Last week I was talking to an ambitious young professional that wants to get into the startup world. We were discussing ways to evaluate the potential of a startup — how big and successful it might be. In terms of evaluating startups, he offered up a serious concern of his saying that it’s easy for a big company to just knock off the software once a startup proves the need. With a background in real estate, he had seen ideas and strategies knocked off repeatedly.
Building a product that offers similar functionality to another product is straightforward. Building a successful startup or product line based on another successful startup is incredibly difficult. Here are a few reasons why software can’t just be knocked off to have a successful business:
- Switching costs and the network effects of using a product are significantly more important than one can appreciate without being in the industry and seeing it play out (think of salesforce.com as an example with high switching costs and Snapchat as an example that benefits from massive network effects)
- For each visible feature there are hundreds of behind-the-scenes features that can’t be seen or accounted for unless you have hundreds or thousands of customers (think of the iceberg example where only a small amount of the iceberg is above water and the majority of the iceberg is below water — unseen functionality)
- The Mythical Man Month still holds true whereby adding new software engineers to a project to speed it up actually slows it down (e.g. if a big company threw a bunch of engineers at a new product to get it done quickly, it would be worse off than a smaller team working in conjunction with customers over a much longer period of time, which is what a startup does)
So, it’s very difficult to copy a product and make it as successful as an already successful product with the same market and buyer.
What else? What are some other reasons why it’s so difficult to just knock off a successful software product?
Tomorrow I’m honored to speak at Drupalcamp Atlanta about the Pardot story. Drupal, best known as an open source content management system, is now used as a full blown platform for building dynamic websites. Before I co-founded Pardot, I founded Hannon Hill, a content management company and spent many years in the industry. So, then, where does the Pardot story and marketing automation fit in with content management?
Here are a few thoughts on the intersection of content management and marketing automation:
- More and more sites, especially sites that are brochureware, incorporate marketing functions like anonymous visitor tracking, contact us forms, trackable site search, and more
- As sites collect additional data on visitors through custom or turn key modules (e.g. social sign-on systems), more information is available to do targeted lead nurturing
- For a non-transactional site, it’s difficult to prove return on investment, but by adding marketing automation, it’s easy to show value
In the near future, the majority of sites will have some form of marketing automation and it’ll be commonplace for content management systems and marketing automation systems to have a much tighter integration.
What else? What are some other thoughts on the intersection of content management and marketing automation?
The Twitterverse is buzzing about the upcoming Twitter IPO, and now we have all the intimate details courtesy of the S-1 IPO filing with the SEC. I’ve found Twitter to be an amazing medium that I use on a daily basis (@davidcummings), so I want the company to succeed in a way that grows both the value of the community and shareholder value.
Here are a few notes from the Twitter S-1 IPO filing:
- 215 million monthly active users (pg. 1)
- 500 million tweets per day (pg. 1)
- 75% of users accessed it from a mobile device (pg. 2)
- 45% of Super Bowl ads used hashtags to engage users (pg. 5)
- 300 billion Tweets created since origination (pg. 6)
- Revenue (pg. 10)
2010 – $28.3M
2011 – $106.3M
2012 – $316.9M
- Losses (pg. 10)
2010 – $67.3M
2011 – $129.8M
2012 – $79.4M
- 87% of revenue from advertising Promoted Tweets, Promoted Accounts, and Promoted Trends (pg. 16)
- Accumulated deficit of $418.6M (pg. 24)
- 2,000 employees (pg. 26)
- 2011 FTC settlement that requires biennial security assessments for 20 years (pg. 31)
- February 2013 attackers accessed 250,000 user records (pg. 32)
- 6 U.S. patents issued and 80 patents pending (pg. 33)
- 25% of revenue is international (pg. 60)
- Equity ownership (pg. 144)
Dick Costolo – 1.6%
Jack Dorsey – 5%
Benchmark Capital – 6.7%
Evan Williams – 12%
Twitter’s IPO is going to do exceptionally well due to the large number of consumers that love the service and the fact that it’s an extremely fast growing technology business, which is in high demand.
What else? What are your thoughts on the Twitter S-1 IPO filing?
Yesterday I tried out the new Google Chromecast for the first time. For a $35 device, it packs a ton of power and is really useful. AirPlay via AppleTV is still much more flexible since the whole desktop display is broadcast wirelessly to the screen, but transmitting a browser window inside Google Chrome meets most of the needs in the market (as well as the custom apps like Netflix).
