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Saas and the Cloud Ten Years In

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  • 1. Software as a Service & Cloud Computing:
    The Reality & The Opportunity
    Rory O’Driscoll, Managing Director
    Scale Venture Partners
  • 2. SaaS: An Understood Concept
    Average Worldwide Search & News Traffic
    SaaS
    Source: Google Trends.
  • 3. Cloud Computing: Newer and Murky
    Average Worldwide Search & News Traffic
    SaaS
    Cloud Computing
    Source: Google Trends.
  • 4. Lady Gaga
    Average Worldwide Search & News Traffic
    SaaS
    Cloud Computing
    Lady Gaga
    Source: Google Trends.
  • 5. Start with the Person Who Has the Money
    Consumer
    Business
    “Connie Consumer”
    “Bill the Business Buyer”
    “Ivan the IT Guy”
    Annual Software Spend
    $20B
    $50B
    $70B
    Source: IDC.
  • 6. Application
    Infrastructure
    Consumer Apps & Infrastructure:Running on a PC
  • 7. Business Apps & Infrastructure in the 1990s:Running in a Data Center
    Application
    Infrastructure
    “Bill” Business Buyer
    “Ivan” IT Guy
  • 8. Business Apps & Infrastructure Today:Running in the Cloud
    SaaS
    Cloud
    “Bill” Business Buyer
    “Ivan” IT Guy
  • 9. Basic Internet
    Client/Server
    PC
    Minis
    Mainframes
    I.T. Has Re-Invented Itself Before
    1990s
    2000s
    1960s
    1980s
    1970s
  • 10. Application Software Architecture Model:Before & After SaaS
    Client Server
    SaaS
    Company A
    Company A
    Vendor
    Datacenter
    SW
    SW
    HW
    HW
    Company B
    Bill buys it.
    Ivan makes it run.
    Bill buys it.
    Ivan never knows.
  • 11. Application Software Business Model:Before & After SaaS
    Client Server
    SaaS
    !
    ?
    SOFTWARE
    “Try Before You Buy”
    Plan A: $100 / mo.
    Plan B: $199 / mo.
    PURCHASE
    $
    $
    1,000,000
    Bill
    Sales Guy
    Bill
    http://
    • Sales / marketing 50% of all expenses
    • 12. Small number of big deals
    • 13. Deals close last day of quarter
    • 14. Arduous implementation
    • 15. Sales / marketing 50% of all expenses
    • 16. Large number of smalldeals
    • 17. Business model  high quality SW
    • 18. Steady, predictable business
  • SaaS: The Wisdom of a Decade
    A model. Nota market.
    Leverage the architecture.
    GAAP: Unflattering to annuity business.
    Compounders not rocket ships.
    Play to win.
  • 19. 2010 Market Cap
    $40bn In Value Generated by SaaS Winners
    Salesforce.com
    $17.5B
    RightNow
    Technologies
    Constant
    Contact
    Taleo Corp.
    Athenahealth
    LogMein
    Zendesk
    DealerTrack
    Holdings
    Vocus
    Kenexa
    Omniture
    NetSuite
    SPS
    Commerce
    DemandTec
    Convio
    RealPage
    SuccessFactors
    Postini
    Frontbridge
    ScanSafe
    Zantaz
    Paycycle
    ExactTarget
    Concur
    Technologies
    WebEx
    Responsys
    Eloqua
    Indeca
    <$1B
    $1-5B
    $5B+
    Source: Public financials, Capital IQ, industry research.
  • 20. SaaS: Where from Here?
    Land of a thousand niches.
    Surprised by upside.
    Consumer sets the tone.
    Technology drives the potential.
  • 21. Architecture Evolving To Cloud Based I.T.
    IT Before the Cloud
    IT in the Cloud
    Vendor
    Vendors
    SW
    HW
    HW
    SW
    SW
    SW
    SW
    SW
    HW
    SW
    Cloud Services Vendor
    HW
    Company A
    Datacenter
    Company A
    Company B
    Ivan buys software + hardware.
    Ivan makes it work.
    Ivan buys a service.
    Vendor makes it work.
  • 22. Virtualization Enables the Cloud
    Traditional Architecture
    Virtual Architecture
    1 Company / Server
    Many Companies / Server
    Virtualization allows multiple companies to share infrastructure
  • 23. Where Is the Cloud World Now?


    Will companies
    really adopt it?


    Where is cloudmost valuable?
    ?


    What does this meanto equipment vendors? Some panic?


