eVapt Corporate Blog

I happened to look through Steven Bragg’s book on accounting best practices for the billing best practices.  In a nutshell the list boiled down to the following:

1. Add carrier code on bills
2. Let delivery person deliver invoice as well
3. Bill early for recurring bills
4. Issue electronic invoices
5. Issue single summarized bill
6. Print invoice for each line item
7. Transmit electronically
8. Auto check errors
9. Let delivery person create invoice
10. Eliminate month end status report
11. Reduce Number of parts in multi-part invoice
12. Use bank account payment

At first glance these practices are tailored to companies which sell widgets and tangible goods.  Can these be adopted for services such as lawn care? It is evident that service companies can use a majority of these practices as well and benefit from them.

How about services for which demand is generated online such as Netflix DVD rental and the delivery is offline.  Once again a majority of the practices are applicable.

What about services such as ondemand movies on the internet?  It is evident that some of the practices become moot when there is no transportation of physical assets.  Incorporating the remaining best practices makes automation a necessity not a luxury.

- Ranjit

Billing Billing

Everyone is talking about the depressing economic outlook. Fortunately, there is one bright spot. Subscription service businesses are growing. First and foremost, what do we consider to be subscription businesses? The daily newspaper comes to mind, but isn’t that business declining? Now let us broaden our view. Is your phone bill growing or declining? Do you have a cable subscription? What about a subscription to an online information service like Hoovers? How are these subscription services comparing with traditional transactional services? In order to study this further we took a closer look at some traditional businesses and competing subscription services. The results were eye opening.

Some facts:

• DVD sales reduced 5.7% in 2008 but Netflix revenue grew 13% during the same period
• IBM hardware sales went down 20% in 2008 but Rackspace Hosting Inc. revenue went up 46%
• Compuware and Deltek revenues trended down, whereas competing SaaS vendor Concur Technologies revenue grew 18%

An article “Media Risk Walking the Plank” in the Wall street Journal dated March 6, 2009, summed up the choices businesses face.

Even recent scams try to sell monthly subscriptions to information already available in public domains, to get a piece of the US Government Stimulus package. NPR (http://www.npr.org/templates/story/story.php?storyId=101608657) highlighted this story recently.

Uncategorized WSJ

On Monday the 23rd of Feb, the Wall Street Journal had an opinion by T Hayes and M S Malone. They were complaining that the massive $787 Billion bailout legislation had only a token support for Entrepreneurs, although they were a real source of job creation.

The opinion has some ideas for helping new businesses.  One of them “VCs would pay lower capital gains taxes on investments in early stage companies and higher taxes on later stage deals” by Sramana Mitra was particularly relevant.  VCs are averse to investing in seed stage start-ups and when the investment is less then $4M.  Angel investors have to fill the gap and in this economic climate they are gun shy too.  All in all, this is not a recipe for creating new enterprises or jobs.

Interestingly the very next day, Feb 24, President Obama in his address to Congress noted that ” First, we are creating a new lending fund that represents the largest effort ever to help provide auto loans, college loans, and small-business loans to the consumers and entrepreneurs who keep this economy running.” Full transcript.

As a mere mortal I wonder why there are two messages 180 degrees apart.  I do hope that the President’s help to entrepreneurs does not involve VCs ( like banks) and asking them to inturn invest in good deals.

- Ranjit Nayak

Economy Add new tag

A recent article in Computerworld predicts that the current economic downturn will increase the pace of SaaS adoption.  According to the article “..two weeks ago IDC raised its projected SaaS growth rate for 2009 from 36% to 40.5%. The firm said, recent surveys indicated that the recession would prompt more users to choose subscription-based services over on-premises applications. IDC also forecast that nearly 45% of U.S. companies will spend at least one-fourth of their IT budget on SaaS by next year, up from 23% in 2008.”

Many people have predicted growth for SaaS, but is this for real?  Recent news and activities make me want to believe that this is true. The Wall Street Journal had a report on Feb 17, 2009 titled “Business solutions: Smart ways to cut costs”. The author refers to “Web-based software instead of software installed on your computer” and even gives the example of the solution, Zimbra. Most people familiar with the computer software industry recognize that the online model of software delivery is nothing but SaaS. When SaaS references have made it to popular press and SaaS is even being touted as the way to cut costs in this harsh economic environment, we could expect the market for such services to grow.

A prospective customer called us last week and said that an online service he had started offering gained traction much faster than he had anticipated. He said he was forced to expedite usage based billing automation. I was on the judging panel last week for the Texas Moot Corp business plan competition and interestingly three of the four participating companies were offering online services, not necessarily described as SaaS.

