chris horn's blog

OpSource’s acquisition of LeCayla was announced today.

Conor Halpin and I met with OpSource in Santa Clara late last year, and I was immediately impressed by Treb Ryan and his team. LeCayla’s business has been growing to the extent that we needed to open a physical presence in the US to serve customers, and convert US based prospects. We considered various options: organically building a direct presence ourselves; acquiring an existing US company; or partnering with a stronger and complimentary US operation. We talked both to our existing Irish based investors, and potential new US based VC investors interested in the SaaS delivery space.

In the end, acquisition by OpSource makes a lot of sense. LeCayla was already a customer of OpSource’s hosting solution, and both companies were thus aware of each other. OpSource has a vision of a complete SaaS delivery platform: not just basic hosting, but also valuable services such as analytics, visualization and now - via LeCayla - billing. OpSource brings a wider reach of deployed customers; LeCayla brings OpSource not only a well architected and proven self-service billing solution, but also an excellent engineering team and a business presence in Europe. It is my understanding that Treb Ryan intends to retain Conor Halpin and all of his team.

I have enjoyed working with Conor and the board of LeCayla, and sincerely wish the entire teams of OpSource and LeCayla not only success, but fun in achieving that success while working together.

What kicked of this blog entry for me were some reflections I had as I chaired a one day conference, with a preceding half day workshop, a couple of weeks ago, which was organized in Galway by Fidelity Investments, on the subject of Web 2.0, and how commercial organizations – such as Fidelity – can benefit from and add value to the global internet community.

A core theme of Web 2.0 is the collective wisdom that results from the network effects of sharing across the community. The wisdom of the crowd is sometimes more than the sum of the individuals therein. Wikipedia is one prime example, since collective knowledge can trigger insights for individuals, which can then augment the collective wisdom: the added knowledge which would not arise if the group did not collaborate together. I recently wrote a blog entry about a similar phenomenon in multi-disciplinary research. Group and individual reasoning can positively feed off each other.

One of the dichotomies of the Web 2.0 phenomenon is on one hand, the power of the group and the collective knowledge of the crowd; and yet on the other the significance of each individual. Yes, collective knowledge such as Wikipedia and del.icio.us (and of course Google!) have emerged, but blogs written and commented by individuals are still a fundamental force. Some may argue that indeed the information in specific blogs written by certain individuals is more valuable, accurate and reliable than that in shared wiki repositories maintained by the amorphous net community. There is room for both individuals and the crowd.

In the race to be successful on the web, the focus is on attracting and retaining users, eyeballs and clicks. For the promoters of a web site - whether a commercial venture, or just a worthy cause for society at large - building and growing a “market” is key. Monitoring usage patterns, listening and reacting to user feedback, all builds momentum: hopefully a tipping point is passed, and the network effect of market momentum reinforces the popularity and acceptance. However: does a mass market strategy play only to the crowd, and not to the individuals therein ?

For Web 2.0 , Chris Anderson introduced the term “long tail” to emphasise deploying:

“customer-self service and algorithmic data management to reach out to the entire web, to the edges and not just the center, to the long tail and not just the head”.

As noted by an Amazon employee quoted by Wikipedia: “We sold more books today that didn't sell at all yesterday, than we sold today of all the books that did sell yesterday” -- read that slowly to yourself again if you hadn’t come across it before..

Further, in his discussion on technology market dynamics, Christensen noted:

“Simply put, when the best firms succeeded, they did so because they listened responsively to their customers and invested aggressively in the technology, products, and manufacturing capabilities that satisfied their customers' next-generation needs. But, paradoxically, when the best firms subsequently failed, it was for the same reasons--they listened responsively to their customers and invested aggressively in the technology, products, and manufacturing capabilities that satisfied their customers' next-generation needs ….But the problem established firms seem unable to confront successfully is that of downward vision and mobility, in terms of the trajectory map….”

Success – at least in some industries, such as the disk drive and earth moving machinery industries which Christensen documents – can equally lay the foundation for failure. Group and individual behaviour can play off each other, creating emerging forces from below.

