Saas and the Cloud Ten Years In

Software as a Service & Cloud Computing:
The Reality & The Opportunity
Rory O’Driscoll, Managing Director
Scale Venture Partners

SaaS: An Understood Concept
Average Worldwide Search & News Traffic
SaaS
Source: Google Trends.

Cloud Computing: Newer and Murky
SaaS
Cloud Computing

Lady Gaga
SaaS
Cloud Computing
Lady Gaga

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.

Application
Infrastructure
Consumer Apps & Infrastructure:Running on a PC

Business Apps & Infrastructure in the 1990s:Running in a Data Center
Application
Infrastructure
“Bill” Business Buyer
“Ivan” IT Guy

Business Apps & Infrastructure Today:Running in the Cloud
SaaS
Cloud
“Bill” Business Buyer
“Ivan” IT Guy

Basic Internet
Client/Server
PC
Minis
Mainframes
I.T. Has Re-Invented Itself Before
1990s
2000s
1960s
1980s
1970s

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.

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
Small number of big deals
Deals close last day of quarter
Arduous implementation
Sales / marketing 50% of all expenses
Large number of smalldeals
Business model  high quality SW
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.

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.

SaaS: Where from Here?
Land of a thousand niches.
Surprised by upside.
Consumer sets the tone.
Technology drives the potential.

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.

Virtualization Enables the Cloud
Traditional Architecture
Virtual Architecture
1 Company / Server
Many Companies / Server
Virtualization allows multiple companies to share infrastructure

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

11mm PDFs Created in One Day
4 TB Data
100 Nodes
11 Million PDFs
100 instances
x 24 hours
x $0.10 / Hr
= $240

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

Will People Really Adopt It?

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

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.

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

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.

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.

The Pain of GAAP + a Sales Rep
One New Rep =
$200K Loss in Year One;
$700K Profit by Year Five

The Pain of GAAP Per Sales Rep
Revenue
Operating Income

Compounders Not Rocket Ships

Invest to Win
ExactTarget
Profit
Company X
Time
Loss

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

As hot as it is, remember…
It’s still no Lady Gaga.

Software as a Service & Cloud Computing:
The Reality & The Opportunity
Rory O’Driscoll, Managing Director
Scale Venture Partners

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Saas and the Cloud Ten Years In

by Rory O'Driscoll on Jun 29, 2011

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