Perpetual licensing is dead. Long live SaaS!
That was not the official theme of Software 2007, it was actually "powered by innovation". Nonetheless, there was a lot of talk about on-demand software, software as a service (SaaS) and "Enterprise 2.0". Perhaps because these are the key drivers of innovation in the software industry, and they are as much about the market and economics as technology.
I thought I should attend the "Venture Capital Panel" breakout session, since everyone has been telling me that VCs don't invest in enterprise software any more.
The panel was moderated by Dan Dorosin (Fenwick & West) and featured Bob Lisbonne (Matrix Partners), Ravi Mohan (Shasta Ventures), and Ted Schlein (Kleiner Perkins Caufield & Byers).
Some key points:
- Look for "white space" above, below, and to the sides of existing applications, not squeezed between them.
Look for models borrowed from Web 2.0, where adoption is driven at the user level, rather than dictated from corporate headquarters.
Bob Lisbonne quoted one of his mentors: " There are only two ways to make money in software: bundling or unbundling."
The big ERP vendors "own" the CIOs office. Grow virally by selling to buyers who have a highly specific pain points, their own budgets, and minimal control from corporate IT.
- Show investors that your value proposition is so compelling that you are able to sell to big companies without a big sales force.
- Have a great sales partners.
- Consider a mix of software and hardware (e.g. appliances).
The days of big upfront license fees are gone - make sure you have an on-demand option.
However these deferred revenues increase the amount of capital required. This cash flow problem can partially (or totally) offset the trend for lower costs of software, bandwidth, and infrastructure.
Estimates of the amount of capital required was the subject of some debate. Estimates ranged from $25 million to $100 million. The discussion seemed to settle around $40 million.
Many SaaS companies are negotiating one to two years of subscriptions up front to help ease cash flow.
On the other hand, there are examples of companies that have bootstrapped to $6 million to $10 million in revenue.
Bottom Line: The approach to the market is as important as the technology because it is very difficult to compete with the big guys. Do some smart product marketing and fight the battles you can win. Maybe you'll get some investment.
Article originally appeared on Corran Toohill (http://www.tech2mkt.com/).
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