People say that marketing for “cloud services” are really over the top right now – selling a lot more promise than can be delivered. If that’s true, social media is somewhere out in the stratosphere of hype – pushed into orbit by leaders like Twitter and Facebook - I’ve heard many people say if they were trying to avoid reading yet another article on the wonders of connecting to “communities” on the web.

If that’s the case for you – I hope you’ll set your prejudice aside and listen to our podcast this month on Haut Tech Conversations. You can download the show and listen to it at your leisure. Our guest was Jonathan Hyland, the Client Relationship Director for iCIMS, a leading SaaS provider of “Talent Management Systems.” Jonathan is deep in the trenches of the user community at iCIMS because he is responsible for managing the client renewal pipeline, user satisfaction, user advocacy, and maintaining visibility of the value proposition their services deliver.

I enjoyed this conversation because social media is still a widely misunderstood subject among SaaS and Cloud Service providers. Many see everything social as an unnecessary and noisy “distraction” that is a waste of resources and time. I understand their point of view because if they come from traditional software marketing, support, and sales environment,  they are part of a legacy that rarely focused on end-users or tried to foster communications among them. And if you’ve ever tried to sip from the Twitter fire hose, you can probably understand their discomfort with jumping on the band wagon.

We covered the many sides of communities in SaaS including:

• Inbound Marketing – Getting found by vertical and best practice communities while building up a presence for your brand and the services it provides.
• Marketing to the Converted – Retaining subscription renewals, up-selling, and evangelizing your existing end-users and the key stakeholders that drive client adoption.
• Product Management – The balancing act that comes from involving end-users in driving product development without crossing into crowd-sourcing and losing your strategic direction.
• Support - Leveraging the community to provide best practices and support while continuing to be strongly involved in providing assistance and guidance.

And finally – how a community relations director can keep from looking like a product shill, serve user needs, retain subscriptions keep the sales funnel full and have time to take off for vacation in a 24/7 product world.

I think the take away from this conversation was very interesting and I don’t want to spoil it for you – but we found that “being social” is a lot more hands-on and face-to-face than you might think. It really is still true you need to be balanced between social tools and more traditional face to face approaches than you might think.

Joining Jonathan on our panel was Jessie Kliza, the Business Development Director for Apprenda and Peter Cohen of SaaS Marketing Strategy Advisors, who also happens to be one of our fraternity of Haut Tech Irregulars.

Our Special Guest -

Jonathan Hyland, M.A., PHR – Client Relationship Director at iCIMS. Jonathan has a background in Industrial and Organizational Psychology, graduated with honors from Monmouth and finished his graduate work at Hofstra University. He started as an intern at Questus but moved up quickly when he came to iCIMS. He now carries responsibility for managing the client renewal pipeline and upsell opportunities, ensuring client satisfaction with internal advocacy, and the development of marketing materials covering the value proposition of the  iCIMS platform.  In that role, he works with user communities at all levels for iCIMS. You can find Jonathan most days on Twitter and read some of his thoughts on his jaHRd blog.

Our Panel –

Jesse Kliza – Director of Marketing at Apprenda, the creators of SaaSGrid, a distributed SaaS platform that eliminates the difficulties of building and delivering Software as a Service.  Prior to joining Apprenda, Jesse was Community Evangelist and Product Manager at SaaS ISV, Autotask.  Among Jesse’s many contributions while at Autotask, he was responsible for the creation and oversight of the Autotask Community  – which won a coveted ITSMA Marketing Excellence award in 2008. Jessie can be found on SaaSBlogs, Appenda’s best practice blog for the SaaS community and his Twitter feed.

For those who are not aware of SaaSGrid, it is a service that greatly reduces the barrier to entry for SaaS by overcoming significant technical hurdles like multi-tenancy and grid scalability, while at the same time providing “out of the box” application services like metering and monetization, billing and subscriber management, and much more. Scio is a Premier Development and Implementation Partner for SaaSGrid.

Peter Cohen - Peter is the founder and managing partner of
SaaS Marketing Strategy Advisors. His firm provides expert guidance to help companies effectively market and sell software-as-a-service (SaaS) solutions to enterprises. The firm’s clients includes several large, well-established clients, looking to enhance their SaaS marketing practices, as well as smaller companies that need guidance in launching a new SaaS solution to the market.

Peter has more than 25 years’ experience developing and implementing successful marketing strategies for technology companies, including Computervision, Lotus Development, IBM, and Authoria. Peter has spoken on the topic of SaaS Marketing for the Massachusetts Technology Leadership Council, and written for widely-distributed publications including MarketingProfs. He publishes a monthly newsletter and a blog, both entitled “Practical Advice on SaaS Marketing.”

So – you can download the show,  you can subscribe to our feed on iTunes or use the widget below. And if you would like to comment here or catch me on Twitter – we’re always interested in extending the conversation.