Combining the Anderson’s exhortation to reach out to the edge, with the warning by Christensen not to be outflanked by emerging disruptive technologies from below, it would seem wise to ensure that a Web 2.0 market strategy explicitly recognises the potential of the individual, as well as the mass market of the group. Even more important is to react to dynamics in the market and to changing tastes. The observation is: that in a global market of mass consumerism, the ability to cater for the vast number of changing individual personal tastes and desires – to personalise and dynamically tailor your products and services – may be much more commercially – and socially – valuable, than volume plays of standard products and services to an anonymous amorphous group.

The long tail changes: it wags. The universe of micro-markets in the long tail is worth addressing – this is Anderson’s observation. In addition, changes in a micro-market may in due course influence the mass market (and blind side you) – this is in essence Christensen’s observation.

Ajit Jaokar was one of the contributors at the Fidelity event in Galway, and he reminded the audience of Tim O’Reilly’s characterization of the Web 2.0 phenomenon:

• the web as a platform;
• harnessing collective intelligence;
• data as the next Intel inside;
• the end of the software release cycle;
• software above the level of a single device; and
• rich user experiences.

I thought about each of these six facets as I reflected on the dynamics of the micro-markets, and list some (not all!) of my observations below: how does Web 2.0 address the wagging long tail ?

One common way of reaching out to the long tail, and monitoring its movements, is “data as the next Intel inside”. Google exploits what its itself calls the ”uniquely democratic nature of the web” to derive data on the click activity of millions of users to drive its PageRank algorithm. I suspect that social networking sites, such as MySpace, Facebook, Bebo and LinkedIn, could likewise exploit their data about networks of people. I’ve always wondered in passing how data regulators, such as the Irish Data Protection Commissioner, view such click gathering and social networking activities…

As Web 2.0 embraces beyond “the level of a single device” – which was Ajit’s theme of his presentation - I observe that telecommunications operators, such as Vodafone, O2 and T-Mobile, collect and record quantities of data, ironically in a large part due to regulatory requirements of data retention legislation in jurisdictions such as Ireland. These vast data archives capture about social communication patterns of populations – it is not just the social networking sites which have such data! There are opportunities, and privacy risks, to exploit these vast patterns to provide commercial value. One can imagine intelligence being generated by mobile phone operators to enable targeted marketing by third parties and content providers…

Quietly collecting mouse click activity, or analyzing phone call patterns and triangularising the locations of their owners, are data driven ways of using to drive for the long tail. Importantly, the data is dynamic and therefore so also is the derived collective intelligence: as trends emerge, or change, so can the offerings tailored for particular sets of individuals. But it seems to me that these approaches may wear a clandestine cloak: there are more explicit ways of using collective intelligence for the wagging long tail.

A successful web site needs stickiness to retain, and track, its audience, including the wagging long tail. A social networking site such as those above in part generates its stickiness because of the network effect of having ones friends, co-workers and colleagues using the same site: most people think it is too cumbersome to re-register oneself and encourage one’s cohort elsewhere. IMHO, the resulting stickiness is in fact rather superficial, rather than systemic: it consequently threatens any purported fiscal value for the site. The SIOC project at DERI in Galway underlines the benefits, and business consequences, of seamless federation of online communities. Stickiness should not be driven by re-registration inertia, but rather by community value and impact - which is one reason why I believe Ammado will succeed.

Another strategy to capture the long tail wags is “harnessing collective intelligence” – another of O’Reilly’s Web 2.0 facets. One explicit way is to allow individuals to define their own collections of interesting items, and then to share and discuss them with other like-minded souls. A simple way to do this is just by tagging items: for example, photos tagged with “Galway” on Flickr will appeal to certain people. But tagging rather quickly loses its impact when trying to find items with a combination of tags, requiring tedious trials of various search criteria; and tag synonyms are a problem in a global world: try “football” in del.icio.us as an example – or even “Galway Hooker” in Flickr!

