Cloud Computing, SaaS and Such--Have We Read This Story Before?

I have this incredible feeling of déjà vu.

Cloud computing and Software as a Service is all the rage. In my practice at PJM Consulting, I am very involved in software startup activity. Nearly every new software company that I see today is being built on the Software as a Service business model. It's all the rage--so much so that it appears that any self-respecting software entrepreneur would be embarrassed to start a company using the traditional software licensing model. Even if an entrepreneur was so inclined, good luck finding a VC who would even consider funding such a company. No one wants to look like a dinosaur.

It's all well and good--there is definitely a real trend toward SaaS and Cloud Computing, with many good reasons for it. But most high technology trends are initially a bit over-hyped, and tend to get ahead of themselves. In addition, this particular story seems ever so familiar to a tech veteran that's been around for a few of these cycles.

The first bit of history this reminds me of is the old terminal/mainframe model from the early years of computing. There were some real advantages to this model, but also some big disadvantages as well--which opened the door for the golden age of PCs and networking.

The second era that the current SaaS wave reminds me of is "Web 1.0", when Web-based hosted software (then called ASP rather than the modern SaaS terminology), was first going to take over the world. The current trend seems so very similar because it was around the Web 1.0 years of the late 90s/early 2000 when the traditional software license business model was first proclaimed dead. At that time nearly every new business plan was based upon an ASP model.

So some of this fast-moving Cloud Computing or SaaS trend is new--but much of it could be viewed as recycled from past trends. Let's look at the Pros and Cons of this computing model:

ADVANTAGES

* Enables "Utility-Style" computing - variable expense instead of. capital investment
* Allows an end run around overwhelmed IT departments (like PC networking did)
* Supposedly "On-demand"--use only what you need, when you need it
* More efficient use of compute resources by time-slicing large farms of cost-efficient computing resources
* Web-based allows anywhere, anytime availability
* Off-site storage of data assists disaster recovery preparedness

DISADVANTAGES

* Immature and inherently more difficult Security
* More difficult integration with other applications
* Internet latency
* Internet reliability
* Data resides outside the company firewall
* Costs over time aren't necessarily lower for customers
* Lower margins for software vendors--aren't always accounted for in current pricing

SUMMARY

I believe that the trend toward computing in the cloud will continue, but there will be some stumbles and pullbacks along the way. Cloud Computing and SaaS has some inherent strengths--but also some under-publicized weaknesses. Many software vendors are overlooking the weaknesses at this time, as is typical of any new and hyped technology. Traditional licensed software hosted by the user still has its strengths and a definite place in the market. Like many mature technologies and business models, the death of traditional software licensing has been greatly exaggerated. Once the early hype passes, decisions on whether to computer within the firewall or in the cloud will once again be made on the individual merits, costs and user needs for a particular application within a particular company. That's how I see it--post a comment with your opinion so we can look at all viewpoints.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

Google Chrome--a Strategic Platform or just another Browser?

Google's new Chrome Browser came out a few weeks ago to quite a bit of attention. It's big news 1) because it's from Google and 2) it brings back memories of the "browser wars", and seems like it could potentially signal the next big battleground in the intense rivalry between Google and Microsoft.

I've downloaded Chrome and played with it a bit, but this isn't intended to be a technical review of Chrome's merits. It seems reasonably snappy, and has Google's typical minimalist design philosophy, including a single box for multiple functions (search, address bar, etc.). Your personal preferences will decide whether you like that or not. It has some nice features such as tabbed browsing, which theoretically should prevent one bad browser window from crashing all open browser windows--much like when Windows became multi-threaded. Nice stuff, but doesn't really fundamentally change the browser game. But technically it's still a beta anyway (of course just about everything is with Google), and it will evolve over time--so it's not really time to judge it from a technical perspective anyway.

What I want to do is to examine Chrome as a strategic move by Google with respect to the software and online worlds--what does it really mean, where will it take the market, and what are its chances for success?