In our first two podcasts for Haut Tech Conversations we covered service and pricing. Both subjects are critical for SaaS businesses to consider and understand in the context of their product. In the podcast we did yesterday, we went into yet another critical area – Marketing!

To put us in the right frame of mind for this conversation, we brought the respected expert on SaaS Marketing, Peter Cohen of SaaS Marketing Strategy Partners together with our panel – Ron Arden, Vice President of Strategy and Marketing for eDocument Sciences and Justin Pirie, a SaaS and Cloud product manager and marketer who has been working in subscription software for over four years.

We covered a lot of ground in this podcast – it is a wide-ranging conversation that got into many of the unique aspects of marketing in an on-demand world. We also went into many of the areas that are closely linked to marketing – Product Management, Agile Development, Community Development, Ecosystem Management and Customer Relationship Management.

What questions does it answer? In consideration of the title of this podcast and the “Wheel of Death” as Peter calls it – we talked about the issues traditional vendors face when development teams work on SaaS products – especially with Agile methodologies. The Agile approach is a good match for SaaS products, but to take full advantage of it – the entire organization must be in alignment. If marketing is out of the loop, the steady flow of product enhancements and new features can make the marketing team feel like they are like a hamster in an exercise wheel – running forever and not getting anywhere. Getting above the traditional feature-based technology marketing syndrome is critical in SaaS.

From there we incorporated all the various points of view of our panel and as we always do – let the conversation flow into the many areas that overlap in a SaaS product organization.

If you have any interest at all in how to deal with the dynamics of marketing a SaaS product and an hour to spare – I suggest you download this podcast, listen and share it with your team. I am very pleased with the insight our guests brought to the discussion and we would all love to hear your thoughts in comments here or on your blog. Join the conversation!

Our special guest for this podcast was –

Peter Cohen: Peter is the founder and managing partner of
SaaS Marketing Strategy Advisors. His firm provides expert guidance to help companies effectively market and sell software-as-a-service (SaaS) solutions to enterprises. The firm’s clients includes several large, well-established clients, looking to enhance their SaaS marketing practices, as well as smaller companies that need guidance in launching a new SaaS solution to the market.

Peter has more than 25 years’ experience developing and implementing successful marketing strategies for technology companies, including Computervision, Lotus Development, IBM, and Authoria. Peter has spoken on the topic of SaaS Marketing for the Massachusetts Technology Leadership Council, and written for widely-distributed publications including MarketingProfs. He publishes a monthly newsletter and a blog, both entitled “Practical Advice on SaaS Marketing.”

Our panel included:

Justin Pirie: Justin is a SaaS and Cloud product manager and marketer who has been working in subscription software for over four years. He specializes in working closely with companies to create successful SaaS products using the latest techniques and industry best practice. He is based in the UK and has advised companies in Europe and the US. He has been on our show before and is now one of our Haut Tech Conversations “Irregulars.” You can follow him on Twitter here.

Ron Arden: Ron is the Vice President of Strategy & Marketing for eDocument Sciences. He on focuses on SaaS computing and using social media tools to drive business for eDocument Sciences, and recently became an Inbound Marketing Certified Professional. He has over 25 years of strategic planning, marketing, sales, business development, consulting and technical experience in the information technology industry. Prior to eDocument Sciences, Ron was Director of National Solutions Support for IKON Office Solutions developing and driving strategy, policy, tools and the product & services portfolio for IKON’s Professional Services group. This included developing and managing vendor relations for all Professional Services partners. Prior to IKON, Ron held executive, management and technical positions at numerous Fortune 500 organizations, including DEC and Wang. You will find Ron on Twitter as @RonArden, on LinkedIn, and his profile on Google.

You can download the mp3 here or listen directly or on iTunes from the widget below:

Pricing services – how do you do it? Is there a rational process? Can you tie it to value? Cost? Developing a price is one of trickiest parts putting a new service online. Prospective customers have to believe the value can be realized and existing customers must find the value exceeds the subscription. A monthly subscription is easier for prospects to swallow but a yearly provides a bigger hit for cash flow and maybe higher retention. Which is better in the long run?

These are just some of the issues facing services vendors in the growing SaaS and cloud services market. In our September 8th podcast on Haut Tech Conversations, we’ll address those questions with our guest, Jim Geisman of Software Pricing Partners. Jim spoke at the first SaaS Summit. His firm has focused on software pricing since 1987 and has consulted internationally on issues of software pricing and deal structuring. He has written extensively on software pricing and is a frequent speaker.

More recently, his firm has helped companies price and package their on-demand/SaaS products or helped them transition to SaaS. Jim has been a co-founder, director, or advisor to early stage companies. He sits on the Board of the Professional Pricing Society and is a co-chair of the Mass Technology Leadership Council’s SaaS Cluster.

