rollback were critical. and with an average of 15 features per train.” Exceptions could be in the code. or data layer. Running a system that requires 7x24x365 availability. eBay runs 132 . if the systems and processes could handle the failover. Before CAL. Instead. Some people have deployed fail-over sites that run “dark” and wonder. At the top of the list was the central application logging (CAL) facility.” With CAL. With over 200 features being worked on at any one time. CAL is both software and an engineering practice to fully instrument the application. network.
1992.” who think of ways to succeed. We often refer to “Dial-tone” reliability to describe the highest level of availability. which potentially affected 50. available system in the world to be the U. On April 6. telephone system. Availability Management Most people consider the most reliable. Right culture means a culture of people who find a way to “take the hill. Recently the standard has been raised to both report on outages affecting 22 http://www.CLOUD every site hot and limits each site to no more than two-thirds of the overall traffic. Metrics tell you where you are and where you want to be. Making this as obvious to the operations team as earnings per share was to the business unit led to a standard of excellence—few can argue with Reedy’s success. Right process means having a daily.asp 133 . repeatable process that everyone can do over and over again—what works for surgeons should work for IT. and right metrics. Reedy offers three things that every VP of Operations and R&D should focus on: right culture.atis. right metrics. And finally. not fail.000 customers22. the FCC required telephone service providers to begin reporting outages of 30 minutes or more.S. right processes.org/nrsc/quarterlyrpt.
major military installations and key government facilities. regardless of the number of customers/lines affected.000 customers as well as to report on any outages affecting major airports. The results may surprise you. 911.1 Outage Profile These outages were caused by everything from Heisenbugs to human error to heavy rain.OPERATIONS MANAGEMENT CLOUD SERVICES 30. Figure 6. nuclear power plants. In Jim Gray’s landmark paper23 he 134 . These are the summary statistics. For the past 10 years the data has been collected.
and (3) configuration errors were the largest category of operator errors.7. University of California at Berkeley. and what can be done about it? Tandem Technical Report TR-85. Database software. and David A. it was observed that (1) operator error was the leading cause of failure in two of the three services studied. EECS Computer Science Division. (2) operator error was the largest contributor to time to repair in two of the three services.hp.edu/papers/usits03. which operator/human error being the majority.CLOUD analyzed a set of Tandem NonStop systems and determined that the reasons why systems stopped fell into four large categories. can require a full-time staff of trained administrators to manage it.pdf 24 Why do Internet services fail.7 www. and what can be done about it? David Oppenheimer. Patterson.hpl.com/techreports/tandem/TR-85. http://roc. CA.berkeley. for example. Archana Ganapathi. Operators may face such difficulties because computer designers and programmers have frequently sacrificed ease of use in the quest for better performance. because hardware and software have grown cheaper over time. The experience in the field leads to forming a handful of fundamental principles in availability management: Why do computers stop. operator salaries are now often the biggest expense in running complex Internet sites.cs.pdf 23 135 . Ironically. In a more recent study24 of more than 500 component failures and dozens of uservisible failures in three large-scale Internet services. Berkeley.
predictable recovery process: problems are going to happen. Performance management starts with the difficult task of workload characterization. etc. transaction flows.OPERATIONS MANAGEMENT CLOUD SERVICES 1. Instrument to pinpoint the sources of faults 3. so operators can correct their mistakes. Develop a high speed. searches. 2. Furthermore as the recovery time is made predictable and reduced not only will you have happier customers. 4. Every application has some key queries. so design systems that recover quickly. but the cost of providing high reliability will go down. If you expect that result in 2 seconds and it takes 200 seconds does it really matter if the application is slow or down. Performance and availability management are related. Performance Management Your customers expect you to provide them with application access at an acceptable level of performance. Once identified these 136 . Standardize the key management processes and take operations people out of the loop In the end the key availability management process is FromThe-Time-The-Failure-Is-Detected-Until-The-Time-The Application-Is-Live is perhaps the most important process. Build systems that support an “undo” function. which characterize that application.
secure. For many. They provide a service to monitor the performance of your web application from points around the globe.CLOUD workload characteristics can be monitored. Of course once there is evidence of a slow application then we’re back to using the change management processes we discussed earlier in the chapter. we’re going to highlight a couple of 137 . Security Management Before enterprises can reap the benefits of on-demand software. the push to put information in the cloud raises the specter of information breaches. providers will have to convince IT managers and CIOs that the services they offer are reliable and. A good example of a company providing a performance management cloud service is Keynote. Now detecting a slow application is an exercise in profiling the performance of the application and then seeing when the application is performing outside of those norms. While a discussion about securing online applications could take the remainder of the book. perhaps more important. Perhaps the most famous one you see every day is in the upper right hand corner of every Google Query.
The simpler the definition of the security policy and the clear evidence that it is implemented insure the highest degree of trust. on a tape. removable disk. Whether thru simple password management. network) encryption becomes the service of choice. When physical data protection offered by the co-location facility is not possible (e. Authentication.g.. Audit.OPERATIONS MANAGEMENT CLOUD SERVICES specific areas you’ll need to think about to insure the applications are secure. Encryption also solves problems of protection 138 . Audit considerations include the process to access audit logs. retention durations and evidence of tamper proofing. Authorization mechanisms ensure authentication individuals have access to authorized data per a security policy. Encryption. Access Control & Identity Management. At the core of all security management is auditing. all the way up to two-factor authentication with retinal eye scan all security mechanisms begin with knowing who you are – authentically.
Care Rehab Story “For Care Rehab. has been using Salesforce. security was an important consideration when the company was evaluating Salesforce. and so on.com. vice president at the 200-person company.. a medical device manufacturer. 70 (SAS 70).” said Ed Barrett. A SAS 70 audit is performed by an independent auditor and results in a SAS 70 report. In the security management area there are numerous compliance standards. which makes traction and electrotherapy devices used by physical therapy clinics. without offering any judgment as to whether they are satisfactory. The company.com’s software to monitor the activities of its salespeople and to track its entire inventory. data security. Due diligence therefore requires that you not only request an SAS 70 report from a prospective provider.CLOUD when data leaves one application domain and enters another (e. as devices are 139 .g. One of the most recognized commercial standards is the Statement on Auditing Standards No. but that you examine it thoroughly to determine whether the provider is able to comply with your own internal standards for privacy. One should be mindful that a SAS 70 report only documents the internal control practices of an organization. PIN encryption).
” Mexico Story We’ll end this section with one personal story. [We] need to have the best salespeople. In that situation. I made a point to tell the Secretary we could implement the Oracle On Demand model either in an Oracle data center in Austin.” I. or a data center of his choice.com’s security practices. “If you’re Salesforce. through encrypted VPNs. “Their security is superior to what we provide for ourselves. But I ended my answer by sharing a conversation I’d had the previous week with the CIO of OCBC Bank. A few years ago. went through all the security features from the data center. “Tell me about your security. Texas.” said Barrett. presumably in Mexico City.com.OPERATIONS MANAGEMENT CLOUD SERVICES prescribed by doctors and dispensed to patients.com’s security practices before agreeing to use the software. mid-way into my explaining the 140 . In my introductory remarks. Care Rehab audited Salesforce. I'm sure we aren’t the world’s best security people. through SAS 70 Level II audits.com staff members showing Care Rehab how they secured the data that was stored on their servers and reading documents describing Salesforce. of course. you have to have the best people in security and the best redundancies. I had the opportunity to speak with the Secretary of Treasury of Mexico. That audit included Salesforce. He said. I spoke for about ten minutes and then asked him if he had any questions. one of the largest banks in Singapore.
with one-third stating a belief that they could do likewise with little risk of detection. Entrepreneur. Press release. I know your folks can see the same information. Cyber-Ark Software Inc. 2007. According to security professional Michael Bruck25. their bosses’ salaries and their bosses’ bosses’ salaries. 25Bruck. Reveals Scandal of Snooping IT Staff. Bruck’s estimate is consistent with a survey26 of more than 200 IT professionals. “I want you to take my HR and Payroll data. but what would it mean to them?” It’s a perfect story to end with. May 30. 2007. 141 . four-fifths of all IT-related attacks arise within the organization. “I know my DBAs can see their salaries.com. He replied. of course. but asked him why was he so adamant.” I. About one-fourth reported knowledge of former employees who retained access to sensitive networks long after their termination.CLOUD breadth of on demand services the CIO said. since security professionals agree that most IT-related attacks arise within the organization. said yes. June 28. 26Survey Michael. which found one-third of them admitting to abusing their administrative access privileges to examine sensitive data unrelated to their job functions. Security Threats from Within.
OPERATIONS MANAGEMENT CLOUD SERVICES Customer Service While many think of customer service management as defect management. in a post-Google era haven’t you wondered why was the information so difficult to find? Search-based Applications Today's surface Web (which Google. Now. The analysis was quite the opposite. the challenge of customer service management is not around defects—it’s around delivering information. known information. Just to drive the point home in 2004.1 percent) of the requests actually resulted in any new software fixes. How deep is it? Consider that 1. nine-nine point nine percent (99.030 petabytes (a petabyte is 1. most people would think one hundred million requests would be for software patches to fix defects. Yahoo and others have indexed) is thought to contain ten billion pages. with any software that has a reasonable degree of maturity.9 percent) could be answered by knowledge in a library. But this surface Web of less than 100 terabytes pales in comparison to the deep Web of information contained in every business. existing patches that were contained in a patch distribution system or in people’s heads—in short. Oracle’s Support group received one hundred million requests for service. So if you’ve ever been on hold with a call center. personal to you. Just one-tenth of one percent (0.000 terabytes) 142 . or somewhere on the order of 25-50 terabytes of information.
and file systems all around the world. enterprise search in 2009 is today probably only a $500M business.000 times the size of the surface Web. While seeing or indexing the information is one thing. This is small when compared to the SQL database business. Today they are deployed in over 9. Google launched their Enterprise Appliance in 2002 and.000 sites around the world. So why the gap? Perhaps the answer lies in tracing the history of SQL. at a minimum. The opportunity to mine this deep Web has not been lost on numerous companies.CLOUD of hard disk capacity was shipped in the fourth quarter of 2006. Independent companies like Fast. support. The simple math says the deep Web is. Oracle was the most successful at commercializing SQL and by 1987 was generating 143 . purchasing. has produced a major new release. Sales. the second highest valued European software company after SAP. HR. every year since. While these efforts have all been successful. which today probably exceeds $10B annually. 10. document management systems. and manufacturing information are all locked up in relational databases. have both focused on the challenges of enterprise search. and Autonomy. which was acquired by Microsoft for over $1B. the challenge is finding the relevant information.