In conclusion, all businesses ought to look at using online web-based services for ways to cut costs in this global economic downturn.

-Ranjit

Uncategorized ComputerWorld, MootCorp, SaaS

Amazon announced on Thursday that its fourth-quarter profit rose 9 percent, and that easily surpassed analysts’ forecasts. Those results, plus an optimistic forecast, sent its shares soaring 13 percent in extended trading on that day. These are astounding results given the state of the economy, and the daily dose of news signaling bankruptcies by retailers.  So how is Amazon bucking the trend? And are there lessons for others in their success?

Retailers most certainly have to take note and find ways of competing against Amazon.  There are some important lessons for SaaS and Cloud providers as well.  Amazon’s success is largely attributed to its better pricing during the holiday season.  Now this capability did not come about overnight or in last 3 months when the recession was acknowledged.  Amazon has been at this for years. They have improved their operational efficiency on pricing by capturing and collecting data on goods and customer preferences. They knowing the customer very well and use dynamic pricing to optimize revenue. They also use a recommendation engine co-relating user behavior to the inventory on hand.

Pricing and revenue optimization call for collecting data and analyzing the same rapidly. Technology is a key ingredient for these real time activities.  SaaS companies have the inherent benefits of knowing the customer. They must build the necessary capabilities to optimize bundling and pricing for various customer segments.  This paper by Dr. Kahn discusses some interesting aspects of pricing and is a great read.

Economy, Pricing Pricing, Saas pricing

In a previous post we looked at mergers and acquisitions.  More often than not, the effort needed to integrate information systems after these events, is underestimated.   According to a survey conducted by Bloor Research, “More than a third of companies did not expect to complete integration for more than 2 years or could not say when they would complete such integration.” The research also cited “poor documentation of systems, a lack of metadata, diverse and uncontrolled data sources and poor data quality” as part of the problem.

Billing systems integration

Billing systems, in particular, pose serious integration challenges.  A high degree of customization to them over time causes complications.  In seeking competitive differentiation and advantage, companies provide widely varied customer contracts and roll out promotions such as “30 day free” plans, “100 transactions free,” and the like. Integration difficulties increase proportional to the degree of disparity between the systems being merged.  For instance, if one company operates in a primarily post-pay business environment, it will encounter difficulties when attempting to integrate the billing system of a pre-pay billing model. Beyond the basic billing framework, policies for day to day operations result in customizations to the billing systems. For example, if a customer terminates service, is the monthly recurring fee pro-rated?  If the customer is charged an early termination fee, is it applied in the beginning, middle or end of the cycle?  The acquiring company must therefore decide if it is going to continue the policies in accordance with their own.

Options for merging companies

1.     Treat the consolidation simply as an in-house IT integration project. This path contains all the challenges that IT projects typically experience. Such large-scale integration efforts usually go over budget. It also increases the chances of disrupting and damaging customer relationships.
2.     Avoid consolidation by maintaining and supporting multiple billing systems. While this option saves the expense of a large IT integration effort, it prevents the acquiring company from reaping synergies the M&A was intended to achieve.  Additionally, the cost of maintaining and supporting multiple billing systems is enormous.
3.     The third option is to work with companies which specialize in transition & integration of billing systems. These companies should have developed best practices and built tools needed to ensure synchronized movement of data from disparate sources.

Ranjit

Billing Billing, Bloor Research, M&A

Yesterday Evans data, a research firm, released a report indicating that 52% of developers would be working on SaaS and specifically in the Asia pacific region. I am assuming here that they are considering a multi-tenant architecture in the software design. There is a strong perception that if one hosts an instance of the software in a hosting environment like Opsource, the application qualifies as a SaaS. In this model all that has happened is that data center operations have been outsourced back to the software vendor. When the same datacenter handles multiple customers they may use virtualization capabilities and gives the impression of a multi-tenant application. The virtualization may speed the setup but thereafter each instance is treated as a separate entity. Updates / patches etc have to be applied separately to every instance.

So for a true SaaS application, multitenancy must now be handled in the architecture and design of the software.  This allows SaaS users to realize the true benefits of economies of scale.  Developers can update applications and centrally handle migration to the newer version of software.