Joining Jim on our panel will be two of our Haut Tech Irregulars (well, they were both on the first show so that makes them at least irregulars!) – Steve Plunkett of Servitizer and Lincoln Murphy of Sixteen Ventures. Steve has started a blog series about services pricing and has some products coming out in that space so I know he will have some interesting thoughts to bring to the conversation. Lincoln always has something up his sleeve so I’m sure he will add a lot to the mix as well. And we will have Justin Pirie, an experienced SaaS Product Manager and startup entrepreneur to bring his field experience and real world questions to the discussion. It is going to be a very interesting conversation – so please – JOIN US.

Our panel of Industry Insiders:

Steve Plunkett, CTO of Servitizer – Steve is a technologist and innovator with eighteen years experience. He has worked with and held leadership positions in large enterprises, service providers, network operators, product manufacturers and government agencies. Specializing in solution and service innovation he has architected systems, networks and products and worked with customers, companies and partners around the world. Steve has lead initiatives within large organizations to transition from a product to a solutions and services model. He has a strong track record of identifying emerging and disruptive technology trends and harnessing them through solution and service innovation. Steve blogs for Servitizer on – what else – the Servitizer Blog.

Lincoln Murphy is the Founder of Sixteen Ventures and blogs on his business site. You can also find him on Twitter here and here. Lincoln Murphy brings over 15 years experience in on-demand software product development and Business Architecture, focusing exclusively on SaaS since 2004. Working with clients of all sizes, and both SaaS pure-plays and ISVs transitioning to SaaS, Lincoln helps companies recognize and execute on opportunities to generate or enhance revenue through the SaaS Business Architecture.

Justin Pirie is a SaaS and Cloud product manager and marketer who has been working in subscription software for over four years. He specializes in working closely with companies to create successful SaaS products using the latest techniques and industry best practice. He is based in the UK but has recently returned from consulting in the US for a VC-funded SaaS startup. You can follow him on Twitter here.

Haut Tech Conversations played live on Blog Talk Radio – September 8th, 2009. If you missed the live show, an MP3 is available to download and play at your leisure. We will also write up the major points of the conversation here on the blog and follow the conversation as it moves out across social media.

In this article we’re picking up where we left off in Part 1 on our expansion of the podcast we did with Steve Plunkett, CTO of Servitizer and our panel of industry experts – Luis Aburto, CEO of Scio Consulting, Mikael Blaisdell of MBlaisdell & Associates and Lincoln Murphy of Sixteen Ventures. If you haven’t read the first part of our series already – please start there – because the background for the conversation is there.

Going back then to where we left the conversation – Mikael Blaisdell weighed in saying that although he believes the industry is strongly moving towards servitization, vendors still see themselves as selling a technical product. From a business perspective, because of the license-forward sales model of traditional licensed software, vendors realized all their profit “up front” in a sale (although it has to be said, post development and marketing). All following costs, which might be services, were avoided as much as possible. ISVs build a lot of expertise in building software and internal operations to fit that model – expertise in managing the development, marketing and sales processes to match the cyclical nature of licensed software sales. Moving to an incremental revenue model is one aspect of SaaS and many ISVs have made the transition – however difficult that might be. But when it came to marketing the product – they are still selling it as a technology – even if they see it as embodying special expertise for their market and not as a service.

As Mikael pointed out – a true SaaS product needs to embody the relationship between the vendor and the end-user community they are serving. But – unfortunately – very few vendors have figured out how to market that service-based relationship successfully. Not just because it is hard for established vendors to do – primarily because it is just not a part of their strategic view of their product. They still see themselves as technology vendors, not as service providers.

Further, the standard model conveniently supported a split set of payments to the vendor. The vendor set license fees for the product and a separate set of support and maintenance fees to provide ongoing services. In other words, the support services were almost an “optional add-on.” Those same vendors, moving to a “as a Service” model, have to rethink their cash flow and put services in all its various aspects up front while still maintaining enough bandwidth to support ongoing development.

Even more important, transitioning to an “as a Service” model requires a deep reconfiguring of the basic understanding of the product within the vendor organization. This is why it is often (rightfully) said it is easier to start from scratch than “turn a corner” and move from a traditional licensed model to a incremental sales model like SaaS. In the “as a Service” model, focus of the customer relationship shifts to the end-user experience, the expertise embodied in the application, the productivity it enables and the value it delivers. If any one of these areas slips in relationship to either market competition or the experience of users without the product – subscription renewals will decrease and the vendor will feel it immediately. For the vendor organization, their window of reaction time to address customer needs has decreased dramatically and the need to communicate with end-users has increased many times over. A traditional ISV’s expertise and business organization is simply not set up for this transition. As Mikael pointed out – SaaS vendors have to understand this from the core of the organization outward if they are going to succeed. This is a process that is in many ways just beginning in the industry.

In the same way – the industry still uses a “feature-led” technical product approach when selling as a Service offerings. Using a feature list is still considered to be the key way to compare SaaS applications. Do people use all of those features? Are they implemented in a way that users find productive? The industry is not at the stage where this kind of detail can easily be communicated.