Let's take a look at some of the potential ways that Chrome could affect the marketplace:

A Better Browser
Of course, PR propaganda always will say that this is the "real" reason for bringing out a new product such as this. When I was at HP we used to call this "making a contribution to the market". Google in particular often gets sanctimonious about this type of thing, with all their "do no evil" and saving the world stuff. Does the world really need another, better browser? Not sure. Firefox and Safari, to name two, are already probably technically superior to IE, and while they've made some inroads in the marketplace, they still trail Microsoft by a wide margin. But history tells us that competition is a good thing, and a step forward on major platform like a browser can certainly be thought of as a gateway to allow software innovation to develop faster. Having a company like Google enter the fray should increase rate of innovation that's possible in the online market.

An Application Development Platform
This is the position that many pundits suspect may be the major impact of Google's move. In their introduction, Google talked quite a bit about "remaking" the browser for Web 3.0, if you will. And a fresh approach does make sense, given that Internet Explorer was conceived long before serious online applications were envisioned for the Web. With SaaS and Web 2-3-4.0 currently all the rage, having a browser platform designed from the bottom up to accommodate online software applications should be a good thing. If it's all it's cracked up to be, this could conceivably be a game-changer and a real threat to Microsoft. The key here is how much of the talk about re-architecting the Browser is real, and how much is hype. This will become more apparent over time as Chrome is further developed, and application developers take a look to see if there truly are features they can take advantage of to build better online apps for users.

An Additional Way To Track User Behavior
This is one of the more cynical viewpoints as to the major motivation behind Google's introduction of Chrome. The thinking is that this is one more insidious move by Google to "big brother" your online activity. It's no secret that Google uses web activity data they collect by various means (such as Google Analytics) to fine-tune their advertising business. Certainly owning browser could be seen as the "holy grail" towards creating a complete characterization of online activity. What else might they use this data for, in addition to fine tuning their advertising platform? That's the question and concern.

A Way To Drive More Search Traffic And Adwords Revenue
Along the same lines as the bullet point directly above, owning the browser could be seen as the ultimate in terms of driving web traffic toward Google's Adwords online advertising. The first thing you see upon downloading Chrome is the opportunity to switch to Google as your default search engine. How much will they do in this regard, either subtly or in a straightforward manner? As stated above, at a minimum, it gives them the opportunity to make Google the default search engine, which is critical to their base business. Only time will tell how much of a factor this is in Google's Chrome strategy.


A "Real" Competitor Aimed At Microsoft IE To Make Them Defend Their Turf
Of all the bullet points I'm raising, this is the one I'm most sure of. Google and Microsoft are locked in one of those classic death matches for online software supremacy, and don't miss an opportunity to tweak their arch-rival and make them sweat a bit. Going back to the application development argument above, there is a feeling that Chrome could serve as the basis for a suite of online Google apps to threaten obsolescence for Microsoft's desktop software business. I don't doubt that Google may try to do this. But even if from a technical and marketing perspective Chrome is only a modest success, it almost certainly will get Microsoft's attention and cause them to expend resources and management attention on browser technology, to an extent they may not have preferred.


SUMMARY
Chrome is intriguing, but it's too early to tell for sure what the major reason is for this Google initiative. They may not even know for sure themselves at this point. But the product, and more importantly the move itself, will likely make Microsoft react. The ensuing competition should be all good for the user and developer communities, as long as it doesn't take us toward another tiresome and market-paralyzing "platform API" war. I'll be following the future development of Chrome closely to see where it takes us--how about you?

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

Retail Distribution of Software Products

Selling software at retail at one point in time was the "Holy Grail" for consumer, home office and small office software suppliers. That's where the volume was. Everything that a company did starting up was intended to build enough volume to get into a distributor, so they could then pursue shelf space at the major retailers of software.

But oh, how times have changed. The advent of the Internet and wide availability of broadband has made nearly every consumer and small business application downloadable with the click of a mouse, and a major credit card. In the meantime, major sellers of software have dropped like flies (CompUSA, Computer City) or have de-emphasized software in their retail assortment.

PROFITABLE retail distribution of software, which has been a major challenge for software companies dating back more than 20 years, has gotten tougher every year, as the retail distribution pipe shrinks. And even twenty years ago, it was already very tough, for small software companies, in particular. I've even seen a credible authority recently predict that distribution of software through retail outlets will CEASE TO EXIST within five years.

IS RETAIL SOFTWARE DISTRIBUTION DEAD?

So should you forget about retail as a potential distribution channel for your consumer or SMB software application?