I think the bigger transformational shift will come when there’s a small Android computer that plugs into any standard HDMI port, like a TV, so that you have the full computer attached to the screen. Dell is working on this now with the Project Ophelia $100 Android stick. Connecting a computer to a TV is possible now with Mac Mini or a little PC, but it’s cumbersome to maintain and configure.
With the advent of a $100 Android stick, we’ll see more digital displays. Think of some of the common scenarios:
- Metrics / KPI dashboards
- Competitive leaderboards
- Digital billboards
- Restaurant menus
- News / events / alerts
Better, faster, cheaper — the digital display market is ripe for change and tiny, self-contained computers will be the catalyst.
What else? What are your thoughts on the coming digital display disruption with Android sticks?
Software-as-a-Service (SaaS) is hot. White hot. In fact, it’s been hot for several years now. Marketo, which IPO’d recently, now has a market capitalization of $1.23 billion (NASDAQ:MKTO), even after Salesforce.com bought ExactTarget / Pardot. With Marketo’s most recent quarterly revenue results of $22.5 million (extrapolated to $90 million annually), the stock is now trading at north of 13x revenue (not counting assets and liabilities). The big driver of SaaS value is growth and with a 62% growth rate, the market loves Marketo. Is the stock overvalued in the short-term? Absolutely. Long-term? No, as long as it can keep its growth rate up for several more years and withstand Salesforce.com’s entrance into the market.
Now, let’s look at NetSuite. NetSuite is at its all-time high with a market capitalization of $7.35 billion (NYSE:N). Based on last quarter’s revenue of $101 million, extrapolated to $404 million annually, the stock is trading at north of 18x revenue (not counting assets and liabilities). Take out a few turns of the multiple for the Oracle premium on NetSuite, and you still have a massive multiple. What gives? NetSuite grew 35% year-over-year and shows no signs of slowing down. The markets love growth.
As long as the leading SaaS companies continue to post impressive growth rates, look for a market premium unlike many other industries. SaaS entrepreneurs take note: growth rates drive valuation.
What else? How long do you think the leading SaaS companies will continue to get a large premium for growth?
Being in the marketing automation world for five-and-a-half years with Pardot, it’s easy to think that everyone knows about the technology and has adopted it. Not so. When I talk to non-tech CEOs and entrepreneurs, very few have heard of marketing automation, let alone begun using it. Technology companies are the main users of the technology and it’s starting to spread rapidly.
Think about all the companies that use a modern, web-based CRM, based on approximate customer count:
- Salesforce.com: ~140,000
- SugarCRM: ~10,000
- Microsoft Dynamics CRM: ~40,000
- Netsuite: ~13,000
- Total: ~200,000 companies
Now, look at the major marketing automation vendors based on approximate customer count:
- Marketo: ~2,400
- Pardot: ~1,900
- Eloqua: ~1,500
- HubSpot: ~1,800 (this is a guess as many of their customers use the blogging and SEO tools, with the marketing automation piece growing quickly)
- Act On: ~1,400
- Total: 9,000
Note: customer counts are all educated guesses based on published information and industry knowledge.
So, with roughly 200,000 companies using a modern, web-based CRM and only 9,000 using a B2B marketing automation system, there’s unbelievable room for growth. Marketing agencies and lead generation experts would do well to develop a marketing automation practice and get out ahead of the curve. Per adoption, we’re just about to cross the chasm into the early majority and the number of companies that use that software will explode.
What else? What are your thoughts on the coming wave of marketing automation adoption?
As I sat down to write this post I noticed it was warm in the room. Not thinking twice, I loaded up my Nest iPhone app and promptly lowered the temperature for the area. That is, I took advantage of the Internet of Things — the idea that everyday objects become connected to the internet and can communicate in new ways.
Here’s my current list of internet-enabled objects that were traditionally isolated:
- Tesla Model S – From my iPhone I can control the car’s A/C, sunroof, charging, door locks, see how many miles of range is left on the battery, and see the GPS location overlaid on a map.
- Nest – The thermostat is tracking our usage patterns to learn how we live so that it can optimize for our lifestyle while saving money on our energy bills. As a bonus, if we go on a trip and set the temperature to 80 while we’re gone, from my iPhone I can lower the temperature a few hours before we return so we get home to a cooler house.
- Withings Scale – Every time I step on the scale it knows it’s me and records my weight, pulse, and other factors in the cloud so that I can see my progress on my iPhone anytime, anywhere.