Luis Aburto summarized the approach of many vendors when he said that often the first thought is “We just need to get a web version of our application set up and let people subscribe – that’s it.” But after a while they start start to realize the business implications of putting an application on the web:

• Users expect 100% uptime – no “maintenance windows,” no upgrade weekend, no outages
• Users expect consistent performance in the browser and in the back end processing of their data. Having a “end of the day” slowdown is just not acceptable.
• Users expect the vendor to take responsibility for their data security and be able to articulate how they provide security.
• Users expect all aspects of the application stack to “just work” – integration, payment processing, database updates – all working seamlessly and without interruption of the business cycle.
• Users expect the vendor to have plans and tested procedures for disaster recovery and operational contingencies. If there is something the end-user organization needs to do, they expect the tools and processes to be available upfront.

When you consider all the issues this includes, it can become a little scary for existing ISVs coming into the as a Service field. None of these services are part of the expertise they carry in house. There are aspects of these services that can only be handled effectively if the application and its delivery is properly architected from the beginning. Yes, you can get up and “operating” without addressing all of these issues, but in the end, customers will demand full transparency or they will leave.

Of course, as the old ASP model showed, these services cannot be addressed in one off implementations for each customer organization. The delivery model must address customers in a way that allows economies of scale to be passed through. Using multi-tenant architecture and cloud technologies, it is possible for vendors to be more efficient at addressing these issues than the internal IT resources of their customers would be. With scale, the vendor can afford to have more professional expertise at their command than their customers can carry individually.

Addressing these issues effectively also translates into the struggles of sales and marketing in SaaS. Feature-led, version dependent marketing and sales cycles will only work for a short window of time for a service-based product. When the cost of acquisition and operation exceeds the lifetime value of an average subscription – the burn rate will quickly overcome the vendor’s ability to cover losses. And why? Because after a short period of time, the “new car smell” wears off and the end-users start questioning what the value the service is providing. If it isn’t enough – they leave.

Steve Plunkett said it well when he added that vendors today need to be able to articulate the value of the responsibility they are taking on – in addition to actually being able to perform in this environment. Of course, if a vendor hasn’t really considered all the costs of all their new responsibilities they are taking on – it is hard to express the value to their customers and harder still to manage them as effectively as they need to. Going to another aspect, sales teams now need to go from being “hunters” to working hand in hand with product management and becoming farmers – growing their garden of customers and maintaining the relationship with them over the life of their subscription. While many focus on the straight-forward change in their compensation model, this change in the sales relationship may in fact be much harder for sales teams to negotiate.

Even if vendors realize the responsibilities they are taking on – they should be careful as they decide to take them on directly. SaaS vendors, new SaaS vendors particularly, should consider taking some of their own medicine by deciding what parts of their service are core and must be handled internally and what parts can be outsourced to other service providers with appropriate service agreements. This means a big change in the industry. The SaaS vendor is now orchestrating the outsourcing relationships on behalf of his customers. The whole industry ecosystem is turned on its head. Instead of pursing enterprise IT departments – in a “as a Service” model, ecosystem venors are responsible to the service provider that is linked directly to the end user. This should result in better service to the end user and frankly SMBs have the most to gain. The service provider has much more leverage and efficiency than a customer with 100 seats or a line of business group with ten seats.

With all that said, the investment and expertise needed to develop and field a successful service in this market is significant. As Mikael Blaisdell added, it becomes even more important in areas where competition exists. While a vendor might get by with a mediocre user experience or shaky infrastructure by serving the “under served” SMB market – once a competitor appears, all bets are off. Integration and customer assurance demands that user data be addressable and extensible in modern services. Customers can and will “jump ship” and can do so with increasing facility. Leveraging the ability to tap into user experience at this point is critical. If the cost of operations and acquisition is equivalent to the subscription for an average size implementation at ten months and the customer leaves at the end of 12 months – there are only two months profit “in the bank.” That is a recipe for failure. When vendors assess their subscription losses, if the answer that appears is the users’ business needs changed or their assessment of those needs altered – a red flag should fly up in front of them. Why didn’t we know? What can we do to be more “intimate” with our customer’s operations? What do we need to do to be able to adapt our application smoothly to meet the expectations of our users?

So – we come full circle. XaaS is not a technology. It is a business model delivered and enabled by carefully planned technology. The successful vendor needs to manage technology and technical services to deliver their service to their end-users. The extent to which they can do that and continue express the lifetime value they provide in a user experience will equal their success in the market.

Planning the technology to allow the kind of change and growth needed is key. The application has to be properly architected to allow the mining of necessary metadata. The customer support and feedback mechanisms need to be integrated fully both in the application and in the product management function itself.

It is the orchestration of all these aspects of business and technology on behalf of the end user relationship that finally changes every part of the service vendor’s organization. Traditional product management approaches are woefully out of step in this environment. Sales and marketing are poorly equipped at best. Technical services don’t exist. Finance has to rethink every aspect of cash flow and when profit is “realized.”