Siebel.com. Search can be so much more if you think of it as a technology platform. who has been Chief Scientist at Yahoo. Peoplesoft. He said searching the Internet is like taking all the books out of the Library of Congress. and trying to read a book through a search bar makes little sense. But relational database technology has no intrinsic business value (it’s just cool technology) and it wasn’t until the advent of enterprise SQL-based applications like Remedy. John Lervick. bad because they’ve made everyone think it’s a search bar. Knol pages are “meant to be the first thing someone who searches for this topic for the first time will want to read. once described the Internet in a very interesting way. throwing them on the floor and using a search bar to try and read them. SAP.” So what might these search-based applications look like? Udi Manber. said “Google has been good and bad for search. Good because they made search important.” according to Manber. he’s basically right. ripping all of the pages out. If you think about it. we need to understand what it means to have search-based applications.OPERATIONS MANAGEMENT CLOUD SERVICES $100M a year. and was lured away a few years ago to be VP of Engineering at Google. He recently unveiled a project called Knol. So if the pattern is to repeat itself. and many more to make the technology useful to business. who founded FAST. The term knol means a “unit of 144 . Chief Algorithms Officer at Amazon.
the search-based application acknowledges people add value to the information. While 99. Michael Rocha. was previously the EVP for Oracle’s $5B+ product support and services business. and their environments. their business processes. In that capacity. which only control which people have access to which information. Second. Finally. it standardizes the language (much as SQL-based applications have standardized processes) of a group. The search-based application fundamentally does three things. the application is read and write. First. President and CEO of Openwater Networks.CLOUD knowledge. While this has been a characteristic of all SQL-based apps few people think of search-based applications as having this capability. has engineered a search-based application cloud service. While Knol is targeted at the consumer Internet. or a business unit.” and has been seen by many as Google’s attempt to compete with Wikipedia. Openwater Networks.9 percent of all of their service requests were met with known information. as opposed to traditional SQL-based applications. a team. he saw how the customers of complex applications struggled with being able to understand their software. 145 . a new company. it was the cost and difficulty of delivering that information which inspired him to bring modern Internet technology to the problem.
automatable operations is the key to lowcost and high-quality customer experiences. How will you market the application. managing operations is the most foreign to a traditional software company.OPERATIONS MANAGEMENT CLOUD SERVICES It will take a new generation of these kinds of search-based applications to truly use the information buried in the Deep Web. there is bound to be hundreds of search-based applications just as we have seen hundreds of SQL-based apps. We’ve now walked thru each layer of the cloud stack and now will focus the remaining chapters on the important areas for anyone building next generation application cloud services. sell the service. But with greater and greater access to search technology. security and performance. But having a system of repetitive. finance and organize yourself for success? 146 . whether in open source or in the cloud. Summary Of all of the major functional areas. This chapter has highlighted some of the areas in the management of change. availability. problems.
7 MARKETING So let’s assume you’ve built the world’s coolest application and it’s going to revolutionize poultry management. This 147 . or just the next major release of your ERP application. How is anyone going to know? Once upon a time you’d hire an “ad man” who would come up with an ad campaign and then find out if you could afford to run it in the Wall Street Journal. You’d have to make sure your tagline was short and sweet since you had no idea who would read it. or just the Palo Alto Weekly. As a result many people think marketing means coming up with a clever tagline and finding a way to make it into a Super Bowl ad.
You can also see that. You’ll notice the explosive growth from 2000 to 2001. in 1996 and 1997. Consider the implication of this. You should note that Webex’s spend in sales and marketing is hovering around 35 percent. the traditional approaches and some of the newer ways for you to educate the buyers. which totaled $107M prior to their IPO in 2002. they operated at or near profitability. The funding line shows each round of funding they raised. Economics of Sales & Marketing We’ll begin by considering the Webex case study by becoming students of their P&L shown in Figure 7. In these early years. This was the by-product of both a significant investment in sales and marketing and the explosive growth of Web conferencing post September 11. given how we all view Web 148 .1. Min and Subrah financed their operations by having a group of low cost engineers implement software and plowing the profits back into funding WebEx (at the time called Active Touch). We’ll discuss the fundamental economics.MARKETING might have made sense when the production and distribution of information was expensive. This approach resulted in both founders maintaining significant ownership of the company. but with the advent of the Internet and rich media. the single largest line item. In this chapter we’ll focus on marketing your product. we clearly no longer need to think this way.
CLOUD conferencing as simple to use and simple to explain and simple to buy.1 WebEx P&L Traditional Sales & Marketing For those of you who have been doing high tech sales and marketing this section will be old hat. Figure 7.2 Traditional Sales & Marketing Pipeline 149 . Traditional marketing and sales has broken the pipeline into a series of stages. Figure 7.
Ultimately.3 and talk to anybody selling business software. 150 . then leads. Scheduling the phone calls.MARKETING Early stages of the pipeline focus on getting awareness. Different constituencies within the buying enterprise have questions that can only be answered by members of the selling enterprise (or customers that have already purchased – the reference customer). lunches. No news here for any of you who’ve sold enterprise technology. Consider Figure 7. more expensive things is a team sport. the big difference between consumer and enterprise sales and marketing is that there is not one decision maker – enterprise sales and marketing of imprecise. and web conferences is time consuming and further elongates the sales process. Leads are both nurtured and qualified ultimately transitioning from a centralized marketing organization to the field where the potential customer is engaged. Even with a highly qualified lead the sales person finds himself or herself in the roll of traffic cop (or switchboard operator).
Email Marketing Email marketing. Emailing to a list of 1.000 people costs $5 versus over $500 to send out direct mail. We’ll focus on a few areas where marketing services have developed to improve sales productivity. repetitive and specialized. has been an area of considerable growth. 151 .3 Sales is a Team Sport Hopefully thru CRM applications this process can be made more efficient. Companies like Constant Contact. Lyris. As a specialist they focus on the details. This is largely because the economics are so compelling. Everything from the number of characters in the subject line (keep to less than 50) to the time the email is sent out can determine the effectiveness. as an alternative to direct mail.CLOUD Figure 7. Responsys have specialized in this area.
Built into the program was the ability to perform A/B testing on the messages sent to the customers. called the applicant’s attention to the company’s value proposition and also offered a quick link to the incomplete application. provided a quick link to the partially completed application. Customer Services at Responsys. 32% more applications were completed by the 152 . As a result of this campaign.4 Call at the right time e-Loan Story Scott Hilson. The first phase. It was executed in two phases. and encouraged applicants to use phone support. Director. Director of Online/Offline marketing at E-LOAN. Siara Nazir. has helped many companies implement successful email marketing campaigns.MARKETING Figure 7. reminded applicants to complete the process. As a simple case study. implemented an email program designed to remind and encourage prospective borrowers to complete their mortgage applications. triggered 30 minutes after the application was abandoned. The second phase. sent one week later. The program involves integration with the E-LOAN Web site to identify prospects that started but failed to complete the mortgage application.
saw a lot of traffic coming to their site because of their extensive network management content. 153 . who after years of experience in marketing Model Six companies formed her own consultancy. Build a FAQ into your Web site to capitalize on potential customers searching for reference or problem solving information. For example. This way. has some fundamental advice for anyone trying to optimize natural search results. giving it higher weight in the results. Solarwinds. we all know we click on natural search results more often than the ads on the side. you become the expert on the technology and the problem your company is trying to solve. The content is generally considered by search engines to be fresher and more authentic. you can create natural search results that drive traffic to your site without purchasing advertising (and more importantly be significantly more effective). a network management company. Katy Roth. While there is plenty of advice on how to spend money on ad words. Blogs are great for generating traffic. Search Marketing A company’s Web site has become the face of the company so improving the volume and quality of traffic to a Web site from search engines via search results is clearly important. By paying attention to how Web pages are built and the content put in them.CLOUD control group that abandoned but did get the automated follow up email.
MARKETING FiveRuns. Just check out Wikipedia for some good examples. Work with a search engine savvy developer to make sure the meta content of your Web pages is optimized.300% this year. a provider of monitoring and development products for Ruby on Rails. They worked with their developers to tune their page generation engine to produce better metainformation that allowed their pages to come up to the top of natural search results. There is nothing worse than seeing a page with terrific content with a generic browser title. Facebook leads Google. But Facebook has become much more. The number of users has grown from 60M users in 2008 to over 300M with the fastest growing demographic being people 35-55.500 “Tweets” every second. developed content on their blog that provided answers and guidance to Rails developers. 154 . Have your community create content. iTaggit. But they didn’t stop there. Social Media Marketing Facebook’s early success with college aged people has caused some people to see social networks as just a tool to hook up or find old friends.com is a good example of a company that reworked their forms to pull in more community generated content. See the previous section on blogging. Twitter has also enjoyed phenomenal growth growing 1. Yahoo and MySpace in total time spent online by Americans (6% of total time). Since Februrary 2009. Today more than 15 million users create 1.
she developed Faceconnector which pulls Facebook profile and friend information into salesforce. As an example consider the recent case where Facebook simultaneously broadcast a soccer match in Spain for the Spanish Facebook community. sales reps could get to know the person behind the name and title. Why? Because once one person commented and his social graph saw the comment (and started watching the game) and another friend commented and another. Think of doing the same thing with a telephone and you’ll begin to understand the potential of these social networks. Clara’s counsel27 for those thinking about using social networking in your marketing efforts: 27 The Facebook Era: Tap Online Social Networks to Build Better Products. Claire Shih 155 . With her friend Todd Perry’s help. The application of these social networks to sales and marketing is still in its infancy. Within 30 minutes of the game starting the video servers crashed. Now instead of anonymous cold calling. there were suddenly 100s of thousands of viewers. and even ask for warm introductions from mutual friends. Clara Shih attended the first Facebook developer conference in 2007.CLOUD Perhaps the best way to think about Facebook and Twitter is as a next generation telephone – and a very powerful telephone. and Sell More Stuff. Reach More People.com.
Use the social graph and knowledge about relationships across your audience to create a more personalized online community.MARKETING Use hyper targeting as an opportunity to test new audiences and see if your product can gain traction. and friends all paint a picture of who you are and help to establish your brand. product management. Think about using social networks to market yourself as an individual. 156 . You have internal experts on the product in customer support. Get Notorious This brings us to getting notorious. Your profile information. photos. quantity. sales. Prior to hyper targeting. but so too are your customers. it was often cost-prohibitive to do this in any systematic way. Not only are your people sources of information. Once upon a time the product marketing person interviewed the developers of the product. Customers of your product (the valued reference customers) that you metered out onto a conference call with a carefully selected sales person and prospect today can have their testimonials videoed and made available on YouTube. field service. and consulting. R&D. But there are many more sources of information. spent weeks writing up a data sheet. deciding the colors. and quality of the print that ultimately made it into a folder at an event at the Hyatt in San Francisco.