First of all, it's my opinion that the near term extinction of retail software distribution is greatly exaggerated. While it has been in decline for a very long time, and will continue to decline, it still has some life left. There is still quite a bit of software sold at retail. There are still some reasons that people buy at retail. And last but not least, nearly every thing in high technology takes more time to "go away" than the pundits predict. People just don't change their habits that quickly, no matter the technological reasons for that change to occur. Among several reasons people still buy at retail:

WHY PEOPLE STILL BUY SOFTWARE AT RETAIL

Impulse - They are in a store looking for something else, and happen upon a product that looks neat or useful. In this respect, software benefits from this "in-store effect", much like any other retail product.
Credibility - Buying software, or any other item over the Internet from some unknown company, is scary for many people. Just the fact that it's in a "touchable" package, and is "blessed" by the retailer stocking it, gives comfort to many, especially the mainstream and late adopter types.
Physical Media - Most folks want a backup copy of the application which they've put out good money for. Sure, you can burn a backup CD on your own. But to some folks that's technologically challenging--and seems like a lot of work to others.
Internet Phobia - There still are folks, more than want to admit it, that just aren't comfortable with the Internet, particularly the ecommerce aspects.

WHEN SHOULD A SOFTWARE VENDOR CONSIDER RETAIL DISTRIBUTION?

So in some cases, software vendors should still give consideration to packaging their products for retail distribution. What are the elements which may make retail still a viable distribution channel for a particular product line?

* A VERY hot product - In one of these rare instances where you've hit a product home run, it's beneficial to get your product in as many channels as possible. When you have a product "selling like hotcakes", retail can be ideal to help you maximize your return on the high demand. Make sure that you've proven that it's a brisk seller via other marketing and distribution methods BEFORE you enter the retail channel, however.
* A well-known brand - Almost nothing helps product sell through retail as much as a well-established brand. There is almost never anyone to "sell" your product in a retail store. You are relying almost soles on the box copy to be your salesman. In this situation, the credibility of a strong brand is often the difference between a customer purchasing, and leaving the box on the shelf.
* A related portfolio of products that can be sold to the same customer. It is very hard to make money on a single product being sold through retail channels. The upfront marketing programs and thin margins make breakeven a huge challenge for a single product company. However, if you can profit indirectly even if you just break even on the actual retail sale, by building your customer list and selling related products to them--that's a huge advantage.
* Add-on services to sell - Much like having a large portfolio of products, a single product vendor can also have a greater chance at profitability if the "retail product" is a front-end to other revenue generating services. Maybe the product leads to subscriptions to an add-on web-based service, or there are custom forms or other tangible supplies that can be sold to users of the software application.

These are a few of the circumstances where I would actually encourage an ISV to consider retail distribution. I want to caution that in the best of circumstances, this channel isn't for the "faint of heart". Startup costs are high, margins are generally lower than other forms of software distribution, and there are substantial inventory issues and risks. There's an old saying in the software business about retail distribution--"the only people who make money at it are the freight companies who ship the inventory back and forth among vendors, distributors and retailers". In short, it's a great place to lose money--if you aren't careful. I highly recommend that you retain an expert to help you through the process, if you are new to retail and decide that it may be appropriate for your products.

There are many more angles to cover on this topic. To name a few, the need for a relationship with a major distributor of software to retailers, what marketing programs to use, the importance of a retail package--and much more. As important as they are, we'll have to leave the detailed mechanics of getting your software into retail distribution (and making a profit!) for a later article.

SUMMARY

So don't dismiss retail distribution of your software applications completely, even in this age of Internet instant gratification. But make sure that you are doing it for the right reasons, with a solid plan for how it will benefit your company. If your company is entering retail for the first time, consider retaining an expert to reduce your risk of failure.

I'd enjoy hearing your own experiences with retail distribution, past and present, as well as your attitude about this channel today. Post a comment so we can all learn from your experience.

Phil Morettini
PJM Consulting
www.pjmconsult.com

Which Online Advertising Platforms Should You Include in Your Marketing Mix?

I often write about online marketing, as many of my regular readers know. A frequent topic of mine is Pay-Per-Click (PPC) advertising, also known as Cost-Per-Click (CPC). Occasionally, people will refer to this marketing vehicle as Search Engine Advertising. What you're hearing this called more and more is "Google Adwords".

