Michael Fauscette

No Tweeps no more...

Thursday July 24, 2008

Well, I suppose I should get some sort of “piling on” penalty for jumping on this current (or should I say most recent?) Twitter “issue” but since I’m fairly new to Twitter and no I’m not living in a cave somewhere, it just took me a while to convince myself that I needed to communicate what I was up to in more than Facebook and Myspace, but once I started thinking about the power of a “micro-blog” I figured I should give it a try...so my perspective is probably different from the majority of bloggers that are jumping on this one. I only joined a month ago and well, I haven’t started following that many people but still, I have gotten into the habit of jumping on a few times a day and yes, I even loaded Twittelator on my iPhone. So imagine my surprise this morning when I sat down at my MacBook Pro, fired up Twitter and realized I had lost about a third of my followers / following. Very perplexing...so I checked the customer service site...oh wait, it crashed! Next went to Google and of course managed to find an explanation. It seems this current issue is only one in a slew of issues over the last few months. I personally have gotten a little tired of seeing that damned kitty fixing their server when the site traffic exceeded capacity (and lately it has happened almost daily).

So I finally got into the customer service blog, here’s the response:
The best solutions from the company


Jason Goldman, Official Rep, replied 1 day ago 
Thank you to all the folks who provided additional information. We went into maintenance mode to recover from the missing user problem which was caused by a data inconsistency problem.

We were able to restore to an earlier version of the relationship data. You may still see out of date information for one of the following reasons:

1) The changes are still propagating out to all parts of the site. It will take several hours for the data to be correctly reflected everywhere.

2) There may be some missing data as a result of this restore. In particular, changes you made to your social relationships in the past 12 hours may not be reflected.

3) Notwithstanding the first two points, the counts that appear in your profile for followers or followings may be slightly different than they were before. Those counts are generated from a cache that was not always a perfect reflection of the true data. Therefore, the counts may slightly change.

I completely understand how frustrated everyone is by this outage. Thanks for your patience as we recover and work to make sure it won't happen again.

Well, by the end of the day, my Tweeps did indeed return, so I suppose I don’t have any real complaints...
Makes you wonder though, what’s really going on here. There are obviously scale issues caused by the explosion of new users (something like 3 million now) that have driven the over-capacity problems. Just how tolerant will users be and will Twitter respond by taking the actions necessary to permanently address the capacity issues? Time will tell...but in the end, will I continue to use Twitter or will I abandon my experiment? I am frustrated, but in reality where else would I go? There simply isn’t, at present, a viable alternative to Twitter...but of course that could change...

Customers turned partners?

Monday July 21, 2008

There is a lot of talk about new partner types springing up around SaaS vendors. IDC identified two new types in a document published last Fall: The Emerging SaaS Channel by Erin TenWolde, Darren Bibby, Sep 2007 - Doc # 208547. The document does an excellent job of showing two types of business focused partner types, one around vertical specific business processes and another that combines SaaS offerings with other business services. I’ll probably look at the evolution of these partner types in more detail in a later blog, but for now I want to focus on the business services provider and another emerging trend, that of SaaS customers electing to become distribution partners for their SaaS vendor. I’ve seen several examples of this recently and although I’d call them partnerships of opportunity for now, that is, no vendor is out seeking to convert their customers into distribution channel partners; it wouldn’t be a surprise in the not to distant future to see more formal programs start to form.

So let me use a real life example to demonstrate this...the vendor is Clarizen; a project execution software vendor that deploys in the SaaS model...by the way, check them out if you’re looking for a web 2.0-like project execution tool that is extremely powerful and simple to use) and the partner is 24/7 Service, Inc.. 24/7 is a telcom provisioning and maintenance solution that utilizes a SaaS solution. The relationship between 24/7 and Clarizen began in the traditional way, 24/7 needed a project management solution for the PBX provisioning projects that they delivered. They ruled out some of the more traditional solutions due to cost, inflexible licensing or difficulty of use. Last Fall 24/7 selected Clarizen as its’ project management tool and started using it for their deployment projects. As their customers interacted with the Clarizen solution, the customers started asking 24/7 for more information on the product. As 24/7 referred more and more customers to Clarizen it became evident that the relationship between the two companies should evolve into something different. For Clarizen, they gained a very strong referral partner and advocate and for 24/7 they gained an additional way to generate revenue and increase customer satisfaction. Here’s the 24/7 web page that talks about the solution.

Are traditional resellers really ready to embrace SaaS models?

Saturday July 19, 2008

This will be a common theme for quite some time I suspect, can traditional VAR’s really make the shift to SaaS channel models and what will those models look like? I’ve watched all the major software vendors struggle with channel business models around SaaS for a few years. Even the pure play SaaS vendors haven’t really moved to an indirect channel model.

First, why is this even an issue...why not stay in a direct distribution model? Traditional software vendors moved to an indirect model for scale and for the ability to deal with small and medium businesses (SMB) in their local market and in a model that is much more cost effective than maintaining a direct sales force of the size that could serve these customers. The same concepts apply to SaaS offerings, which are possibly an even better fit for most SMB customers. This is even more true in our current economic environment where capital expenses (which would include both on premise software and the hardware to run it) are difficult to fund. It’s a compelling argument to fund the software out of operating budgets and to reduce both hardware and IT resource expenses.

So what’s the issue for traditional VAR’s and software vendors? The problem lies in a couple of different areas. The first issue is the compensation model from the vendor to the VAR. The second issue is the ability of the VAR to shift their own business model from the on premise, up front revenue model to some other compensation model.

How do software vendors compensate VAR’s (and other partners) for SaaS sales? In an on premise model the most common method is to establish a “dealer” relationship where the VAR buys the software up front and inventories it until it is sold to the customer on a perpetual license agreement...the difference from the purchase price and the sales price is the margin for the VAR (generally 25-35% markup). Sales people are compensated on this up front margin and the VAR plans its’ cash flow around this up front model. In a subscription license agreement like a SaaS sale there is no up front license fee and no transfer of ownership, the software is provisioned over the Internet and the customer simply “rents” its use. Clearly the traditional compensation model won’t work. There are a few models that SaaS vendors are experimenting with, including referral fees, influence fees and agency fees. I’ll leave referral and influence models to a later blog and focus on the agency fees here. I attended the Microsoft Worldwide Partner Conference a couple of weeks ago where Microsoft announced the new Software + Service partner program. In that program Microsoft builds off the model they used for partners with SaaS CRM software. In the new program Microsoft pays its’ partners 12% of the first year contract value and 6% of the recurring value on renewal. This is one of the first clearly articulated reseller programs, we’ll have to wait and see how many partners will adopt the new model.

From the VAR perspective a shift in business model requires both strategic and tactical changes in their business. The shift from up front license revenue to a recurring license fee changes many things from cash flow to sales compensation models. In addition there is a fundamental shift in resources that is required to embrace the new business. The cost of sales needs to be lower to maximize margins, perhaps through increased use of inside or telesales resources. The services model is also very different both from a skill type and from the type of services that are offered. SaaS implementations tend to be shorter and tend to be focused on business process change and training rather than customizations and infrastructure set up. Many traditional VAR’s have strong technical skills but are less proficient in business process. The investment in shifting resources on both the sales and implementation teams could be costly and take time to execute. There is an overall potential for business disruption that will have to be dealt with. So is it easier for new partners to develop the business model from scratch or for traditional VAR’s to make the transition? Time will tell...