Anshu Sharma.” Reach out as an individual Name. and what you can contribute. generally "this is so cool!"). photo essays. Make me think: “Wow. in your third parties. and use those. we will be able to find the knowledge we need delivered the way we want it—in a language and context that is accessible to each of us. should become notorious. and Ed Herrmann provide some advice on getting notorious. or do Webinars or videos and communicate their expertise and more importantly their point of view. "best ever’s.CLOUD While the old world of low bandwidth. Charlie Wood. Use video . Blogging is personal. in your customers. think about whom in your company.Look at the first few pages. or speak. By bringing more contributors into your marketing cloud. expensive communication required that you needed to aggregate content in the Internet behind the veil of “the company” today we should be able to know what you think.but not an overproduced one. A few bloggers including Vinnie Mirchandani. what you believe. Encourage them to write. Be notorious . video. controversy. See what formats are popular. and phone number. 157 . No talking heads-show the product.Don't send a note from "your company. As you develop your marketing programs. title. (Top 10's. that's impressive!” Check out Digg . Limit it to 30 seconds.
and as the price point goes down. as we move closer to delivering these applications as a cloud service.MARKETING Educate & Select Sales and marketing have been critical components of traditional software companies and new software companies. we have figured out how to sell expensive items ($1M) that are not very precise (SAP Manufacturing) and 158 . consider the fact that. last Christmas. Figure 7. as they become more specialized. We’re not saying there weren’t a lot bought. we must re-invent the traditional account management model. just that they were not bought because of a sales person. Consider Figure 7. very few people were sold a plasma TV.5. the traditional human network that has powered sales for the last twenty-five years. Perhaps the greatest change is. As a technology industry.5 Selling Spectrum As you begin to tackle this problem.
We have also figured out how to sell low price (<$100). by the time they were ready to purchase. in the way they want it. With a low cost means of delivering notorious content. Selling may be replaced by education and selection. Perhaps it is no more obvious than in the art and science of marketing. We should take a lesson from the Plasma TV. You only have to look at Amazon or eBay to see how successful this model has been.000. select the right answer for themselves. had made their selection.CLOUD have grown large profitable businesses. Our challenge is how we effectively sell imprecise items that cost $10. Purchasing became a transaction. People will educate themselves on the good and bad of the solution. Perhaps this is what can happen in the future market for software. read what others thought about the TV and. Summary The Internet changes everything used to be a corporate tagline. talk to experts and other users and. precise items. you now have an ability to deliver personalized information to every member of the team that influences a purchasing decision—when they want it. 159 . they figured out the right size screen. in the end. The reason no sales person sold a TV is that most consumers of Plasma TVs did their research online.
whether they find you through search. In the end. no matter how simple we try to make the software. you still need marketing.MARKETING While communicating to people. 160 . the act of matching what a potential customer needs and what you have to offer remains the role of a quality marketing organization. or social networks. email.
of course. After about a year. Rudin.8 SALES While SaaS or cloud computing might be all the rage. “But this will cannibalize our existing sales. Early in 2002.com was winning more and more business. wasn’t sure if it was a good idea. but Siebel finally convinced him. he was ready to tackle the sales and distribution channel. Rudin was able to work out the product strategy and business model. was asked by Tom Siebel to lead the efforts for Siebel On Demand. and he scheduled a meeting with the head 161 . Finally. as Salesforce. Ken Rudin. who today is the CEO of LucidEra. There was a sense of urgency.” Sometimes it’s stated even more clearly. it doesn’t take too long until someone says.
For the traditional software company. Does it mean the comp plan will change? Is this new on-demand group going to compete with my sales force? How important is lead generation? In this chapter. the challenges will pertain to developing a new sales force in a world where the economics don’t bring you million-dollar deals that can fund the creation of a channel. but stay the f—k away from my accounts!” This chapter is dedicated to sales and distribution. “Ken. said. moving existing applications to delivery as a cloud service with an existing channel and product (Models Four and Model Five). the solutions to the challenges here will make or break any new business. Transforming Traditional Software Sales Every Model One software company worries about cannibalization when they consider a move to delivery of their 162 . at the conclusion. The VP listened politely to Rudin’s presentation and. In Model Six. But. More than with any other group. that’s an outstanding plan. you will need to figure out how to leverage your existing sales force. In Models Four and Five. we’ll address some of these issues and also let you hear from some successful sales and marketing executives.SALES of North American sales. your primary advantage is that you already have a sales channel. there are many challenges.
Unlike selling traditional software. It doesn't have to be this way. train the sales reps to find customer challenges that can be solved by having you provide the complete solution without letting the customer dissect the solution into its components. the existing sales force continues to sell the software as it always has. third-party software. Next. has first-hand experience in how to sell when you’re in Model Four. The only change is they have a new delivery option (one which they can be compensated for). who led sales for Oracle On Demand for seven years and today is Group Vice-President of JDA’s on demand business. In other words. organize the sales teams around current delivery capabilities. nothing changes. Ensure that the sales team is setting proper expectations with the customers and selling a solution that your company has the ability to deliver on today.. Whether that’s a perpetual or term license. Joe says. His first piece of advice is to make sure you find a team of sales professionals that have a mix of experience in selling both traditional software products and services. etc. up front or expense it over time? Joe King. Do you want to manage our software or do you want us to manage our software? Do you want to capitalize and pay for the software. If you adopt Model Four. “Don’t sell futures!” Finally.CLOUD software as a cloud service. it’s 163 . hardware.
Selling New Application Cloud Services For those of you building a Model Six business selling software as a service is in many ways no different than selling traditional software in Model One. managing an upgrade. you need to be armed with the evidence that when a software company delivers the service in a repetitive standardized way. so no longer can you fund the software sales by the $1M up-front license fee.000 (for the first year). What is different is the economics of the sales process. who will inevitably say: “I can do this” (because they have). or identifying performance problems than you as a single isolated island having to figure it out for yourself. In Model Six. the average selling price is going to be significantly under $100. but remember the customer is not buying servers and data centers separately from your complete solution. There still needs to be value in your software in solving a particular business problem. 164 . As a result. And when you get to the CIO or IT director. they will ultimately be better and cheaper at insuring security.SALES important to discuss the underlying infrastructure that supports the solution. the traditional sales person who manages an account and makes a good living sitting in a few accounts is unaffordable in the new world.
SpringCM. WebEx. is a big user of application cloud services.com. The 165 . Eloqua.CLOUD While that aspect is worse than our old world. some group of customers can try your product and then proceed to use it in small work groups.” the idea of scheduling custom demos is a thing of the past. Since the software is either “always deployed” or “ready to be used. Today he uses Salesforce. Joe Graves. Joe relayed a story of how different traditional software companies are from new Model Six companies. Stratus went with a Model Six solution and deployed the whole system in seven weeks—worldwide. Xactly. a $250M a year computer company. Ceridian. Halogen. A Model One software company offered to do a free six-week discovery process and scheduled a demo for eight weeks later. the good news is Model Six products are reasonably precise versus the large application footprint of traditional enterprise software. Remember. there are some things that are better. CIO at Stratus Computers. Now with adequate Web marketing and standard demo deployment.com and WebEx both can attribute their high growth and early success to having products that could be used simply and economically by small groups.” or “quickly configured. QuickArrow. and Postini. Salesforce.
with an average price per seat of around $70 per month.com has also had a few tricks up their sleeve. Salesforce. meaning that their average yearly contract is under $20. Webinars. High priority leads are responded to within 24 hours. And when you need volume. daily demos (scheduled and executed from India).000 in marketing per sales rep per year. A sales person can no longer depend on landing a few big whales to make quota. you can see they have perfected a sales engine. With an eight-to-one conversion ratio and a fifteen-day sales cycle. WebEx’s approach has been to spend nearly $100.000 per year.SALES bad news is that the average selling price is considerably lower in Model Six than in Model Four. This includes free trials. Salesforce.000. the next level within 72 hours. WebEx’s high-end customers average around $25. The point of both of these numbers is that an average deal size is nowhere near the average selling price of traditional software. and email campaigns. Every lead from this marketing is categorized into three buckets.000 per year with 50 percent of their customers having an average yearly contract of less than $1. Aaron Ross was Director of Corporate Sales with 166 . So from a company perspective you need volume.com averages about 20 seats per customer. you need a sales machine.
There just are not enough great sales reps to hire out there. Ross went on to say: “Give up Control.” This was possible. The best strategy is to embrace this. He started by saying something that might seem counter-intuitive: “The size of your sales team does not drive growth.” Historically. think about how much information and control over the 167 . In Ross’ opinion. a VP of Sales would drive growth by hiring more sales people.com from 2001 to 2006. Likewise. instead of obsessing over the number of sales people in your team. so helping your current team do more with less is as important as hiring. Instead. is what drives growth. who would work their patches to generate leads and close more business. obsess even more over your sales productivity. Vendors can’t control the flow of information. Today. We asked him what advice he would have for establishing high velocity sales. and instead. The Internet changes everything. the sales organization wanted “control over the sale.CLOUD Salesforce. Today. hiring more sales people is not the main engine of growth. generating more leads. because it was very challenging for customers to get unbiased information about vendors. prospects can find out as much as they want about you before they ever call you. that doesn't work. which sales people close.” In the past.
. They tend to ignore the first half of the process: lead generation and lead qualification. Most VPs of Sales focus too much on the second half of the sales process: sales deals in the pipeline and what can close. One way to fail at generating leads is to expect your own quota-carrying sales reps to do it. they’re terrible at it. and not creating a dedicated team that does nothing but outbound prospecting. and anything artificial irritates them. they become too busy to prospect anyway. the higher the quality and the larger the sales pipeline will be.” Buyers have seen all the sales tricks and programs.. the more investment sales put into both the quantity and quality of leads. So instead of “Always be closing.” focus on building a sales team that is constantly asking. How much can you educate the decision makers and influencers? Ross’ next piece of advice again might sound counterintuitive to old-school sales people: “Stop the ‘Always be closing’ mindset. Finally. 168 .SALES sale you can put into the hands of the prospect. Yet. “Are we a match?” You can't afford to waste much time (money) on prospects that aren’t a great fit. lead generation and lead qualification are as important as closing. Here are two specific examples of common mistakes: not hiring enough junior sales people to qualify inbound leads.making sales results easier. they hate doing it. and as soon as they get some pipeline.