    What level of cloudservice do people want?
    ─ PAS, SaaS, IAS
  • 24. 11mm PDFs Created in One Day
    4 TB Data
    100 Nodes
    11 Million PDFs
    100 instances
    x 24 hours
    x $0.10 / Hr
    = $240
  • 25. 5000 Servers Commissioned in 3 Days
    Animoto Scales to Meet Demand for Photo Presentations
    Amazon EC2 easily scaledto handle additional traffic
    Peak of 5000 instances
    Number
    of EC2
    Instances
    Launch of Facebook modification
    Steady state of ~40 instances
  • 26. Will People Really Adopt It?
  • 27. Why Equipment Vendors Should Be Nervous
    I.T. Before the Cloud
    I.T. in the Cloud
    Vendor
    Vendors
    Vendor
    Vendor
    HW
    SW
    SW
    HW
    SW
    SW
    SW
    SW
    HW
    HW
    Cloud Services Vendor
    SW
    Company A
    Datacenter
    Company A
    Company B
    Customer concentration
  • 28. Winners: SaaS and Cloud
    SaaS
    Salesforce.com
    $20B
    RightNow
    Technologies
    Constant
    Contact
    DealerTrack
    Holdings
    Taleo
    Athenhealth
    NetSuite
    Omniture
    LogMein
    $40bn
    created
    SPS
    Commerce
    Vocus
    Kenexa
    DemandTec
    Concur
    Technologies
    RealPage
    SuccessFactors
    WebEx
    Convio, Inc.
    Postini
    Frontbridge
    ScanSafe
    Zantaz
    Paycycle
    ExactTarget
    Responsys
    Eloqua
    Indeca
    Zendesk
    Cloud
    VMWare, Inc.
    $40B
    Heroku
    Rightscale
    Go Grid
    Cloudera
    Data Domain
    Isilon
    $50bn
    created
    Eucalyptus
    System
    Rackspace Holdings
    Cloudkick
    Nimsoft
    Engine Yard
    3PAR
    <$1B
    $1-5B
    $5B+
    Source: Public financials, Capital IQ, industry research.
  • 29. Clouds on the Horizon


    Clouds are a large pool of easily usable and accessible virtualized resources (such as hardware, development platforms and/or services). These resources can be dynamically reconfigured to adjust to a variable load (scale), allowing also for an optimum resource utilization. This pool of resources is typically exploited by a pay-per-use model in which guarantees are offered by the Infrastructure provider by means of customized SLAs.
    — Vaquero, Rodero-Merino, Caceres, Linder


    … outsourced, pay-as-you-go, SaaS, on-demand, somewhere in the Internet, etc.
    … using the internet to allow people to access technology enabled services.Those services must be massively scalable.




    We've redefined cloud computing to include everything that we already do. Maybe I'm an idiot, but I have no idea what anyone is talking about. What is it? It's complete gibberish. It's insane. When is this idiocy going to stop?
    — Larry Ellison
  • 30. Near Free Computing
    10 Amazon Web Services Price Cuts in 18 Months
    Spot Instances
    Dec. 13, 2009
    EC2 Price
    Reduced
    Oct. 26, 2010
    Lower S3 and EU Windows
    Dec. 2, 2009
    CloudFront Price Reduction
    June 7, 2010
    Lower Reserve
    Instance Price
    Aug. 19, 2009
    Combined
    Bandwidth
    Mar. 25, 2010
    High Memory
    Price Reduced
    Sept. 1, 2010
    Free Tier and Increased SQS Limits
    June 30, 2010
    Reserve Instances
    Mar. 12, 2009
    Data Transfer
    Feb. 1, 2010
    March 2009
    January 2010
    September 2010
    Source: AWS announced price cuts.
  • 31. Cheap Energy (1900s) Cheap Computing (2000s)
    Free consumer services.
    Start ups abound; IT not a barrier.
    Connecting services in the cloud.
    Your stuff is in the cloud.
  • 32. The Pain of GAAP + a Sales Rep
    One New Rep =
    $200K Loss in Year One;
    $700K Profit by Year Five
  • 33. The Pain of GAAP Per Sales Rep
    Revenue
    Operating Income
  • 34. Compounders Not Rocket Ships
  • 35. Invest to Win
    ExactTarget
    Profit
    Company X
    Time
    Loss
  • 36. Winning in SaaS
    Web Analytics
    #1 Omniture- $1.8B
    #2 Webside - $.3B
    Web Conferencing
    #1 WebEx - $3.6B
    #2 Placeware - $.2B
    CRM
    #1 Salesforce - $17.5B
    #2 X - $.1B
    Distribution + Technology
  • 37. As hot as it is, remember…
    It’s still no Lady Gaga.
  • 38. Software as a Service & Cloud Computing:
    The Reality & The Opportunity
    Rory O’Driscoll, Managing Director
    Scale Venture Partners