Rather than expecting people to work out the correct search and query expression across a set of tag values for what they actually want, another way is to let people explicitly define and share their own collections. Hobbyists – such as stamp collectors – have been doing this for years, and a craft worker likewise learns what the set of right tools are for the job from the experiences of his trade. Enabling individuals – and micro-markets and even the crowd - to share what works well together when, is a positive tactic for managing the wagging long tail, and which I wrote about recently in the context of software configurations and Cloudsmith.

When doing a little research for this blog entry, I came across Dan Bricklin’s interesting blog entry on When the Long Tail Wags The Dog. His theme is that “must have” items have more value than those which are less likely to fit the job at hand; and that general purpose items are likely to have most value since they can entertain the dog as well as its long tail. While I don’t disagree, my thoughts about the dynamics of the long tail, and how to work with within it, are a slightly different emphasis.

Reinforcing Bricklin, being relevant to the individuals and small groups in the long tail requires customization and tailoring of general purpose offerings. In the enterprise software space, software vendors have traditionally worked with systems integrators to tailor more appropriate solutions to different niches of the market. With componentization in the software industry, in principle useful aggregations of different constituent parts can more likely be used to tailor specific solutions. Collective intelligence can be harnessed by explicitly sharing these aggregations, as I indicated above.

However, once delivered, installed and put into use, assemblies of software components in production environments have in the past usually been relatively static. The challenge is that the long tail wags: micro-markets and even mass markets change, and production systems need to more easily do so too. One promise of the dynamic module environment of OSGi is to enable dynamic evolution: if collective intelligence can be dynamic as trends emerge, or change, and then suggest new offerings tailored for particular sets of individuals, then perhaps also can production software assemblies in business and enterprise environments be dynamically adjusted. This is a theme which we are working upon in IONA, particularly in the context of our highly dynamic plug-in architecture for Artix and our open source FUSE offerings – see Eric Newcomer’s blog.

But if the world is dynamic, and contains a universe of micro-markets as well as a mass, can offerings not only be tailored so as to be a good fit, but also be priced attractively for each ? What when micro-markets change ? As I wrote about, one industry which faces these challenges is the mobile/cell phone operators, for whom intelligent and responsive bundling of services (SMS and MMS and call rates and roaming charges etc) is competitively critical. The ability to generalise this approach into the world of software components and packages is of interest and relevance to the wagging long tail. LeCayla is one company building a common approach to the issue of dynamically rolling out new charge and billing rates so that software vendors can competitively foster specific micro-markets.

Let me summarise: the internet as a platform enables a global market to be addressed. Web 2.0 uses collective intelligence to play in both the mass markets, and the long tail of numerous micro-markets. There is room for both individuals and the crowd, and group and individual reasoning can positively feed off each other. – creating the ever lurking possibility of being disrupted from below. Scalably addressing both the mass market and the long tail is however not the complete issue: markets change, the long tail wags, and scalably addressing dynamic markets is even harder – but possible.

Footnote: my 7 month old Alsatian, Charlie, has yet to grow into his long long tail. He wags it a lot.

It is an interesting time for the world of “Software As A Service”.

At some sort of cerebral level, Dell has been an inspiration for those contemplating a SaaS go-to-market strategy. Dell was renowned in the PC industry for largely avoiding the cost of enterprise sales and retail distribution channels, by instead connecting directly to end purchasers – whether domestic, small/medium business, or enterprise – as much as possible. It is very interesting thus that last week Dell announced, for the first time in 15 years, a retail deal: this time, with Wal-Mart to put some of its low end products directly onto the retailer’s shelves, as its “first step” into a retail channel. Dell apparently needs a distribution platform – and a retailer which 90% of American shoppers use is more attractive than most other retailers – through which to advertise some of its products.