And as more services come online and reach acceptance – integration of data and the services themselves will be even more critical. Some vendors will become the “system of record” and handle several services on behalf of their customers, while others will remain part of a larger ecosystem used by those “master services.” No customer is going to want to try to manage a mash-up of many services for long if a vendor appears that will manage the relationships for them.

It was here our guest and panel reached an interesting conclusion. The term “Independent Software Vendor” in this market is no longer useful. No vendor is likely to exist in a vacuum and the customer doesn’t care. Users just want the service to work. As a group we toyed with various permutations of the ISV term but I think we finally arrived at “Interdependent Services Vendor” as the more logical evolution. It describes a new relationship between the vendor, the end-user and the larger ecosystem which ultimately must be in place if the industry is to be successful in the long run.

Just remember folks – you heard it first on Haut Tech Conversations

That sums up our first podcast. Once again I want to deeply thank our panel – Luis Aburto of Scio Consulting, Mikael Blaisdell of The HotLine and MBlaisdell & Associates, and Lincoln Murphy of Sixteen Ventures – and of course our guest, Steve Plunkett of Servitizer. I think this podcast did a lot to better describe what becoming a service provider means and where the industry is going – in fact has to go – in the coming years.

If you would like to download the podcast – it is available here and if you would like to subscribe to the podcast feed – it is available here. We’re already planning a very interesting show for next month – so please watch this blog for more information next week when we announce our guests. The conversation continues here, on the blogs of Lincoln Murphy, Steve Plunkett, Mikael Blaisdell and I’m sure others. You can also join our LinkedIn group and continue the conversation there as well.

The question I pose in the title of this article is the theme of the podcast we did this month for Haut Tech Conversations. It turned out to be quite a conversation and you can download it and listen to it in its entirety here. Our panel and guest brought up so many excellent points that I’m going to take the time to summarize and extend them in this “post interview” so they are not lost.

Giving credit where it is due: Our guest was Steve Plunkett, CTO of Servitizer. He has studied the concept of delivering services over the Internet and has a depth of understanding and experience few in the field can claim. I recommend his blog as a continuing series of insightful articles on the business of delivering services in an on-demand world.

Giving more depth and points of view, our panel was stellar. Luis Aburto, CEO of Scio Consulting provided a clear summary of the intersection of technology and business concerns that make up service offerings in this field. Mikael Blaisdell of MBaisdell & Associates brought up a range of issues that are rarely if ever considered in planning and developing a service. Lincoln Murphy of Sixteen Ventures broadened the business side of the discussion many times over.

The conversation exceeded my expectations and I encourage you to listen when you can. But I felt that the key points can be easily lost because an hour seems like a long time when you just think about it – when listening to the conversation there is a lot of information coming all at once. So – this series is an attempt to summarize and extend the wealth of insight and ideas we covered.

First – let me cover the title of this article with a few words. The subject of this article is service offerings on the Internet – broadly. This means not just Software as a Service (SaaS) or Platforms (PaaS) or Infrastructure (IaaS) – it includes all the various types of service products available now on a subscription or fee for use basis. This is often referred to as “X”aaS – whatever you might want to put in front of the words “as a Service” and includes the various cloud services and application services extensions for things like billing, metering, integration, etc.

The Gartner Group has recently said we’re at the peak of the hype cycle for these offerings. I agree and I also believe that many services today are “immature” at best as pointed out by a independent study mentioned in a recent article by Dave Rosenberg. That leads to the “trough of disillusionment” as Gartner calls it – when early adopters find the services are not yet where their marketing said they should be and they “push back” against the vendors to deliver at a level consistent with critical business needs.

It is the realization that much of the promise in the XaaS market is still to often just that – a vague promise – that I think united all our guests. The “Service” in many service offerings on the Internet is still poorly defined and poorly delivered, even by major players. And I think i can speak for everyone when I say we are not just standing on the sidelines booing when we say that – we’re all all personally and professionally committed to helping our clients and the industry get to the level of maturity that is necessary for long-term success.

Steve Plunkett kicked off the conversation with some background on “servitization” in industry and an example that struck me – Rolls Royce Aviation provides jet engines for much of the commercial aircraft fleet in service today. But they don’t do it by “selling” the engines – they provide them as a service-based on the number of miles flown, along with all the maintenance and support necessary to operate them, to their customers. When you take an example of a service like that you immediately see that there is more to it than just putting engines on planes – this is the entire operational assurance that goes with the operation of an aircraft and the critical service it is providing its customers. As Steve pointed out – our industry is still very naive when it comes to providing this level of direct services to customers. In the past, it was enough to provide a CD and an install script. It was someone else’s responsibility to properly size, secure, and provide access to the server where it was installed. Service was limited to second or third-level calls to the help desk. But as Phil Wainewright of ZDNet recently pointed out – this isn’t because a service-based approach is new to the industry. If nothing else, it could be said that licensed software started in earnest because of US anti-trust actions against IBM.