When asked about the duration of renegotiation. The outsourcing (Model Three) business is still a growing business around the world. Hank Leingang.” With this degree of complexity. Since the earliest forms of selling software as a service were large outsourcing deals (Model Three). In Q1 2007. many contract issues for Models Four through Six carry with them some of this legacy. They published a paper providing advice to customers renegotiating outsourcing contracts. If you were to look at the contracts for those deals.CLOUD Contracts Contracts vary significantly from model to model. Forrester reported companies based in Europe. 85 percent of those surveyed indicated the restructuring process 169 . there is a cottage industry in providing advice to companies negotiating contracts. you might discover the same thing that Bechtel’s CIO. found when he plowed through its contract to outsource desktop support and network management to Electronic Data Systems: “It was three inches thick. and Africa (EMEA) signed 75 large outsourcing deals in the quarter—with a total deal value of almost €5. the Middle East. TPI is a leading global outsourcing advisory firm.7B.
Fifty-five percent finished renegotiations in less than six months. 170 . the subject of SLAs (Service Level Agreements) will come up. Service Level Agreements In almost all of the contracts from Models Three through Six. Furthermore. other vendors require a two-year commitment. take a look at the Yahoo terms of service or the WebEx contracts. some vendors choose to enforce a penalty against the total value of the contract if a customer wants to cancel the deal prematurely.com offer SLAs on contractual terms on a case-bycase basis.SALES required less than a year to complete. For examples. and 13 percent finished in less than three months. or a Tool to Increase Value? TPI Report. Typical Model Six terms allow customers to pay on a month-to-month basis. If you want to spend a couple of frustrating days. Binding SLAs to contracts can vary. January 2007. In Model Three. Companies like Salesforce. so contracts can be terminated with 30-days notice. the 28Restructuring Outsourcing Agreements: An Indication of Failure. contracts like these SLAs are heavily negotiated. In other cases. you can lock five experts in a room and try to define what uptime means and what penalties you should pay if the uptime is not met.28 At the other end of the contract spectrum is the online click wrap agreements. such as Blackbaud On Demand.
if they are writing a check to that customer. they point out. Oracle pioneered a different approach.” said Blackbaud’s CEO Marc Chardon. In either case. “We occasionally modify the terms slightly for customer’s specific needs. security. So the total financial incentive for Taleo to keep the system up and running all day and every day is enormous. “We're very strict on ourselves. After that. but it is a competitive agreement. problem. and performance management were 171 . as this agreement governs what we do operationally. the important point is that a user of an application wants the service to perform.9 percent uptime guarantee and a commitment on the specifics for data handling and server maintenance. chances are they are writing a lot of other checks.CLOUD contracts stipulate 99. There is a 99. so you should first focus on what service level your operations and development group are engineering to deliver. you can decide to what extent these metrics are embedded in a contract. As noted earlier. change. Although the financial penalty might seem minimal to the individual customer. simply called the “Nordstrom’s guarantee.9 percent uptime and are a standard part of the contract.” Taleo provides penalties in their contract if they don’t meet certain uptime standards.” Service levels in availability.
172 . no questions asked. and do that for planned and unplanned outages. The Nordstrom’s guarantee was an effort to separate the issue of penalties from a description of the service level metrics and objectives. less than a handful of rebates were paid out.9 percent. You should consider defining availability by total number of outage minutes per month. 99. and 99.99 percent… They all sound about the same. It will cause you to focus on how rapidly you recover. Change Management – Define how often upgrades to new releases will occur.7 percent. Writing these down and measuring them is key to improving the overall quality of the service. 99. Let’s highlight the major areas you should focus on. However. per quarter. Will you move all customers at once. they could request a rebate of 20 percent each month. In four years of offering the Nordstrom’s guarantee. if the customer was not satisfied with the service for any reason.5 percent. which is a much more important metric. per year.SALES published and reported. Security Management – Have you completed a SAS 70 audit? How frequently are backups taken? Where are backups stored? How fast can data be restored? Under normal circumstances or in the case where there is complete site failure because a disaster has occurred. or will you stage them over a three-month period? Availability Management – Many contracts call out percentages of availability (99. don’t they?). This begs the question of whether this refers to unplanned or planned outages.
Instead.” he said. Some will push you towards EDS or IBM Global Service agreements. points out the universal truth in effective sales compensation: You’re looking for sales people to respond to the metrics that you give them. For a service level that is reported on every transaction. “We try as much as possible to make the sales rep indifferent to selling an on-demand or on-premise version. Sales Compensation Marc Chardon. just look at the upper right-hand side of your Google search results when you search for “SaaS”. and if the solutions 173 . CEO of Blackbaud. but providing some reference implementation to benchmark on a release-to-release basis will help you provide performant apps. remember the customer wants the service to work.CLOUD Customer service management – When a customer has a question about your software (these could be defects or just usage). In the end. what level of service will you be providing? Performance Management – What response time should customers expect? How much disk space is included? How quickly should reports run? This will be a difficult area. You would be wise to separate the definitions of your service levels from the legal and contractual side. be proactive about the service levels you will provide and publish them to your customers. Become a student of WebEx’s and Salesforce. “If you create a level playing field in the sales compensation.com’s contracts and terms.
good at evaluating the shortest time necessary to get their commission. Create a transparent dispute resolution process. Keep your compensation plans straightforward. and consistently with the plan type and organizational style. sales reps should be.” When you look for expertise in sales compensation you’d have to consider the team at Callidus Software. and usually are. 174 . transparently. Many companies come up with plans with dozens of variables and multiple levels of intricate dependencies. Credit directly for sales compensation. The most effective plans credit the primary seller along with those directly connected to that seller in the chain of command. Report regularly.SALES are roughly as easy to sell. Analyze and change on a predictable schedule. Even if you are able to follow every piece of advice above. One good (transparent) report delivered to payees at the right frequency keeps the focus and motivation where it should be. errors and problems will happen. Make sure you have the data—and that it’s clean. They have some guidelines that are applicable across a number of our seven business models. The smartest and most successful companies are constantly evaluating their sales performance data and are not afraid to make changes to compensation plans.
But how can this be applied to higher ASP. Below is a diagram showing the typical execution of an instruction. another answer lies in being more efficient about how an instruction is executed. While turning up the clock speed is one answer. as a result seven instructions would take 35 ticks of the clock. again a by-product of selling a product for large upfront money versus driving revenue on a monthly or yearly basis. Nowhere is this more obvious than in the case of Amazon. 5 parts. less precise products? Here we can take a lesson out of the notebook of computer architecture. But over 10 years ago some smart guys figured out if you could separate instruction execution into 5 stages. While traditional sales has been on trying to know something about a customer you don’t have – for the first time companies can now focus on learning more about the customer they do have and based on that information personalize the offering using that knowledge. Computer architects have struggled with how to make computers faster and faster. each taking the same amount of time (1 tick of the clock) then instead of 35 ticks to get 7 instructions executed you could do it in 11 ticks.CLOUD Installed Base Sales Most of the focus on selling has been on getting the new customer. So with 175 . Years ago every instruction took 5 clock cycles to execute.
SALES the same clock speed the computer was in the limit five times faster.
Figure 8.1 Pipelining
So what does this have to do with sales? Our marketing & sales pipeline is no different only the clock ticks are not so fast. The conventional way of managing the pipeline is no different than the traditional way of instruction execution – we finish one deal, one instruction, before we start the next. But indeed the same principles can be applied, and were applied to sell a standardized Model Four service to 10,000 companies who already owned Oracle applications. The trick is to engineer each stage of the pipeline to last a fixed period of time (e.g., 2 weeks) and then move customers from one stage of the pipeline to the next. Then each stage could be optimized and specialized and over time sales transactions could be much more parallel than they are today. Anyone selling to a large installed base so reconsider how – and not just treat it the same as potential 176
CLOUD customers – where you have no idea who they area, nor what experience they’ve had with the product. Indirect Channels The last major generation of computing was called clientserver computing. Its rise was not only driven by the availability of low cost hardware (Dell, Compaq, etc.) and low cost software (Microsoft, Corel, etc.) but also by the creation of a new channel of distribution. Names like Ingram Micro, Tech Data and CDW, today all multi-billion dollar companies, provided a low cost indirect channel that matched the price of the technology products. This client-server indirect channel has been built on delivering “boxes and bodies” to implement and deliver the application. Unfortunately, whether you’re in Model Four, Model Five or Model Six, you are now in competition with these traditional channel players. In early 2006, I had the opportunity to spend a day with one of Microsoft’s largest resellers for its Great Plains Software. While the reseller saw the value of a Model Six business, they were as addicted to the “perpetual license drug” as the vendor. Allow me to explain. Today when they sell a $200,000 license, they get 35 percent of the sales price, or $70,000. With $70,000, they can afford to pay the sales
SALES rep to drive the sales cycle and then perhaps make more money by doing the implementation of the software to the specific and unique requirements of the customer. Consider the same scenario in subscription view. Now the $200,000 might be spread over four years. That’s $50,000 per year. Thirty-five percent of that number is now only $17,500—and the implementations are far more standard. Indirect channels have been important to the software business, so it’s no wonder people are trying to figure out what a next-generation channel will look like. Erin TenWolde and Darren Bibby of IDC published a research paper 29 in late 2007. Key highlights from their study were: There are still nascent partnering business models in the SaaS ecosystem. Based on interviews with SaaS providers, there is still a lot to learn and most of the activity is occurring on a trial-and-error basis. Traditional channel partners, particularly value-added resellers (VARs), have some potentially big challenges ahead, especially in terms of securing top-line revenue in resale scenarios. This will have implications on the valuations of VAR businesses, which traditionally have been valued based on a multiple of revenue. With many traditional IT challenges removed with SaaS, IDC believes those new solutions providers will emerge that are more business process oriented rather than
TenWolde, Erin and Bibby, Darren. The Emerging SaaS Channel. IDC Report #208547, September 2007.