- Dropcam – With this internet-only video camera, I can have a two-way conversation with a person on my front porch via my iPhone anywhere in the world. If the baby is sleeping, I can go do yard work and keep an eye on him from anywhere around my house.
The Internet of Things is going to have a profound impact on how we work and live. I’m excited to keep trying them out and experimenting.
What else? What are your thoughts on the Internet of Things and what other objects do you have that are internet-enabled?
As I was switching through different web apps and reports today, it struck me how real-time information is today as an entrepreneur. I had just published a new post on the Kevy blog titled Managing a SaaS Metrics Dashboard With Pardot (check it out for an example on how to use a marketing automation system to feed the top-of-the-funnel SaaS metrics). Right after hitting publish and sending out a couple tweets about it, I was immediately able to see clicks and prospects interacting with it. As an entrepreneur that loves results, it doesn’t get much better than that!
Think about information from the most common apps:
- Salesforce.com – Watch sales rep activities, opportunities, and deals
- Pardot – Watch anonymous visitors, leads, and digital fingerprints
- Google Analytics – Watch information on macro hits and visitors
- GitHub – Watch pull requests and progress on the current sprint
- Zendesk – Watch support tickets and customer interaction
Of course, a dashboard with all the critical data in one place would be cool (like Geckoboard), but the fact that each system is there and can be left open in a browser tab makes it readily accessible. It’s great to be a real-time entrepreneur.
What else? What are your thoughts on the real-time entrepreneur?
TechCrunch has a piece up today by Alex Williams titled Speed and Automating the Connections Between Humans and Machines in the API Economy. In the article, Williams argues that speed of an API, especially under large load, is a real challenge, just like scaling a large website (they are in fact very similar with APIs potentially having more write load than read load, in some cases). In addition to speed, he highlights automating the connections between APIs as a challenge, where automating means integration and connection of disparate systems.
Peeling back API automation to a more detailed level, here are five challenges I see:
- Data Interoperability – Synchronizing data between different systems is challenging due to different standards in types of data allowed (e.g. challenges with date/time stamps, number of characters allowed, translating fields like ‘GA’ to ‘Georgia’, etc)
- API Authentication – While there are standards like OAuth and OAuth 2.0, many APIs were built before the standards were established and have their own form of authentication, requiring more effort to integrate as well as more ongoing maintenance
- Recent Data Polling / Ping Backs - To connect disparate systems there’s a requirement to constantly check for recent data, or set up a ping back to be notified of new data, only many systems are still immature when it comes to this functionality by simply returning all data or only returning data in a paginated form (instead of being able to query against a specific data/time)
- Bidirectional Syncing – It’s fairly straightforward to set up one-way syncing where one system is the master and the other system only takes, but doesn’t give data. Things become much more complicated when true bidirectional syncing is required and data can flow either way between system.
- Custom Fields / Ad Hoc Customizations – Many of the more powerful systems, including Salesforce.com, allow for infinite customization, which makes for more complexity when trying to integrate products.
The API economy is going to be a major driver of innovation over the next 5 – 10 years, and getting the automation piece right is a big opportunity.
What else? What are some other challenges for automation in the API economy?
Last week a colleague asked me if we were in the middle of a tech bubble and I immediately said “no way.” He theorized that five years from now things will have settled down and tech would not be getting the attention it gets now. I fumbled through a response and thought to myself that I needed to better articulate why we aren’t in a tech bubble.
Here’s why the tech renaissance is going to last:
- Fast internet access is prevalent everywhere — both wired and wireless
- Widespread smart phone adoption means most people have a powerful computer on their person at all times
- Costs to build and deploy a web/mobile app have gone down significantly due to open source, cloud computing, and new technologies
- Startup funding, especially outside of Silicon Valley and New York, has been relatively steady, if not declining, meaning we aren’t seeing an unsustainable level of investment like in the late 1990s
- Development of startup communities is more well understood, especially the concept of startup density, serendipitous interactions, strong networks, and more
- Methodologies like the lean startup and customer development help de-risk part of the equation
- Software-as-a-Service (SaaS) is a real phenomenon driving down the cost of IT while improving adoption and effectiveness
Overall, we’re only scratching the surface with how the internet and mobile are changing the way people work and live. We’re not in a tech bubble and the future is bright.
What else? What are your thoughts on a current tech bubble?