HAS GOOGLE ADWORDS "BECOME" ONLINE ADVERTISING?

Of course, its kind of like asking for a "Coke" when you want a soft drink, or "Scotch Tape" when you are seeking sticky-backed tape. It's the age old story of a brand DEFINING the category itself, and usually happens when a product becomes dominant in a market segment.

The conventional wisdom these days is that Google has basically won the Online Search Engine-based advertising wars, so don't even bother with any of the other advertising platforms out there. This topic is the very reason for Microsoft's recent offer to buy Yahoo for a gazillion dollars; they are motivated to do this because Google is so far ahead that they don't appear able to catch up on their own. This raises the issue of two also-rans in a market, combining to take on the market leader--which usually ends in disaster--but we'll leave that for another discussion…

Back to the main question, should you focus your online advertising energy and budget strictly on Google Adwords, or broaden your campaign to other platforms? I have an opinion, of course, and I'd like to illustrate that opinion with my own pragmatic advertising experience, as well as some more theoretical marketing theory which has served me well across a variety of markets. Let's start with the theory, using an experience from my past to illustrate my viewpoint.

MARKET NICHES: HIT'EM WHERE THEY AIN'T

As markets develop, conventional wisdom usually instructs you to "get on the bandwagon" of the market leader, and don't waste your time "where the action isn't". Back in the 90s when I was running a systems & network management software business, Novell Netware had the overwhelming share of the Network Operating Systems business--roughly a 70% share. As a result, most of the companies in our general space focused on making their add-on products compatible with the Novell platform. They ignored two other competitors: Microsoft LAN Manager and Banyan VINES. There were almost no add-on systems management products available for these two platforms. We ported our applications to these two platforms, with excellent payback. Not only were we able to make easy sales to the customers of these two NOS vendors due to lack of competition, these secondary platform vendors supported our efforts to a much greater degree than Novell, where we were one of many. In addition, it turned out that while Banyan (and too a lesser extent LAN Manager) had much higher market shares in the coveted Fortune 1000 market than they did the market as a whole. Many large companies also had mixed networks containing two or more of these NOS platforms--we had a major strategic advantage in these large accounts, due to our cross platform support. The first lesson here is that sometimes it really pays to segment a market a bit differently. In some cases, in segments important to you, the market leader isn't nearly as dominant as overall market share data would lead you to believe. The second take-away is that smaller market segments are often DRAMATICALLY less competitive, allowing you to efficiently grow revenue without huge marketing outlays to "get above the noise".

MY OWN EXPERIENCE WITH THE MAJOR ONLINE ADVERTISING PLATFORMS

I run PPC advertising campaigns for several of my clients. Let me make something clear right away--there is no comparison between these three advertising platforms. Google Adwords is the clear winner, hands down. It's not close. Adwords is both by far the most robust and easiest to use, which is quite a statement. Adwords is a great piece of software, which Google is constantly evolving and improving. You can do almost everything you want and there is excellent online help if you do have a question. If you ever really do need a live person, help is available, even if you are spending a modest amount on advertising with Google. It is a pleasure to work in Adwords. Plus the fact is that by far the most volume of searches is available on this platform.

Yahoo Search Marketing (formerly Overture) comes in second place. This is the original search advertising platform. It's not nearly as robust as Adwords, but the recent major upgrade at least brought the software into the modern ages--it was pretty stagnant for a very long time, allowing Google to surge into a commanding lead. The basics are covered, and it's pretty intuitive--although if you are used to working in Adwords, the subtle differences can drive you a bit crazy. And there are a few things that are simple to do online in Adwords, that you have to call and request over the phone to make happen in Yahoo's platform--but at least they are very nice about it.