CLOUD technology focused. Those partners that can develop discrete expertise in niche areas will be well positioned to take advantage of the vast SaaS opportunity. Axel Schultze, who founded Computer 2000, the largest reseller of PCs in Europe, also founded a Model Six company called Blueroads. He’s uniquely positioned to discuss what a next-generation channel might look like. Schultze remembers 1981, when IBM announced the PC, Compaq was founded, and Microsoft introduced BASIC. He saw the first three to five years of the PC industry focused on replacing existing midrange computers like IBM /34 or DEC PDP 11 with personal computers. This was a tough strategy and a cumbersome fight against established computer manufacturers, established software, established consulting processes and, most importantly, established sales channels. Can we learn from the PC industry development in the 80’s? What happened back then that led to the explosion of the PC industry and the enormous rise of companies like Compaq, IBM, Microsoft, Lotus, Ashton-Tate, and Intel? An interesting, almost unnoticed change happened: young startups entered the market and didn’t sell into the established businesses, but into a new market segment—companies below $50M in revenue. They started selling in companies who never even wanted a large 179
What is missing are the new channel companies.SALES midrange or mainframe computer.” Will history repeat itself? 180 . Axel boiled it down to a simple premise: “There is interesting software for a large variety of customers and industries. And along those lines. a channel emerged that helped sell and install those PCs and PC software for $1000—a price a mid-size systems integrator wouldn’t be bothered with.
This chapter focuses on the money – some of the key metrics that you’ll need to track in order to insure a long running profitable business.9 FINANCE You might have a killer application and a market that is rapidly growing. 181 . but if you don’t have money (and people) it will be hard to turn it into a reality. We’ll discuss monthly recurring revenue (MRR). churn. revenue recognition. the Magic Number and how much it takes to launch a new business.
This requires the deferral of 182 . the largest part of revenues stems from vendors’ license fees associated with software. If they were to sell that same system as software as a service. traditional (Model One) software companies have been concerned about experiencing a negative short-term impact on license revenue. In the traditional software business.000 per month for the next 10 years. VSOE is limited to the price charged by the vendor for each element when it is sold separately. Traditional software revenue accounting requires that the vendor’s fee be allocated to the various elements based on something called vendor-specific objective evidence (VSOE). A Model One company recognizes revenue from license fees when the software is shipped to the customer. but logged in accounting books differently under Model Six. The same dollar amount is spent on applications. they recognize the million dollars on the day they sell it and it goes into the revenue for that quarter. If a Model One company sells software for $1M. As a result.FINANCE Revenue Recognition Many traditional software companies are concerned about moving to Models Four through Six because of something called ‘revenue recognition’. they may get $20. assumes that they choose to move to Model Five with their existing license business versus working in Model Four. of course. This.
former head of finance and business operations for Oracle On Demand says. once again.CLOUD revenue until VSOE can be established for all elements in the arrangement or until all elements have been delivered. In addition. “For those pursuing Model Four. Contracts are yearly. recognition of revenue must be deferred if undelivered elements are essential to the functionality of any delivered elements. such as implementations or customizations. In these cases. but. can be treated the same way you have managed professional services contracts. however. one-time charges. the entire fee can be recognized ratably over the term of the customer support contract. You’ll also find out that your services will be much more specific than the terms you already have for product support. 183 . subject to renewal by your support renewals teams. some of the same contractual terms and sales methodologies can be used. Priscilla Morgan. This way. If customer support is the only undelivered element in the arrangement. the simplest way to think about providing software on demand is to treat the revenue the same as you have treated customer support.” In fact. this should be no different than how this is done in your traditional software business. you’ll have to recognize revenue based on milestones and the level of work that has been completed.
9 million ($50k * 78) of revenue over that year. Worse yet. should also be used by Model One companies to track their support revenues. [Note: 78 is simply the total of the revenue months during the year.2M in year 2. Furthermore – next year if it sells no new business revenue the company will still grow to $7. since in the last month the company was doing $600K in MRR. but now 12 months away under the $25k MRR bookings scenario. CEO of Zuora. MRR is a powerful idea but as such has both upside and downside. then the business is close to covering fixed operating expenses under the $50k MRR bookings scenario. assuming no 184 .+1].95 million.. which by the way. 12+11+10+. A measure used by many Model Six companies is MRR (Monthly Recurring Revenue). points out that you’re going to need the right metrics to run any Model Six business. if your fixed operating costs are $600k per month. And the company just missed its revenue number by $2 million.FINANCE Monthly Recurring Revenue (MRR) Tien Tzuo. Now the first year revenue is only $1. On the upside assume your company gets $50k of new MRR during your first twelve months of revenue generation. But what happens if the company does only $25k of MRR bookings.. The rule of 78 says the company will generate a total of $3.
CLOUD churn. if you could get a customer to change their payment terms and pay for the service a year in advance or better yet three years in advance it would do a lot to help your cash needs. Unfortunately. However. Traditional Model One businesses have been great since with typical software license being sold for an Average Selling Price of say $500.1 Power of Payment Terms Cost of Sales: When to Hire for More Sales As we’ve repeated Model Six companies don’t have the advantage of Model One companies. this is not exactly the case in a lower ASP. Which of course brings us to the subject of cash. Meaning you’ll need another $2M on cash/investment. which historically have 185 . Cash As Subrah Iyer commented. Figure 9.000 could bring you the cash you needed to hire more people or buy more computers. Model Six business model.
186 . Even when management understands the game plan and has the full support of its financial backers. which force the cost to be expensed upfront.” said Josh. it takes courage to plow ahead regardless.000-server cloud for its 5. license fee when a sale is completed. shown is Figure 9. But when is it the time to step on the gas? When is it the time to ramp your sales force? Josh and Omniture have been relying on a simple calculation. and processes almost a trillion transactions per quarter. To get a sense of the cost of service.000 customers. CEO of Omniture.2 that produces what they call a Magic Number. the service requires significant infrastructure investment. In 2005 Omniture’s negative free cash flow was in excess of $22M—more than its total annual revenue—and it had spiked higher at some points. it costs us more money that quarter—it costs us more cash that quarter” explained Josh James. “When we were really stepping on the gas in 2004 we were GAAP unprofitable. “It is a scary moment. The financial consequences look exceptionally dire when expressed according to GAAP accounting rules. “Every time we add an incremental customer. Moreover.” he said. Omniture operates a 15.FINANCE derived a large up front.
But there are many ways to calculate churn. or its opposite. According to the analysis any time the Magic Number is . For example. renewal. there’s probably something wrong with your business. Figure 9.3 shows the analysis for a group of companies.75 or more.CLOUD Figure 9. invest in more sales people and if the Magic Number is less than .2 Magic Number Calculations Figure 9. for any given period.3 Magic Numbers for Model Six Companies Churn: Cost of Keeping a Customer Another critical metric for recurring businesses is churn. what percent of the business 187 .5.
Not so in the recurring revenue world. at any time. Subscriptions are a living. collect payment. and every change to the subscription must be handled by all your 188 . the customer may choose to change the service. what percent of the business that is up for renewal actually renews? Financial Systems Many companies dramatically underestimate what it takes to run a Model Six business. In addition. In a Model One software company-you express interest in purchasing my products. and now want to add another 2 licenses. and now you want to add text messaging. I write up an order form. ship you the products. a renewal metric may be more appropriate. Or perhaps you subscribe to delivery of the New York Times. I can measure how much of my service you are using and compute your bill. Each month. Perhaps you started off with 10 licenses of an application. and the transaction is completed. such as a month. The first order is only the start of the relationship. For companies with longer-term contracts. For a given period.FINANCE at the start of the period is still there at the end of the period? The part that is lost is considered the churn. and you want to suspend delivery for 2 weeks while you are on vacation. send you an invoice. Perhaps you have purchased a cell phone plan. breathing representation of the relationship between you and your clients.
had other ideas.CLOUD back end systems from quoting. whether you buy or build must give you pricing and packaging flexibility.com. they wanted more features. “When we first started. The market. and we thought that would be the price forever. learned early on the importance of having the right pricing & packaging strategy in order to grow a subscription business. We quickly realized that a one-size-fits-all pricing model would never work. to billing. At Salesforce. For any Model Six company. At the other end of the spectrum. having the right billing and payment systems is important to growing and scaling the business. today CEO of Zuora. Any billing system. and stronger customer service. but they told us that $50 a person was too steep a price. Different companies had different needs. we thought the right strategy was to keep our pricing simple. and through to collections. Tien Tzuo. That's when we embarked on our 189 . and different price points. We priced our sales force automation (SFA) service at $50 per user per month. large companies like Autodesk told us they actually wanted to pay more -. Many tiny companies loved the idea of an on-demand service to manage their sales force. though. to order provisioning.but in return.
FINANCE packaging strategy that ultimately led to a Professional Edition at $65 per person per month, an Enterprise Edition at $125 per person per month, and a Group Edition at $995 per year for 5 users.” If you look at other subscription companies like Netflix and Zipcar, you see the same evolution in their pricing models. Netflix started off in 2000 with a simple model -- $19.95/month. Fast-forward almost a decade, and Netflix now has over 9 plans hitting multiple price points. Their most popular plan is $16.99/month, labeled as the 3-DVD-at-a-time plan. But subscribers new to Netflix can dip their toe in the water with the $4.99/month 1-DVD-at-a-time plan, and heavy users can upgrade all the way to the 8-DVD-at-a-time plan for a whopping $47.99/month Similar, Zipcar started off with a $50/year membership fee for their popular car sharing service. Today, Zipcar also has renamed the original plan as the "Occasional Driving Plan", and introduced 4 new price plans called "Extra Value Plans" for its heavy users. The basic lesson to learn here is that different customers have different needs. Customers want choice as to how they consume your services -- and how they pay – and the financial systems for service businesses need to reflect this degree of flexibility. 190
Financial Analysts As a new company, you’re going to hope that, one day; the financial analyst community will be talking about you. So what are they going to be interested in? How do they evaluate investments for the public markets? Laura Lederman, a William Blair & Co. financial analyst who focuses on new software companies, sees three important evaluation criteria. The first thing she looks at is total available market. “It’s the most important factor. The larger the market, the better the investment is likely to be.” Number two on her list is the quality of management team. From her perspective, it’s “one of the reasons Salesforce.com, Vocus, and Concur have all done so much better than other players in the market.” And, finally, her third criterion is to evaluate the level of competition: the more competitive the market, typically the more difficult the investment. Venture Capital If you were a student of Salesforce.com and you’d know that it took $60M+ in capital to get the company to an IPO. This is also the same type of number in Webex’s case. Of course the money was well spent since particularly in the later stage
FINANCE investments there was a direct correlation between investment in sales and revenue. Again, like WebEx, CRM took about six years to reach $100M in revenue. Students of traditional software companies know most of them struggle to get to $50M, and on a much slower growth curve. It is no wonder that both WebEx and Salesforce.com have high valuations relative to sales and earnings.