Also this week, Ray Ozzie of Microsoft has stated that it is no longer about “Software As A Service” but “Software And A Service”! He was speaking at the Mix07 developers conference, and primarily promoting the Silverlight technology for Rich Internet Applications. Silverlight will be a runtime for .NET in various browsers – IE, Firefox and Safari – and compete with Flash, AJAX and Javascript to – in Microsoft’s view – provide a much richer video and interactive graphics experience for end users. Ozzie noted that (“fat”) client software not only supports offline usage, but also offers “privacy, empowerment, anonymity and freedom” compared to the “monitoring, auditing and creepy behaviour” of some online services. I guess this was a swipe in particular at Eric Schmidt at Google who is currently promoting substantially enhanced search experiences for end-users, albeit with the consequence of maintaining (private) information about each user.

An interesting part of Ozzie’s presentation was his announcement that Microsoft Live is offering a Silverlight Streaming service providing 4Gbytes of free storage per Silverlight developer, so as to encourage the development and hosting of Silverlight applications. So, if you are a S(as/and)aS developer or independent software vendor (ISV), Microsoft is potentially offering you a rapid way to scale up to address a massive online audience, based on MSN and now not just IE but other browsers as well: up to 1 million unique end users can access your application for free (above that, its 25c per unique user). It will be interesting to see how Google responds..

IMHO we will continue to see a mix of pure software-as-a-service applications (with thin clients); online services with companion client applications (including rich internet access), and fat clients accessing remote services from time to time. There will continue to be a spectrum of configurations.

Regardless, I believe that a critical aspect of S(as/and)aS applications is the ability to scale self-service. Whether you use Silverlight Streaming, Google, Salesforce.com’s Apex or even Wal-Mart (as Dell is doing) to reach a potential audience of millions, I believe that a S(as/and)aS application will be unsuccessful if scaling of its adoption requires manual intervention for every transaction.

Self-service is key to S(as/and)aS – whilst at the same time ensuring that the customer’s experience is happy and helpful. Dell’s appearance in Wal-Mart may in part be due to reports of poor customer service with a purely online self-service store.

One example of online software self-service is of course the open source community. What could be more self-service than downloading source code, and playing and building it yourself ? A common open source business model is to extend self-service with technical support and training. But in turn, this customer support will best be implemented by at least some degree of self-service: witness IONA’s various support offerings for its Celtix family of open source products, including a self-service knowledge base alongside telephone and email support.

LeCayla’s self-service philosophy goes further. In providing SaaS metering and billing, LeCayla’s technology has to address two audiences. The first is end-users of SaaS offerings: LeCayla measures usage, and generates bills and invoices according to actual usage, and in accordance with specific business rules defined by a particular SaaS ISV or application software provider. Naturally, it is desirable that each end-user may use a self-service interface: eg to check her usage, or to change billing information such as a credit card number.

The second audience for LeCayla is the ISVs who want to use LeCayla to meter and bill for use of their software products. Each such ISV registers business rules (eg pricing information, usage tiers, etc) into LeCayla. Furthermore, each such ISV may wish to subsequently change its own business rules at any time – for example for a pricing promotion of a particular product within a particular geography. Naturally it is desirable that not only should end-users have self service to their own usage and billing information; but also that each ISV should also likewise have self-service to its own business rules, as well as to its market adoption metrics and usage information.

For Cloudsmith – the third software company in which I am involved – self-service is also key. As I noted in a previous posting, “sometimes creative developers have different configurations that they seek, or want to define, share and publish to the world. Can interesting new virtual distributions be rapidly defined, communicated and materialized ?”. Cloudsmith will enable developers to self-service find and use interesting software configurations, each frequently materialised from different software repositories (and sometimes using widely different repository technologies and build/make systems). Equally, publishing a new configuration, either to the entire world or to a private community of collaborating developers, will be a self-service activity.

Self-service seems to be intrinsic to scaling software services offered over the internet. Self-serviced services must naturally be scaleable: poor customer support and dissatisfaction will otherwise result. In a self-service, service oriented world, multiple business models are IMHO possible: for example, free access with optional paid-for support and consultancy (IONA’s approach with Celtix as per above); metered usage (LeCayla’s approach); or community based (Cloudsmith’s). I believe that scalable self-service underpins any viable service oriented business model.