And then there is Microsoft AdCenter. What can I say about Microsoft; it is the typically excruciating experience dealing with them. They dominate most markets they are in, and have that arrogant way of dealing with you that only a monopolist has. When you have 90% of the OS or word processing market, you can get away with lousy support, vendor-centric policies and non-intuitive software. But they are a distant third in this market, and they aren't gaining on anyone. So these weaknesses stick out like a sore thumb. This is the newest platform. The software isn't all that hard to use, but in Microsoft fashion they have created some of their own conventions in opposition to market terminology, and the application doesn't always behave in a way you would expect. Add in the unbelievable support mentality, not to mention the fact that they are a distant 3rd in traffic, and you realize why they are last among the major platforms. As an example of their attitude, when I decided to look at Microsoft's offering, I wanted to import my Adwords campaigns into Adcenter to save a BUNCH of time, which the Help function stated that I could do. Makes a lot of sense for a new user, right? Well, I couldn't figure out how to do it in the software, so I called Adcenter support to ask how. I was told that I needed to be spending at least $11,000/month to have access to that feature! There's a classic catch 20--not allowed to import all your campaigns into a platform (which will enable you to spend money in that platform), until you're spending over $100,000/year. Brilliant market penetration strategy! Whoever is making decisions at Microsoft has no idea how to compete--which I guess isn't surprising for a monopolist. No wonder they are trying to buy Yahoo….

SUMMARY AND RECOMMENDATIONS

Adwords is clearly the best platform, so why bother with the other two? Remember the discussion about niche markets above. Although Adwords is by far the best, as a result, it's also the most fiercely competitive of the three--meaning costs are high and margins are sometimes lower. It really varies by market segment, but in some segments, Yahoo Search Marketing and Microsoft Adcenter are neglected, leaving excellent bargains on important keywords. I am currently running a campaign on Adcenter for a client in a very niche, technical market, which isn't supposed to be well suited for MSN search traffic. This campaign is doing VERY well. So the moral of this story is don't pick one--use all three, as long as you're making money on each of them. This is the beauty of PPC marketing, after all. It is quite easy to test to see if it will work for you, and objectively track your results.

That's my take on the three major search marketing platforms--I'd love to hear yours. Post a comment so everyone can benefit from your own experience.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

More SEO Tools

From time to time, I let you know about some of the more useful (out of the abundant crop available on the Internet!) online tools for Search Engine Optimization (SEO) that I have come across. So here's the latest batch of valuable, and free, widgets that I've found:

The first is a site that checks on all of your back links, with a twist: it actually details not only the back link itself, but the anchor text associated with the link. For those of you sophisticated about SEO for your website, you'll know that this is very important information. There are a couple of reasons why this is important. First of all, the search engines use anchor text to associate your site with keywords that might be searched on in that engine, and uses this information in it's search rankings. So it's very important to have your most important keywords show up as anchor text on as many back links as you can manage. Secondly, if the search engines find that the anchor text on your back links is too repetitive, the engines will penalize you from a ranking perspective. The reason is that if the anchor text on all of your back links reads the same, Google and the other engines assume that the links are "manufactured" by the owner of the site--rather than generated naturally as a result of your site being interesting to others. So I highly recommend that you check out and use this tool:

Backlink Anchor Text Checker

A similar tool is the "C Class Back Link Analyzer". Once again, this is a tool for those sophisticated about SEO. The "C" Class Back Link Analyzer investigates the links pointing to a website, and then groups them according to the IP addresses they result from. If one back link comes from 54.37.14.5 and another comes from 54.37.14.6, the tool would group together. Links which come from the same C-Class IP are likely to be hosted by the same company, often lowering the site's search engine ranking.

"C" Class Back Link Analyzer

One last esoteric tool for the true SEO fanatics out there. It's called Deep Link Ratio Calculator. This tool measure the number of links to pages on your site other than the Index/Home Page, divided by the total number linked to your site. This is important because the Search Engines consider these "Deep Links" to be more "natural", more likely the result of someone creating a link to some great content in your site (as opposed to you listing your own site in a directory, for example). So this neat tool can give you another view of how "natural" the Search Engines are viewing the links to your site.

Deep Link Ratio Calculator

Finally, I present "yet another" Keyword Suggestion tool. I know, there are lots of them out there, but I find that when you're looking to generate keywords for SEO on a site, or when starting a PPC campaign, there are never enough good tools. This Suggestion tool claims to accumulate and report Keyword variations from the six most major search engines. Give it a shot and report back how it goes.

Keyword Suggestion Tool


I hope that you find these online SEO tools useful--post a comment and let me know!

Phil Morettini
PJM Consulting
www.pjmconsult.com