Figure 9.4 Salesforce.com P&L
Some of you reading this are starting up new companies and contemplating being “like Mark”. Ann Winblad began her career as a systems programmer, and in 1976, she co-founded Open Systems, Inc., an accounting software company, with a $500 investment. In 1998, she co-founded Hummer Winblad as the first venture capital firm to invest exclusively in software. Their first investment in a Model Six company was Employease in 1998. In a recent lecture at Stanford, Winblad discussed her 192
CLOUD view of software as a service, and identified a number of advantages. Having forward predictability, being independent of capital or IT budgets, being able to address unserved markets, and always “serving” the customer are all characteristics Winblad sees as being better. Her key characteristics of a Model Six company are: Can be sold and delivered over the Web (via browser) Single instance, multi-tenant architecture Can be sold to small and medium size businesses (SMBs) as well as enterprises Requires little customization Requires low professional services Pricing model is subscription based (by time period, user or transactions)
Summary Finance and business operations for a software product being delivered as an on-demand service are very different than what we’re used to in the traditional software model. But if the sales, operations, and R&D can come together under a unified business model, the growth rates and valuations can be astonishing.
If you’re a new software company. software as a service.10 HUMAN RESOURCES Software is a people business. or software on demand it makes no difference. we’ll discuss some of the people challenges: finding or teaching the right skills. finding the right people and organizing them 194 . and insuring you have the right people in the right jobs. Web services. establishing the right organizations. In this chapter. you’ll face the Innovator’s Dilemma. If you’re an existing software company. Whether it’s cloud computing. The challenge of growing a new business is difficult and getting the right team and the right model will be key.
Right Stage For many of us. Geoffrey Moore’s landmark book.) and performance management (Successfactors. etc.CLOUD appropriately will be a constant challenge. Kenexa. Right People. as you can see in the year 2001.). As a result much of the HR application cloud services have focused around recruiting (Taleo. Crossing the Chasm. but also to hire people. etc. In this and in subsequent books. not only to hire people. But.1 how the company’s growth was tied to it’s ability not only to raise money. Moore describes the seven major stages of a successful venture: 195 . and lots of people. best describes the lifecycle of a high tech company. all of this begins with people. Economics If we again use Webex as a case study of a successful company you can see in Figure 10. Figure 10.1 Hiring ramp at Webex And by the way. but also to fire people.
Of course. it’s important to realize that people need to go through these stages as well. 196 . when the earlymarket’s interest wanes but the mainstream market is still not comfortable with the immaturity of the solutions available Bowling Alley – a period of niche-based adoption in advance of the general marketplace. when the base infrastructure has been deployed and the goal becomes to flesh out its potential Assimilation – the technology loses its discrete identity. Names like Jobs. and Gates are the clear exceptions to the rule. and is supplanted by a new technology paradigm While successful companies need to go through these stages. driven by compelling customer needs and the willingness of vendors to craft niche-specific whole products Tornado – a period of mass-market adoption.HUMAN RESOURCES Early Market – A time of great excitement when customers are technology enthusiasts and visionaries looking to be first to get on board with the new paradigm Chasm – A time of great despair. when the general marketplace switches over to the new infrastructure paradigm Main Street – a period of after-market development. Ellison. moves into decline. We often see that the CEO of a company at the early market stage is not the CEO of the company when it reaches Main Street. there are the rare exceptions of the individuals with the gift of being able to adapt. learn and change as they cross through each of these stages.
197 . The mistake companies often make is putting an operationally excellent leader in place before they’ve crossed the chasm. instead it should mean Chief Experiment Officer. the reality is. learn from them. right-turns and U-turns along the way. delivering releases on time.CLOUD But for the rest of us. co-author of The Gorilla Game. there were many left-turns. there does come the day that experimentation and cheerleading need to be balanced with operational excellence. recently said. the title CEO does not mean Chief Executive Officer. it might look like some companies took a straight line from inception to Fortune 500. Of course. “As a company is trying to cross the chasm. Making the quarterly sales numbers. in hindsight.” While. what are the characteristics that are most important in each of the stages? Tom Kippola. and sticking to a budget are all requirements for any successful business. most would have failed early in their lifecycle. or forgetting to get their operational house in order as they’re headed down to Main Street. that’s the ticket. Without the ability to quickly run experiments. and then press on. Getting the right people at the right stage.
this is something we never had to do in traditional software companies. but having the right people at all of the skill positions is the key to success. By doing so. People who have had to optimize performance or availability of software implementations in the field will have been exposed to some of the key processes and challenges involved with delivering Web applications. Delivering cloud services requires operational people. Lynn Reedy recommends you have the VP of R&D work for the VP of Operations. you’re going to need what he calls next generation DBAs. it forces conflicts between the race for new features and the ability to manage change in a reliable way. operations people who understand both software development and software delivery.HUMAN RESOURCES Right People As with any team. So. your engineering group needs to both have a “high tolerance for change” as well as be “accurate and careful programmers. where are you going to find these skilled people? One place to look is in the traditional software product support organizations. development people that are different from what we’ve seen in the traditional software world. having a good coach and quarterback is essential.” Furthermore. Clearly. or vice versa. Often times. As Evan Goldberg pointed out. these individuals are leading premium support services and are located 198 .
So it should be no surprise that when he invested in and later became CEO of Zappos.g. What some people don’t know is he sold it because he stopped wanting to come into work. to Microsoft for $265M. The challenge for these people is that their tendency will be to customize a solution for each customer installation. he never focused on the company culture. was recruited out of Wal-Mart. Internet advertiser LinkExchange. Many of these people have run large-scale operations. who recently retired from Amazon and was their Senior Vice President of Operations and CIO. the common values shared by everyone in a group. You may also discover some of the greatest expertise to be individuals who have been in end-user operations where they have had to manage applications for a large internal population (e. Rick Dalzell. the leading online shoe retailer he made culture a cornerstone of the company. Culture starts from the hiring 199 . the people who ran American Airlines SABRE).CLOUD at or near a customer site. 24-year-old Tony Hsieh sold his company. You’ll have to find the people that can generalize the lessons learned in the field and apply them in a standard. uniform way. Culture In 1998.. While LinkExchange had been a successful company.
is designed to ensure employees are there for the right reasons. Be humble 200 .HUMAN RESOURCES process. Build a positive team and family spirit 8. Create fun and a little weirdness 4. where they ask. creative. which started at $100. “Which superhero would you want to be?” and continues thru their four weeks of training where every employee (even VPs) answers phones in the call center and ships shoes out of their distribution facility in Kentucky. Build open and honest relationships with communication 7. Embrace and drive change 3. Be adventurous. Pursue growth and learning 6. and open-minded 5. Do more with less 9. they are offered $2. In 2008 less than 1% of the trainees accept what the company calls "the offer. This "quit now" bonus." Zappos. After the training.com also publishes a "Culture Book" every year. Deliver WOW through service 2. Be passionate and determined 10. It’s several hundred pages of employees from all across the company describing what the company culture means to them. The company itself maintains 10 core values: 1.000 to leave the company—no questions asked.
2 shows you the transformation in revenue terms. You can see the 201 . a great culture translates into great service.com. when the hotel had closed room service. "We want people who are passionate about what Zappos is about ." For Zappos. Scrape refers to an “all-in” approach to moving from Model One to Model Six. including finding out a place to get food. "Our number one focus is our company culture. The Scrape strategy is best illustrated by Concur. Buy New means to acquire companies with Model Six business models and Remodel refers to adopting a Model Four or Model Five business in parallel with your traditional Model One business. Buy New and Remodel. I don't care if they're passionate about shoes." This passion has translated to hundreds of stories of how Zappos employees have delivered unexpected service. You have three fundamental organizational approaches. Figure 10. We’ll call these Scrape.CLOUD Tony says. Scrape For those that are attempting to transform existing Model One software companies there are many unique challenges. Concur is a unique case study—a company that made the transition from a traditional license model to software as a service: from Model One to Model Six as a publicly traded company.service.
202 . maybe we are entering another window of opportunity. CEO Steve Singh says Concur was able to do this because the 2001 Internet Bubble burst gave them an environment where no one wanted to own technology stocks. Of course. along with the growth of the subscription line. Figure 10.HUMAN RESOURCES license revenue line marching to zero. but the transition will not be easy. you’d see the price crashing below $1 a share. so this is not a change that’s easy to make. Not something for the faint of heart. If you were to look at the stock price for Concur when CEO Steve Singh made the announcement that they would shift business models. During the shift. Concur went from 700 employees to 300 and replaced the majority of the executive team.2 Concur P&L The Scrape strategy can work. with the global meltdown of 2008.
Those of you considering the acquisition strategy might consider the story of UpShot as told by founder Keith Raffel. or make the same step in sales or marketing.com. Once acquired you’ll need to be cautious of the “white corpuscles”. as anyone traveling through the San Francisco airport would have seen. having just released his second novel Smasher. In this strategy you’ll be best served by purchasing companies with products in adjacent markets. Perhaps the most famous example is Siebel’s acquisition of UpShot. or in with products that sell to customers significantly smaller than your current customer base. which will organizationally seek to envelop the foreign group and in time destroy it. These days. In the late 90s UpShot was in head-to-head competition with Salesforce. Consider making their VP of Operations responsible for operations of the entire company. Give them the opportunity to teach and share their experiences. Raffel has become an author of a different kind. Your challenge will be to leverage the knowledge of the people in development and delivery of the applications as well as in the new techniques for marketing and sales.30 203 .CLOUD Buy New Buying a Model Six company is another strategy a Model One company can adopt. a popular mystery set in Palo Alto.
Raffel started by finding what he calls “a brilliant engineer. the light bulb went on. he would point to all the deals that could be traced to one campaign or another. Midnight Ink. Not only that. The salespeople would then pipe up and claim that they already knew about any prospect the marketing team uncovered. Raffel was working at a start-up where there was no good way to send leads out to the field sales team. 2008. Raffel took a leave of absence and started working on a prototype in 1995. So he built a team that included Kris Olson to lead marketing and Bob Schulman as head of engineering. So Raffel came up with a way to distribute leads and send them out to the field using email and an electronic bulletin board (remember them?). As Olson said. “HP might have been founded in a garage. who was between gigs” to build a prototype. Keith. 204 . and founded UpShot in 1996. He showed the prototype to ten companies.” Raffel tells a story from the early days and gives you a glimpse into the role of 30 Raffel. When Keith saw the first Netscape browser in 1994. but when the CEO asked him how effective the marketing programs were. Smasher. Their aim was to make traditional CRM tools more accessible and affordable by using the Web.HUMAN RESOURCES In the early 1990s. and nine said they would buy it. but UpShot was founded over one. and proceeded to rent space above a Jaguar dealer in Redwood City.