Not all S(and/as)aS transactions should be self-service. But unless your S(and/as)aS business model facilitates self-service, then you may be scaleably challenged!

I was on a long haul flight last weekend, from Hong Kong to San Francisco – one of those wonderful flights where you land before you take off – on the way to the next installment of the Leadership For growth programme being run by Stanford Graduate Business School and Enterprise Ireland – see one of my previous posts for the background. Picked up the current issue of The Economist at Hong Kong airport, which I read on an occasional basis, the issue with Tony Blair on the front cover, to pass the time. There’s an interesting article on business schools, and how they are beginning to regain their lost vogue from earlier this decade.

I was the Chairperson of the Irish Management Institute a few years back, which was a little strange because I have no formal background whatsoever in business management, economics or finance! One of the raging discussions we had at the board level of the IMI was what should be the future of executive education in Ireland, including the relevancy or not of business school teaching to the needs of modern entrepreneurship and global business development. I found The Economist article thus particularly interesting, since it alluded to discussions about whether international business schools have lost their way and value.

Then, by coincidence, Monday’s Financial Times had a supplement on Business Education, including its international ranking of the top global executive education schools. It carried several very interesting articles suggesting that the top schools have changed their product from business education to business advice, and almost to management consulting. Customisation of curricula and classes lead to faculty not so much teaching, but instead providing insight in a discussion about specifically how to address issues within a client company, and/or specifically how to apply a particular idea or theory within a client company.

One of the things I had asked myself during my years at the IMI was whether there can be such a thing as a management profession. A profession, by definition, implies some core knowledge, which may be expanded and refined over time by appropriate research and in the light of experience; a way of asserting that an individual has attained a particular level of competence in that knowledge, and therefore can be admitted to the profession; and a code of ethics particularly as to service to the public, including appropriate disciplinary actions if these should be broken (The Economist article makes similar comments). As a professional engineer in Ireland, I am comfortable that Engineers Ireland operates our national engineering profession accordingly. The medical and legal professions are of course similar examples.

But can there be a management or business profession ? Is there a body of knowledge, an admissions procedure, a code of ethics and a disciplinary mechanism ? Can there be a guardian organization for the profession ? In fact should there not be one, so as to protect the public and including shareholders and investors ? However would such an organized profession stifle innovation and entrepreneurship ? As The Economist observes, Bill Gates dropped out of university and would presumably never have made the grade to become a “professional business manager”.

Hmmm. So what is executive education all about ? Can business management ever become a profession ?

I hesitate to comment further in general for all industries, but I do have some views more specifically as applies to the software industry.

In the mid 90s I had the sincere pleasure of having John Cullinane on the board of directors of IONA. John, as I am sure you know, founded and ran the first software company to file an IPO, the first billion dollar software company, and the first company to do a Super-Bowl ad! His company Cullinet was well known during the 1970s and 1980s. John has written an excellent summary of some of his lessons from those years, which I believe are as applicable today to software companies as they were then, in his book “The Entrepreneurs Survival Guide: 101 Tips for Managing in Good Times and Bad”.

One of the things John said to me early on as a board member at IONA was “You know Chris, managing a software company is actually easy”. I did a double-take when he said this to me, but he explained what he meant and I now basically believe he is right. Certainly compared to companies with manufacturing operations, managing a pure play software company would appear easier. I personally believe – and I sure some may wish to disagree with me – that the key operations of a software company (in no particular order) - engineering and software development processes; distribution channels and sales management, including compensation structures and channel conflict resolution; market segmentation analysis and product marketing; product management; professional services fulfillment; pre-sales technical support; after-sales support; product maintenance and upgrades; financial management, including financial planning and administration; internal IT systems; HR management, staff compensation, and gaining staff commitment; corporate marketing and PR; corporate governance; board procedures; management metrics and key performance indicator analysis; customer care and stratification; even M&A post-integration – in summary, all the functions of a modern software company are now reasonably well understood. There is – arguably – a body of knowledge out there which I suspect many of us in the industry would agree represents best practice in the industry, accumulated over the several decades of the pure play software industry since Cullinet. Listening and participating in the year long Leadership for Growth Programme here at Stanford has re-enforced my view. Perhaps somebody should write a book some time to capture this current body of practical knowledge – how to run a software company.