The core issue for the industry and SaaS vendors is there is a great lack of understanding when it comes to approaching the business of becoming a service provider, especially for companies that started out as straight-forward “product providers” – meaning those who provide software and a license but don’t provide any of the delivery and operational mechanisms that allow people or other systems to use the application. In fact, it could be said that it is much easier to be a XaaS startup than to transition from being a traditional ISV to SaaS. Going back to the quote from Gartner, if we don’t address this problem, it will greatly impede – if not sink – XaaS as an alternative in the market.

This leads to another point Steve made quite strongly. We are talking about the industry as a whole when we say this. There are a lot of vested interests, that as always in the face of disruptive change (like the current debate on healthcare), will advocate for the least amount of change if not avoid it altogether – the “do nothing option.” These objections come in a lot of forms:

• Product managers will say you can’t control a product development cycle driven by direct customer involvement – as customers expect on the Internet.
• Your Value-Added Reseller (VAR) will tell you there is no way you can sell direct in your market – and maybe they are right – but did you ask if they were ready to become Value-Added-Service Providers? What value will they add to a service-led offering to assure their place in the chain?
• Your IT department will tell you they are not ready to provide the level of service and reliability customers expect for critical line of business applications. But – have they identified the requirements so they can figure out what it takes and who can?
• Your sales group will say they cannot transition from large up front license sales to incremental subscriptions.
• Your marketing group will tell you they cannot imagine how they will operate without the “big bang” of a new feature list for their next trade show.
• Your outsourcing group will tell you they can help you get to where you need to go but they can’t offer a model of interaction and reliability that reflects a more service-led approach.

These same issues are echoed across the industry by naysayers who say security and reliability problems are too great, integration or customization is beyond SaaS, and the business model is too hard to make a profit with. The issue is getting them all to acknowledge that providing a service instead of a packaged application is yes, inherently different from the current “norm” but in many ways just part of the larger business push toward “servitization.” On balance, I think our answer is, “Get over it.” This is a business opportunity and you will either find ways to take advantage of it or get left by the wayside.

In the early days of the industry companies like IBM and HP provided much, if not all the IT services needed by major enterprises. The aforementioned anti-trust action along with the rise of commodity desktop computers and servers provided an alternative that allowed a lower point of entry brought a great deal of disruption that companies like Microsoft took full advantage of as they moved into a place of dominance. Just like today, there were many changes and many players who felt a sense of entitlement in their roles who were ultimately displaced when they couldn’t make the transition.

A big part the change is the place and role of the service provider (the former software vendor). Now end-users look to the service directly when they have questions about how the application is “supposed to function” and internal IT resources (rightfully) expect their direct support role to be measurably diminished. This is the service that is being paid for after all. Gone are the days when the IT service desk made the decision to push the call “up” to the second or third level support with the vendor. Now the IT department expects the calls to come from the vendor and then only when they cannot resolve a local communication or desktop configuration issue. In fact, increasingly the role of the IT department is to set the standards and expectations that fit the business case for a line of business service and then hold the vendor accountable.

Lincoln Murphy pointed out that within servitized products, it is the service that keeps commoditization at bay. A successful vendor becomes more directly involved and responsible to the end-user both as the service provider and the subject matter expert in the field they represent. As Lincoln pointed out – we can go to our personal computer and start “Word 2003″ and it will work just fine – just as it did in 2003. But if Word was online, we would expect it to seamlessly evolve and be something more that it was six years ago – just as iGoogle is a clear line of evolution from the iconic single search box we all came to love when it first began. In the same way, “Infrastructure as a Service” needs to be more than a commoditized server. If it is not – it isn’t going to displace local servers.

And to extend the concept – a service on the Internet has a “responsibility” to carry the model to include the level of communication the delivery medium allows. Is a platform or infrastructure service benefitting you enough if you can’t leverage the ecosystem or community that revolves around it? What is left “off the table” when the community around a line of business application cannot leverage a forum or even list server to communicate best practices, voice concerns and answer questions? These things certainly exist for premise-based products, but they aren’t baked into the business model and certainly not part of the application itself. The question should be – why aren’t they in a XaaS offering?

Moving yet deeper, Lincoln pointed out that XaaS offerings must leverage their ability to monitor their customer interactions with their product to ensure features are of value and meeting customer expectations. Security concerns aside, generalized usage metadata allows service providers a level of understanding of user interaction. Rather than shying away from monitoring customers, it is a responsibility to users to ensure the service will continue to deliver value and to the brand to ensure it stays ahead of competitive offerings.

This means an XaaS offering has to be much more than a new technology. In fact, I would have to say marketing any XaaS product as a technology alone is an error. Of course, the delivery system itself is technical. The expertise and services that are on top of the delivery are enabled by technology, but if they do not stand on their own, they cannot go beyond simply surviving and move to thriving. An excellent product without the technical underpinnings that provide reliability and scalability will fail to reach its potential. In the same way, the mediocre product with excellent technology will be replaced by competitors in no time, especially when that product is delivered on the Internet. There is simply no real barrier to prevent it.