Once a developer has decided to emabark on the SaaS journey there are a large number of issues to consider. First and foremost there is shift and change in approach which the ISV (see previous post on ISV transition) must embrace.  There is a school of thought which contends that ISVs can never transition. A half hearted attempt without support at the highest level in the company is doomed to fail.  It is therefore very important for developers to think through this transformation

Developers needs to consider the following at a minimum:

• Choice of SaaS development / monetization platform
• Architectural considerations for service orientation
• Options for Security model, User Interface, Metric oriented programming
• Integration test of application with platforms
• Operational issues for security, backup, migration etc
• Understanding of business terms for contracts

The business management team must first buy in to the benefits and understand the business implications before convincing the entire company that a change is needed. At the very least the management team must evaluate the following.

• Benefits of the Saas Model
• Pricing Challenges and Approaches
• Customer expectations from a SaaS offering
• Platform ecosystems ( Partnerships )
• Financial implications of SaaS Model

- Ranjit

SaaS Transition Evans Data, Opsource, SaaS Transition

Although there is a general slow down in M&A activites, the cloud computing space still seems hot as evidenced by the Sun acquisition of Q-layer today.

According to the Boston Consulting Group, between 1992 and 2006 more than half (58.3%) of all mergers and acquisitions not only failed to create shareholder value but actually destroyed it, resulting in a net loss of 1.2% across all transactions. According to Bloor Reserach “M&A activity fails to create value precisely because it is much more difficult to achieve these back office savings than most business people normally realize: because this is dependent on the ability to integrate the two companies from an IT perspective.” According to their survey “More than 50% of companies were not able to provide any integration within 3 months of acquisition: so how were they able to provide consolidated financial reporting?”

According to an IT industry analyst, the successful union of a combined company’s IT applications, infrastructure, and staff is critical to the success of a merger or acquisition, but some common problems stand in the way. Each organization uses its own technology and has crafted its own infrastructure, with distinct operating costs. Companies have to invest heavily to make the systems and technologies in use, compatible. They must find ways to operate as one while maintaining service quality and controlling costs. Of these, the integration of billing systems is one of the biggest and most complicated challenges companies will confront, while attempting to reap the benefits of a merger or acquisition.

- Ranjit

Cloud computing M&A, Q-layer, Sun Microsystems

I had blogged on this very topic a few days back, but today’s WSJ and a recent visit to Rice University for a IT venture forum convinced me to revisit.

The WSJ had a front page article on the spectacular crash of IT Factory, a Danish company. It’s CEO, the ENY Entreprenuer of the Year, Stein Bagger, turned out to be a fraud. According to Techcrunch he was on the run and arrested in California. Auditors from Deloite and Touche as well as KPMG had not find any irregularities with IT Factory during their audits. Thats not suprising, given how well accountants did their jobs with Enron and Wall street firms. All it took was a well built body ( Bagger was a body builder) and some glibness to pull wool over the eyes of these auditors.

The real entrepreneurs should feel encouraged by the fact that even though these award commitees and accountantsare easily fooled, the truth always comes out. Real businesses with substance, will do well even if accountants and award committees dont think so. At the Rice Alliance Forum, Bruce Dunlevie of Benchmark Capital gave a brilliant keynote on how venture capitalists operate. He even pointed out that Benchmark had refused to back eBay multiple times before finally funding it when it was obvious that it had serious potential.

With fortitude and luck, entrepreneurs can succeed even in tough times. Microsoft was founded in 1975 during a recession.

Ranjit

Economy Techcrunch, WSJ

Dec 9, 2008 — The economy is high on everyone’s mind. “Is the downturn a growth opportunity for SaaS” - this is a widely discussed topic. And the politically correct answer is - “it depends” One look at this article on the San Jose Mercury, and the ambivalence is evident.

Logic favors SaaS companies in an economic downturn. Buyers do not incur capital expenses, instead they incur a recurring expense which is accounted for as an operational expense. A recent survey by ScanSafe confirms this sentiment. However, we have counter arguments from none other than Larry Ellison. I for one, do expect that SaaS companies will do well, but then seeing is believing!! Surveys and opinions only go so far.

There is however some truth to the argument that in general, SaaS companies will have lower revenues due to the downturn, as all investments are put on hold. This is very disturbing because even good investments will now be stalled. The CFO mantra in uncertain times is cash conservation.

The Tech blog on Wall Street Journal warns about a slow down in IT growth - not necessarily a decrease in IT spending.

This blog post by Phil Wainewright even suggests that an acceleration of the SaaS market could be disastrous for the software industry.

All in all, a nice mixed bag of predictions.

- Ranjit

SaaS SaaS, San Jose Mercury