I guess if what I suggest above is true, then in principle two rival companies with very similar product offerings, and very similar strategies, and of very similar sizes, in principle should be unable to out-execute each other. That is a controversial claim, since execution is key to the success of any software company: but I do believe that a professional experienced software CEO is unlikely to make mistakes in execution, since what is needed in execution is actually now reasonably understood across the industry.

Competitive advantage then in the software industry is increasingly unlikely to come from execution alone. Instead, in my view, advantage comes from strategic insight and analysis, from new products and new business models. Advantage comes from understanding the current state within a particular segment of the industry, and leveraging that to introduce new products and services, perhaps in new ways, and which add sufficient value to motivate the market to invest and customers to buy.

“Success is 10 per cent inspiration and 90 per cent perspiration” said Edison. I think that the 10 per cent inspiration to conceive of a new idea is perhaps right; the 90 per cent comes not from actual execution, but from analysis and consideration of whether that new idea is actually worth executing upon – building a strategic plan and getting comfortable with it. If the strategic plan is worth executing on, then the steps to actually execute, given the body of knowledge about modern software company operations, are reasonably straight forward to identify: it should be reasonably obvious what needs to be done, and it becomes a matter of trying to actually do it.

An accepted body of knowledge will not, in my view, stifle innovation. Bill Gates would not have suffocated had such a pragmatic tome been available to him.

Perhaps I’m just representing a personal bias. I get excited by discussions on the state and direction of the industry, and where the current leverage points and opportunities are. I get less excited by discussions about operational issues, which of course are important and critical, but reasonably obvious in what needs to be done. Innovation in the industry creates competitive advantage; sheer execution is increasingly unlikely to do so.

I’m open to counter-persuasion. Flame suit on. What do you think ?

The Irish have always been blessed with the “gift of the gab” – a propensity to talk a lot. We even have some data to confirm it, according to the mobile phone operators here in Ireland. Ireland has consistently had one of the highest “average revenue per user” (ARPU) figures internationally for the mobile operators. Now, I can hear some cynics amongst those of you here in Ireland saying the ARPU figures are in fact driven by higher pricing in Ireland, thus “ripping-off” the Irish consumer and business communities. However the operators assert on the contrary it is all because we talk a lot - and they have told the Irish Government so!

In the mobile operator industry, there is continuous competition to first acquire customers, and then retain them and minimise “churn”. You aim to maximise ARPU whilst remaining sufficiently competitive in the market so as to maintain or even increase market share. Optimisation of tariffs is critical: understanding and measuring the tariff efficiency so as to offer attractive tariff plans to your customers, whilst maximising ARPU for their typical usage patterns.

A very naïve approach would be to offer a simple fixed price per month – regardless of actual usage – to each subscriber. Whilst very simple to understand and explain to consumers, I personally doubt whether any operator would survive in the market by offering such a tariff plan. There are a large number of tariff parameters which can be mapped against usage patterns: set-up charges, roaming tariffs, premium rate charges, rollover periods, billing band thresholds, average call rates (including bundling and discounts), flexibility in varying the size and scope of bundled services, rates for calls to other wireless and landline networks, SMS (text) charges, and MMS (multimedia) charges. Operators analyse all of these parameters, in conjunction with the observed traffic patterns generated by customers, and then adjust tariff rates to retain them and acquire new ones.