So. and HP. which was not as fully featured as UpShot. as we know. Xerox. From that point on. is recognized over time and therefore. in 2003. Revenue for the UpShot product. But ultimately they needed more money to fuel the sales and marketing engine (remember what we talked about in the last chapter). bought some Spackle. made 205 .” UpShot became the first CRM software delivered as a service in August 1999. They signed up Fortune 500 companies like Johnson & Johnson. And finally.CLOUD a start-up CEO. “A key engineer came to me one day and said that the paint fumes from below were leaking into his office. More momentum was lost. The decision to accommodate them. I went to the hardware store. momentum slowed. Siebel salespeople received their commissions stretched out over time. Siebel was ready to launch an internal Model Six product. and patched the walls.com was founded. In addition. Siebel went with what they had developed internally. at the time of the acquisition. unfortunately. It took a year to fix this problem. they sold Upshot to Siebel. Nevertheless. about the time Salesforce. a big New York investment bank wanted to purchase a huge number of seats of the Siebel Model Six offering and asked for new features. unfortunately.
This brings us to sales. who not only resell your software. As Raffel says. Model One companies have the opportunity to create Model Four or Five businesses to run in parallel with their traditional business. These teams will say a standardized Model Four or Model Five service offering is too restrictive and worse yet will often block access to the customer. everything changed again when Siebel was purchased by Oracle in 2006. First. and still more momentum was lost. “That chapter is being written by others. took them even further off course. Your challenge will be to find was at worse to neutralize them.” Remodel Finally. While things improved gradually. 206 .HUMAN RESOURCES against the advice of the UpShot team. Finally. By the way. So it goes in Silicon Valley. which will threaten them even more. these new services will not endear you to any of your channel partners. at best to create new opportunities to package your service as part of a larger offering. let’s focus on the organizational challenges you’ll have. a well constructed Model Four service will be lower cost. but also provide a box and a body. While we’ve discussed the advantages of doing this. there will be conflict on the delivery side with any premium support offerings or professional services offerings your company is providing.
How? In a meeting with the mining company CIO we said. Oracle did not look to have any advantage. whether from SAP or Oracle will cost you $31M: $1M to purchase the software and $30M to manage the software. and Alberto Chacin. Probably one of the best stories from the Oracle On Demand experience was competing head to head with SAP for an enterprise application sale to the largest mining company in Latin America.” The CIO agreed. “In the end. EVP of Latin America. “What have you budgeted to manage the application?” We were guessing it was about $4M a year. “In that case.CLOUD Your biggest advantage in the Remodel strategy is that you can leverage the existing sales force. The CIO answered $6M per year. VP for Oracle On Demand in Latin America. based on the rule of thumb that the cost to manage the software is four times the purchase price. an SAP or Oracle application purchase price will be nearly the same. An application sales person can either double the size of the deal (application license plus first year of the service). devised a strategy that won the business. you can buy the 207 . But Luis Meisler. or competitively out position other traditional software providers. over five years the cost of this application. probably somewhere near a million dollars. as SAP was both stronger in Latin America and stronger in mining as a vertical market. So. So we said.
is part of a growing number of MMORPGs (Massively Multi-player Online Role Playing Games). World of Warcraft. and better than doing it the old-fashioned way. you’ll have to create an ondemand sales overlay team and focus on delivering a lot of information about how this solution is simpler. So you can see. there is a third alternative: let Oracle manage the software for $15M.HUMAN RESOURCES software from SAP and manage it yourself or you can buy the software from Oracle and manage it yourself. you will quickly bring them into alignment with your goals. cheaper. you’ll be ready to ‘cross the chasm’. Once you have that core group of reference customers. World of Work So how much will our work lives change in the future? What will be the nature of work? Here there are lessons to be learned from the world of online gaming. However.” The Oracle sales person assigned to the mining company not only won the business from SAP but also received a significantly higher compensation. an elaborate fantasy computer game. once your application sales force is compensated for selling On Demand. at any moment 208 . given that the deal included the license as well as the first year of the services. In either case it will be $31M. Organizationally. With over seven million subscribers.
Sounds like the modern World of Work. there are hundreds of thousands. The company has pushed outsourcing of component parts to new levels. Some characters have the ability to kill. if not a million.CLOUD in time. doesn’t it? So. people simultaneously playing the game. And other characters can heal. the vast majority are working with other people—people they know. Consider the latest Boeing aircraft. in Beijing. some young. some old. In the 787. outside suppliers are responsible for about 70 percent of the aircraft parts. What are they doing? While some are merely spectators. but not heal. versus a previous mark of 50 percent. the 787 Dreamliner. people they don’t. in London—all to achieve an objective. These suppliers span the globe as shown below. Our business world needs to extend these fundamental ideas in software that brings information and people into a network. but cannot slay. how is it that World of Warcraft accomplishes something that we find so difficult in the world of work? One of the keys to the success of World of Warcraft is the idea that an individual's skills are known and non-overlapping. 209 .
210 . Summary Early in 2007. Leighton Read: Games at Work: How Games and Virtual Worlds Are Changing the Way People Work and Businesses Compete. Abhijit Dubey of McKinsey & Co. because it’s the best time for Asia. Europe. If you want to read an entire book on the implications of games check out the new book31 by Byron Reeves and J. Dubey and Dilip Wagle. and North America to talk. a 31 Byron Reeves and J. like the great David Packard taught a generation of HP managers to do. Business managers can no longer ‘manage by walking around’. Leighton Read. led a team that surveyed CIOs regarding the SaaS model.HUMAN RESOURCES Figure 10.3 The World is Flat The world might be flat. Today we’re all doing conference calls at 4:00 in the afternoon. They learned that the proportion of CIOs considering adopting application cloud services in the coming year has grown from 38 percent the previous year to 61 percent in 2007. but our software isn’t.
” We could not agree more. but perhaps the best quote is: “And finally.CLOUD partner at McKinsey’s Seattle office.” There are many interesting comments in the report. software executives who continue to put it off risk being left behind. have published a report entitled “Delivering Software as a Service. they’ll have to build the management processes and organizational structures to manage two distinct but potentially mutually cannibalizing businesses (traditional software and software as a service) with different business models and requiring remarkably different sets of capabilities. 211 . Although this challenge is formidable.
and you’ll repeat some of the campfire stories. following mainframes and client-server then we are indeed at the beginning of another generation of software as revolutionary as Excel. Word. Hopefully. you’ve found it enlightening and entertaining. Powerpoint. If. 212 . this is the third wave of computing. as some people believe.11 BEGINNING OF SOFTWARE Congratulations on making it to the end of the book. SAP Financial applications and Oracle databases were in the last generation.
and he called me again and said he’d made the decision and now that he was well on his way. and you’re starting to think about how information and community will change your business in the future. the CEO of a company that builds sales compensation software in the traditional model asked me if he should deliver his software as a service. He said. he asked me what he should think about next. most of my customers are starting to ask me—what is the best sales comp plan?” 213 . I told him all of the good reasons he should consider doing it. Time passed. you have many choices. or do three of your colleagues leave and start a new venture using your specialized expertise? For those of you already in a Model Six business. Do you attempt to build a Model Four business? Do you acquire a Model Six business. For those of you in the traditional software business model. A few years ago.CLOUD This software can take advantage of 1000s of computers. I told him it has to become more about the information and less about the software. near infinite storage and a network of mobile eyes and ears that number in the billions. Of course. “Interesting. perhaps the book has given you a better understanding of the challenges your fellow team members face.
We already have pointed out that consumer Internet applications are all content rich. the top 10 places to stay in Tahiti. Perhaps this is why few of us see Amazon. but here the customers are asking for something even more valuable: knowledge. by geography? What if an ondemand CRM software vendor were to analyze all of the configured workflows and identify patterns of sales processes with the shortest sales closing periods? Again. Taleo’s systems have seen millions of resumes.S. All of you who are running software as a cloud service are sitting on valuable business knowledge. because what we see when we when we use their applications is the information: the Pez dispenser. which airlines. the best seller. what VP of Sales would not pay to know what sales processes are the most efficient in a particular industry or geography? Few people may 214 . and what times of the year travel is happening is far more valuable than the transactional efficiency afforded by delivering expense management as a service. The information about what hotels. information. Concur today processes over 10 percent of the expense reports in the U. What is the value of knowing where there is a deficit in skills. eBay or Google as software companies.THE BEGINNING OF SOFTWARE Now most of us in the software business are used to being asked for more features and functions.
We’re much closer to the Beginning of Software.” We hope this book has given you some insights into how to think about the future of your business. Software is far from a mature industry. Of course. the United States’ government contracts with Visa and MasterCard to understand aggregated data of how much each of us. but to assess the overall health of the economy. but hopefully you get the point. Why isn’t this the case for business software? We could go on and on with new companies and ideas. Publication and resale of identifiable private data obviously violates legal regulations and privacy laws. you’re contributing to their overall knowledge of consumer interests with every click. the value of the information far outweighs the value of the credit card transaction processing. Kansas.CLOUD realize this. such usage of customer data remains a controversial topic. But. what rules apply to aggregated information? When you log on to Amazon. spends. as many will be nervous about their trade secrets being published as best practices. Again. whether you’re part of a large software company or three people with a great idea in Olathe. or what some call the “Golden Age of Software. as a consumer. 215 .
15–17 traditional (Model One). 177–80 Chardon. 187 CMM (Capability Maturity Model). 169 contractual service levels. 29 Bruck. 17. 119–20. 17 contracts. 96–98. Ed. 8 Ahuja. Localization and Integration (CEMLI). Vivek. 115. 179 Blum. 207 change management.INDEX Acquisition strategy to transition from Model One. Modification. 132 Callidus Software. 106 applications frequency of change. 9–14 hybrid+ (Model Five). Chris. 98 Capossela. 128–30. 16. 113 Brooks’ Law. 25 carbon emissions. Marc. Marc. Fred. 171–72 216 . Chris. Extension. 29 Amazon. 65 footprint. 17–22 open source (Model Two). 92 usage spectrum. 47 Benioff. 98 Computer 2000. and Integration). 30 Bootstrapping Your Business: Start and Grow a Successful Company with Almost No Money (Gianforte). 15 Capability Maturity Model (CMM). 7–9 Software as a Service (Model Six). Gloria. Localization. Modification. 40–42 consumer Internet applications. 91 SAP financial. 97 Brown. 172 channels alternate. 141 business models hybrid (Model Four). 203 ADP. 201. Boyd. 11. 117 central application logging (CAL). 108 CEMLI (Configuration. 214 Configuration. 172 management at eBay. 130. 90–91 availability management. 179 Concur. 14–15 Internet (Model Seven). 28–30. 116–20 CEMLI framework. 177–80 indirect. Michael. 61 Barrett. 214 companies. Extension. 35–43 Blueroads. 3–5 CAL (central application logging). 130 backup power generators. 169–70 negotiating guidelines. 120 Apex. 91–92 weight.com. Alberto. 173 churn. 139 Beasly. 116–20 Constant Contact. 132 Chacin. 5–7 outsourcing (Model Three). 46 Brooks.