With that we have set the stage to get deeper into the conversation with Mikael Blaisedell taking us into another aspect of the question – what does “as a Service” really mean? But, this article has reached as much length as I think readers can handle so you will have to join us in Part 2 of our series or – download and listen to the podcast. And – feel free to extend the conversation in your own way – here in comments or on your own blog. We’ll be listening…

This month on Haut Tech Conversations we kick off our series of best practice shows with a look at the core feature of SaaS, Cloud and on-demand applications – Service. As we explored in our last article, we’re going to discuss how current vendors are dealing with their service offerings, what is often lacking, and what is on the part of the vendors and the industry as a whole

>>Here is the archived show as an mp3 file <<

Our guest will be Steve Plunkett, CTO of Servitizer. Steve is a technologist and innovator with eighteen years experience. He has worked with and held leadership positions in large enterprises, service providers, network operators, product manufacturers and government agencies. Specializing in solution and service innovation he has architected systems, networks and products and worked with customers, companies and partners around the world. Steve has lead initiatives within large organizations to transition from a product to a solutions and services model. He has a strong track record of identifying emerging and disruptive technology trends and harnessing them through solution and service innovation. Steve blogs for Servitizer on – what else – the Servitizer Blog. I’ve already had a talk with Steve prior to the show so I know this is going to be a great conversation.

Joining us will be our panel of industry insiders:

• Luis Aburto , CEO of Scio Consulting- A veteran of international technology and engineering consulting for corporate and government clients in the U.S. and Latin America, Mr Aburto brings to Scio a passionate commitment to smart business planning and meticulous development processes and project management. A native of Morelia, Mexico who has traveled and lived across the globe, Mr Aburto holds a master’s degree in engineering from the University of Texas at Austin, as well as a master’s in computer-aided engineering from Strathclyde University in Scotland.
• Mikael Blaisdell of Blaisdell & Associates – Mikael runs his own consultancy, Mickael Blaisdell & Associates, and writes for his Hotline Magazine and Customerium. For over 25 years, Mikael Blaisdell has been closely involved with the strategy, process, people and technology of customer relationship architecture, retention and profitability management. As a consultant, he has advised organizations across a wide range of types, locations and sizes on designing, building, re-engineering and optimizing their customer contact centers and programs to align with strategic goals. Working with technology manufacturers, he has contributed to the design of contact center products and implementation procedures. He has served on the boards of professional associations, delivered presentations on all aspects of CRM at industry gatherings, and written extensively for various print and online media.
• Lincoln Murphy is the Founder of Sixteen Ventures and blogs on his business site. You can also find him on Twitter here and here. Lincoln Murphy brings over 15 years experience in on-demand software product development and Business Architecture, focusing exclusively on SaaS since 2004. Working with clients of all sizes, and both SaaS pure-plays and ISVs transitioning to SaaS, Lincoln helps companies recognize and execute on opportunities to generate or enhance revenue through the SaaS Business Architecture.

I know each one of our panelists and I’m sure they will bring more points of view and questions to our conversation than I can manage alone. Our show will stream live on Wednesday, August 19 at 10am CDT from our BlogTalkRadio home page and be available as a podcast shortly after. The bonus for joining us live is you get to pose questions to our guest and panelists and hear their take directly.

The show is scheduled for 10am, Central, Wednesday, August 19, 2009. You can also download the show as a podcast after airing.

I hope you will join us. And by the way, I am always looking for guest and panelist suggestions so if you have one – don’t hesitate to mention it in comments here.

In addition – we also have a webinar titled Leveraging Cloud Services, coming up with Rick Nucci – CTO & Co-Founder of Boomi, Rick Chapman, CEO of Softletter & SaaS University, and our own Luis Aburto, CEO of Scio Consulting. We will be covering the broader aspects of “integration” and why using cloud services rather than trying to build connections to both outside functionality is a key consideration for SaaS vendors. I can tell you personally as I’ve worked in the field of enterprise integration – it isn’t a simple issue. Keeping track of all of the shifting pieces can be quite a challenge for a company with a line of business focus. If being part of the broader SaaS ecosystem is on your radar, I hope you will take advantage of this opportunity. Please take a few minutes and sign up for this important webinar:

Leveraging Cloud Services – Thursday, August 20, 2009 – 1pm-2pm CDT. Registration is free and open to all.

AND – Our survey of product managers is closing soon. Are you a software product manager? Would you take a few minutes to join our survey? Check the details on our blog.

Although in reality, business services provided through the Internet are nothing new, the number and breadth of services now available is certainly worthy of note. As a Gartner report recently opined – we are most likely at the peak of the “hype cycle” which in “Gartner speak” leads to the “slope of enlightenment” and eventually to mainstream adoption in the enterprise.

But as asked by Mikael Blaisdell in our LinkedIn Group, Haut Tech Conversations -

“Service certainly appears to be the key element, at least in the name of the business model — but to what degree is that actually manifested in the strategy, organizational structure and behavior of SaaS companies?”