Many of us in the software sector are closely examining the “Software As A Service” (SaaS) business model, in which software is billed in proportion to actual use, or on demand, rather than the traditional pre-paid perpetual license. The software concerned is usually remotely hosted on an internet server farm, although as an aside to this discussion, I contend that the business model can also be applied to on-premises in-house installed software as well – provided of course the appropriate protections are built in to prevent fraudulent use. The essence of SaaS to me is paying for software in proportion to its usage, regardless of the actual location of the software installation. For enterprise customers – including publicly quoted companies and government systems – secure and verifiable business processes and practices are essential for regulatory approval (such as Sarbennes-Oxley and section 404 in particular) and the physical location of business critical software can become an issue. Remote hosting has benefits and disadvantages; in-house on-premises likewise.

Anyway. End of the aside and back to the main point. My own view is that SaaS is still at a relatively early stage of adoption across the industry, despite the momentum behind leaders such as salesforce.com. In particular, I believe that many SaaS vendors currently offer a very simple charging model: per-user, per-month (PUPM). The number of staff within a customer who access a SaaS offering is measured – or agreed in advance with the Saas provider – and the customer is billed on a monthly basis in proportion to this number.

Wouldn’t it be great if your mobile (or landline) operator charged your company some fixed monthly fee as a multiple of your number of staff using company phones ? Regardless of how much they used their phones and who they called, perhaps on the other side of the planet ? Maybe some operators do have such business models, please let me know (and just to save your keyboard, I already regularly use both Skype and jajah).

Now, perhaps you might argue with me and tell me that the functionality offered by a software package in general is more complex than the range of functions which a telecommunications operator can offer, and therefore it is not fair to compare their respective approaches to tariffs. You might say that a mobile operator needs to offer more sophisticated tariffs than simple PUPM because the industry is so competitive, and thus intelligent and clever bundling of services (SMS and MMS and call rates and roaming charges etc) is critical. A SaaS provider can by contrast just use PUPM, because a vast range of software functions can be offered, and that is the basis for competing, rather than the tariff rates. If you are inclined to that view, then I suspect someone like Nick Carr would disagree with you since he argues that software is rapidly becoming a commodity – like telephones – and that competition based on functionality alone is insufficient, since most software packages of a given genre do pretty much the same thing anyway. Maybe the 80/20 rule also applies too: 80% of the customers in practice only use the same 20% of the functionality available, and are actually pretty happy with it.

I believe that raw PUPM is not good for many customers, and its also not good for a SaaS provider. It is not good for many customers, because the intensity of usage of a SaaS offering may vary considerably across different grades of staff (line staff, field staff, mid-tier managers, and executives); at different time periods (end of quarter and end of year may drive more activity than at other periods); and in different functions (for example marketing campaign vs. pre-sales and lead qualification vs. negotiation and sales vs. customer-support vs. solution fulfillment). The same considerations also make PUPM bad for a SaaS provider: I strongly suspect many SaaS providers in practice leave money on the table as they negotiate under pressure to discount on their standard PUPM rate under such circumstances.

In the telecommunications industry, billing and rating engines are used to capture and describe an operator’s tariff policies, as a series of rules applied to traffic activity records in the network. There would seem an opportunity to apply the same general approach to the SaaS business model: can a SaaS provider use billing and rating technology applied to software activity records (business transactions, business events, session activity, etc) to implement a more sophisticated tariff policy than naïve PUPM ?

In fact, that is precisely what LeCayla does, and that is why I was delighted when I was asked to take on the non executive Chairman role last November. In my view SaaS providers are increasingly unlikely to be able to compete on functionality alone – such software is becoming a commodity, in Nick Carr’s terms.

As Conor Halpin, the LeCayla founder and CEO says: “If you want to maximise the value from each customer then you need a pricing model that captures marginal value.”

The ability to compete on tariff structures - by understanding what customers usage patterns actually are, and devising and applying tariff plans based on business events and activity - is likely to be the basis for a successful SaaS provider, thus increasing value to customers, and increasing market share.

After all, mobile operators have honed their skills to a fine art. They understand what customers usage patterns actually are, and have devised and applied tariff plans based on customers events and activity, thus increasing value to customers, and increasing market share. They understand how much we talk here in Ireland.