Michael. Tony. 93–94 DealerTrack. 192 IBM. 38–40. 33–34. The (Chou). and the World (Koomey). 61–66 power consumption. 198 Goldberg. 102 Iyar. Bill. 106 Ford. 191 finding people. 65 financial evaluation criteria. 131 EDS. 109–11 Facebook Era. 177–80 Dot Dead (Raffel). 203 Dubey. 30. corporate. Guido. 34 Goodman. Greg. 124 Harris. 112 Haig. 46–48 Gibbs. process. 197 Graves. 194 internal security threats. 5 Global Services. 199–201 Cost of Power Disturbances to Industrial and Digital Economy Companies. 103–4 App Engine. 35–36 Danvill Group. 210 eBay. 6. 199–201 Dalgaard. 206–7 ERP II: best practices for successfully implementing an ERP upgrade (ACM). cost of. 65 evaluation criteria. Bruce. 7 electrical power backup. 61–66 consumption. The (Gates). 61 Ellison. Ken. 51–54 deep Web. 199 Hummer Winblad. The (EPRI). financial. Kippola). 65 database architecture. Josh. 50 Force. Cooke). Pat.S. 177–80 Infosys. 129 Estimating Total Power Consumption by Servers in the U. Joe. 191 Facebook. 112 Gates. 178 End of Software. 36 Gregoire. 115. 30 free software movement. 12 Haarmans. Don. 186 217 . against relying on venture capital. The (TenWolde. 61–66. 152 Hilton. 198–99 Flock IT. 103 Gluecode Software. 94. Subrah. 17. 103–4 Bigtable. 17. 5 Goldberg. Abhijit. 8 indirect channels. 61–66 power consumption. 30–31. 141 Internet Tidal Wave. Jay. 129 ERP Trends (Peterson. Michael. 165 Greenstein. 61 Crossing the Chasm (Moore). 104 Gorilla Game. 155 facilities. 195 culture. 130 software upgrades. Kevin.com. 47 Hatz. 5 funding. 34 Hilson. 43 Emerging SaaS Channel. Evan. 142–43 Delivering Software as a Service (Dubey. 211 distribution channels. 120–22. Lars. 7. 65 outages. 102 Gianforte. Dilip). 119 grid computers. Bibby). Larry. Bill. 40–42 Google. 61–66. data center power. 46 Garrehy. viii Entwined strategy to transition from Model One. Johnson.CLOUD corporate culture. 61–66. Gelman. The (Moore. 17–22. Gail. 130–33 availability management. Randy. 5 J ames. Scott. 8 Innovator’s Dilemma. 119–20 Hsieh. The (Shih). 112 data center facilities power.
144 Linux. Courtney. strategy to transition from Model One. 9–14 Model One. Priscilla. 204 Omniture. Internet. 10. 201–2 Knol. Geoffrey. 186 Magner. 9–12. 116 Entwined strategy example. Laura. Christine. 3 Oracle On Demand configuration. China. 144 marketing cost of. 12 OSI. 30–31 Netsuite. 142 traditional software business model. 183 Morin. John. 15. 163 Kippola. 109 Morrell Bob. 52 Olson. 3 Koomey. 184 Moore. 30–33 Kenexa. Outsourcing. 91. Udi. 8 Ozzie. 177 channels. 145 Oracle. 144 Konary. 41 MMORPG (Massively Multi-player Online Role Playing Games). Brenda. 197 Knife Switch. Kris. 120. 6 Karsan. 30–31. 33 outsourcing Brazil. Mark. 65 Leadley. 118 Manber. Rudy. 122 No Silver Bullet: Essence and Accidents of Software Engineering (Brooks). 17–22 Model Six. 186 Open Source Initiative (OSI). Luis. 117 support. Zack. 111–13. 28. 37 Lervick. 5–7 Monthly Recurring Revenue (MRR). 107 MySQL. Hybrid+. Open Source. Dave. 190 NetLedger. 30 LucidEra. 12 Lipscomb. 169 Lentz. Joe.INDEX JasperSoft. 117 applications. 207 Service Level Agreements. 5–7 Openwater. 3–5 Model Seven. 191 Leingang. 30–31 Netflix. 38–40. 97 Nordstrom’s guarantee. reasons for adding software. 208 Model Five. 15–17 Model Three. 14–15 Model Four. Martin. 152 Nelson. Tom. 16 Miller. 195 Morgan. Russia. 10–11 upgrades. 9 India. 102 218 . Bill. Hybrid. 5 open source software. 161 Magic Number. Fred. Hank. 116 customization. 171–72 Nyirjesy Bragale. 29 Meisler. 36 Lederman. Jonathan. Bob. Eastern Europe. 111 Nelson. Zach. 147–49 search optimization. Software as a Service. 30–33 King. 7–9 Model Two. 15. 96 Nazir Siara. types of calls. Amy. 17 investment in. 208 McCoy. 145–46 Openwater Networks. 6 Mythical Man Month (Brooks). Dave. 6. Ray. 38 O’Neil. See Open Source Initiative Ouellet. 153–54 Massively Multi-player Online Role Playing Games (MMORPG). 207 Microsoft. Traditional.
61 problem management. 102–15. 171–72 objectives. 155 SI (system integrators). Clara. or a Tool to Increase Value? (TPI). 182–85 support. 191 SAP. 158 Salesforce. 3 SAS 70 (Statement on Auditing Standards No. 10–11 Service Science. 129. 177–80 Restructuring Outsourcing Agreements: An Indication of Failure. 6 Rocha. 170–73 contractual service levels. 133. 116 Riskonnect. 3 testing. 91 applications. See Service Level Agreements social networking. 92 traditional software business model. Rick. 202 SLA. Katy. x Shih. See software:Quality Assurance Raffel. Aaron. 65 power generators. financial. 139 threats. 139 databases. Axel. 56 seven stages of success. 9 Seven business models. 204 Schultze. 70). 141–42. 195–96 Seven Vices or Seven Virtues (Chou). 35–43. 136–37 Perry. 168 lead qualification. 46–48 Risk Management Solutions. 205–6 Singh. 10. Todd.CLOUD Packard. 37 SaaS. 154–57 software cost of. 33 Red Hat. 167–68 Roth. Lynn. 17 lead generation. 172–73 Oracle On Demand. 173 programmers. Ken. 30 power consumption. number of. 141 Security Threats from Within (Bruck). backup. 177–80 Siebel. 38 Phillips. 172–73 Nordstrom’s guarantee. 170 revenue recognition. 179 search optimization. 14. 171–72 metrics. 49 QA. 203 recruiting. 174 cost of. John. 130. 141 Service Level Agreements (SLA). 153 Rudin. 165–66 profit and loss. 167. 173 Software as a Service. 167 size of teams. 16. precision vs.com. 16. 122 support fee. 6 Reedy. Michael. 28–30. David. 102–15. 139 Schulman. Steve. 198–99 Recruitsoft. 61 power outages. 173 compensation guidelines. 161 Rudman. 136–37 performance management. cost of. 210 performance architecting for. 198 resellers. 107 Roberts. 171. 172 Mexico treasury secretary example. Bob. 155 Pestana. 167 spectrum. 145 Ross. Keith. 121 219 . 136–37 management. 207 Quality Assurance (QA). 105–9. 139. John. Everette. 183 RightNow Technologies. 141 management. 16. 140 standards. See Software as a Service sales compensation. 168 productivity. 153–54 security Care Rehab example. price. 25–28. internal. 93 internal threats.
91–92 value added resellers (VAR). 206–7 Knife Switch. 95 Statement on Auditing Standards No. Tien. 113 stages of success. 3–5 sales and marketing. Jim. seven stages. 93–94 Tetu. 136–37 software companies. 158 support. 203 Entwined. 214 tenancy. 70 (SAS 70). 9 SPS Commerce. Louis. 15 success. 29 challenges. 183 services. Model One. 195–96 Successfactors. 198–99 revenue recognition. 48–51 traditional. 10–11 services. 30 Stretch. Leslie. 34 growth. 204–5 usage spectrum. Error! Not a valid bookmark in entry on page 83 support call types. 16. 182–85 specialization. 184.single vs. 33–34. 177–80 VAR (value added resellers). David. 6 Sun Microsystems. 169–70 contracts. 49 specialization. 91 transitioning from Model One. 6 revenue recognition. Acquisition. 128–30 upgrading. 29 challenges of. 201–2 software programmers. 116–20 performance. 193 configuring. 131 Software as a Service (SaaS) business model. Knife Switch. 116–20 customizing. 3–5 traditional software companies. process at eBay. Marian. 6 upgrades. 34 growth. 139 Stover. 169 financial evaluation criteria. 192 Model One. 91 transitioning from Model One Acquisition. 131 UpShot. 3–5 sales and marketing. 119. 128–30 process at eBay. multi. costs and challenges. 177–80 Szefler. 33 Thoma. Entwined. 108 standardization. 206–7 from Model One. 35–36 SugarCRM. 177–80 220 . 3 monetizing. 6 recruiting. 116 Taleo. 4–5 surface Web. 203 from Model One. Model Four. 206–7 fee. Christoph. 6. 56 contracts. 201–2 Tzuo. 95 Spohrer. 48–51. 141 system integrators (SI). 195–96 business models. 34 traditional software business model. seven. 142–43 Survey Reveals Scandal of Snooping IT Staff (Cyber-Ark Software). Chuck. 193 open source. negotiating guidelines. 191 key characteristics of SaaS companies. 189 Udzinski. 6 upgrades. number of. 192 Model One. 158 support. 195–96 StakeWare. 47 upgrading software costs and challenges. 142 Entwined strategy.INDEX upgrading. 15–17 companies' key characteristics. seven.
199–201 Zipcar. Ann. xiii. 15. 106 Vocus. 33 Visual Sciences. 190 221 . 211 Wainewright. 191–93 World of Warcraft. 16.CLOUD vendor-specific objective evidence (VSOE). 17 Zaidenweber. 182 Viasite. 165–66 WebSideStory. 40 Winblad. 108 Zappos. 106 WebEx. Dilip. 40 Visualforce. Natan. 208 Yahoo. 182 Wagle. Phil. 37–38 VSOE (vendor-specific objective evidence).
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