In response to his comment – I would only expand that SaaS vendors are well named but Cloud-based and “on-demand” services in general should also be counted in that basic business question. Is the “Service” we’re offering actually part of the product itself? is it something loosely bolted on – a CRM afterthought? Do we understand the real paradigm shift that is taking hold and we are a part of when we offer an online service? or are we just putting our software up for a subscription sale without a thought as to how the relationship with our end users has changed in the process?

This is more than just a passing question. It is key in the transition to a service-based business model both for individual vendors and for the industry as a whole. To be successful as a service business, every part of the company needs to be examined for strategic alignment and tactical responsiveness. Knowing where to start and where you are going is critical. Fully considered, responsive and properly executed service is the most important element in customer retention. Customer retention in turn is what keeps the cash flow on target in a subscription-based business model. No matter how much hype your marketing department is able to generate, at the end of the day it is the value of the services the subscription delivers that keeps the customer coming back.

So – here’s the rub: We’re moving into a service-based business model when all our recent industry experience is more straight-forward vendor to purchasing relationships. As Steve Plunkett, CTO of Servitizer recently pointed out in his two part blog series – this is an exercise in going back where the industry came from. Companies like IBM and HP made their name from providing the infrastructure, hardware and support, bundled as services, to enterprises before the ubiquitous personal computer and commodity servers entered the picture. When personal computing became the reality, those service providers transitioned to being hardware and software vendors – divesting themselves of accumulated knowledge, services and consultants along the way. Now they face an army of new entrants in the field that are quickly “eating their lunch” as they try to transition back to being service-led. Just like I mentioned at the individual business level – every part of the industry is having to rethink their roles – Software vendors, infrastructure providers, VARs, and outsourcing organizations all face tectonic shifts in their business models and customer relationships.

I’ve been in the business long enough and in the right areas to see the transition and in some cases to have made a little money helping companies get from service to simple vendor relationships and from being an organization that was dependent on outside services to one that could operate entirely on an internal resources. We’ve gone full circle. We’re back to helping companies and vendors cross to service-led models.

But – quite honestly I don’t have all the answers. Regardless of the fact that we are circling back, there are still a lot of differences both in customer expectations and the capabilities services can offer. So comes to this: The first in our series of Haut Tech Conversations and best practice blog entries around the issues and technologies involved in running a SaaS, Cloud or on-demand service.

This is the kick off blog post. In a real way I started this post by opening a Linkedin Group called Haut Tech Conversations. I invited a lot of my friends in the industry and am continuing to plow the field for more. I posted some starting points as discussions and the links from the first paragraphs of this entry come from the conversations that grew out of those. I didn’t write this alone and I don’t intend to carry the ball alone either.

The name for our LinkedIn group is not a whim. We’ve set up a podcast feed on BlogTalkRadio that is not coincidentally also called Haut Tech Conversations. The real value of BlogTalkRadio is that we can host a podcast that can be streamed live, with guests, panelists and listeners chiming in. We can release it via iTunes so people who could not join us live can download the podcast and listen at their leisure.

As the title of this article proposes, our first subject is the core of the exploding Internet services market broadly – Services as a Product. Our guest will be Steve Plunkett, CTO of Servitizer. whose core business is helping companies that are moving into this market manage their service-based products. We will also have three panel members – Luis Aburto, CEO of Scio Consulting, Mikael Blaisdell of The HotLine Magazine, and Lincoln Murphy of 16 Ventures. As the name suggests – this is not intended to be a webinar or canned presentation. This is a conversation – first between myself, the guest and our panel, then with members of our live audience and finally – with the broader social media sphere that we all leverage as a part of our efforts.  Our show is scheduled for Wednesday August 19 2009, 10 am CDT. You can find show details and our call in number  on the BlogTalkRadio show page for Haut Tech Conversations

What I hope will happen is for others to present their own take on the subject in their blogs, on the LinkedIn group and here so we can sum up before the next podcast in our series. I encourage you to join us on LinkedIn, Facebook, Twitter, your blog or here to continue the conversation. As has been said many times – no one of us is smarter than all of us.

In addition – we also have a webinar titled Leveraging Cloud Services, coming up with Rick Nucci – CTO & Co-Founder of Boomi, Rick Chapman, CEO of Softletter & SaaS University, and our own Luis Aburto, CEO of Scio Consulting. We will be covering the broader aspects of “integration” and why using cloud services rather than trying to build connections to both outside functionality is a key consideration for SaaS vendors. I can tell you personally as I’ve worked in the field of enterprise integration – it isn’t a simple issue. Keeping track of all of the shifting pieces can be quite a challenge for a company with a line of business focus. If being part of the broader SaaS ecosystem is on your radar, I hope you will take advantage of this opportunity. Please take a few minutes and sign up for this important webinar:

Leveraging Cloud Services – Thursday, August 20, 2009 – 1pm-2pm CDT. Registration is free and open to all.