Continuing with Characteristics of Successful SaaS Products, a friend pointed out that while workflow apps are the most common type of successful SaaS app, there’s another category of successful SaaS app: persistent background services. Persistent background services are a class of SaaS apps that once configured run automatically with little to no on-going human interaction, often via API calls.
Here are some example persistent background services:
- Calendly – Scheduling service overlaid on Google Calendar, Office 365, and iCloud to make it easy to schedule meetings with professionals.
- SendGrid – Email delivery as a service for bulk and transactional email messages (e.g. API to send lost password emails, customer email receipts, etc.).
- Twilio – Telephony in the cloud to trigger phone calls, text messages, video chat, and more via API (e.g. click to call from a CRM, text messages for two factor authentication, etc.).
Add persistent background services as another class of successful SaaS app to go along with the workflow apps (the characteristics of successful SaaS apps are still applicable).
What else? What are some more thoughts on persistent background services as another type of successful SaaS apps?
Continuing the thoughts on next generation SaaS with posts on Intercom as the Next Mainstream CRM after Salesforce.com, The API Economy, and The Next Generation Competitor to Every Public SaaS Company, one of the biggest challenges for upstarts is the lack of third-party integrations. One of the strongest network effects for SaaS platforms happens when hundreds of other products build integrations to connect data and processes (see Atlanta’s MailChimp). The more integrations a customer uses, the harder it is to switch vendors.
As expected, there are SaaS products that specialize in integrating other SaaS and installed products:
- MuleSoft – Enterprise strength integration platform that’s heavily customizable. $2.8 billion market cap (NYSE:MULE). See notes from the MuleSoft S-1 IPO filing.
- Zapier – Huge breadth of integrations in a do-it-yourself fashion. This should be the starting point for most people looking to connect apps.
- Cloud Elements – Write once, connect to many middleware that’s a huge timesaver for more sophisticated custom integrations.
Look for cloud integration middleware to be a key part of the solution for next generation SaaS apps.
What else? What are some more thoughts on integrations as critical for next generation SaaS?
Four years ago I offered up the idea that HubSpot would introduce a CRM and be in a great position to capture CRM marketshare in the post HubSpot as the Next Mainstream CRM. HubSpot has continued to execute well, is approaching a $400 million run-rate (NYSE:HUBS), and launched an excellent free CRM. Originally, I thought a tangential product in the marketing space would be in the best position to enter the CRM market as opposed to one of the solid CRM upstarts like Pipedrive and Insightly.
Now, after talking to a number of companies over the last year, I believe Intercom is in the best position to succeed Salesforce.com as the next mainstream CRM (see Quick Notes on Fast-Growing SaaS Startup Intercom from earlier this year). Intercom is growing at an incredible rate, going from $1M to $50M in three years. More importantly, the product is a customer communication platform to manage functions like live chat, in-app messages, email triggers, and usage analytics. Of course, customer communication platform and customer relationship management have one critical word in common: customer.
Look for Intercom to continue their torrid growth rate for several more years and introduce functionality to manage the entire customer lifecycle, including CRM. Salesforce.com will be paying close attention to Intercom.
What else? What are some more thoughts on Intercom as the next mainstream CRM after Salesforce.com.
Continuing with the post The Next Generation Competitor to Every Public SaaS Company, one of the questions that came up is how to identify when a SaaS product has entered “incumbent mode” and shows signs that there’s room for new upstarts. Good question. We’ve all used a product that’s solid, but unchanged for many years, and know that it’s a last generation product.
Here are a few signs of a last generation SaaS product:
- Pace of Innovation – New features come to a halt. Product polishing continues but substantial new features are rare. The focus is on profitably scaling sales and marketing.
- User Interface / User Experience – Interface changes are disruptive and avoided. Newer UI/UX conventions, and tools like an Angular/React, aren’t a priority.
- Contract Terms / Flexibility – Longer term contracts are required. Renewal details aren’t negotiable. The position of strength is flexed.
A last generation product readily shows its age. Staying up-to-date with a modern UI/UX and feature set is much harder than it looks. As companies grow and scale, continuing what’s proven takes precedence over innovation.
What else? What are some other signs of a last generation SaaS product?
Continuing with yesterday’s post The Next Generation Competitor to Every Public SaaS Company, there’s a key component of modern SaaS apps that changes the market dynamic compared to 10 years ago: APIs. Application Programming Interfaces (APIs) are how cloud applications “talk” with other cloud applications. Think about exchanging data, triggering features in remote applications, and generally interacting in an automated fashion — all made possible by APIs.
Now that most apps have usable APIs, connecting apps is far more common, and more importantly, the major apps don’t have to include the full breadth of modules natively. Instead, apps are more specialized and focused. Lock-in becomes less of an issue and there’s more competition throughout.
The API economy is at the core of another round of disruption. Look for this to play out in the next several years.
What else? What are some more thoughts on the API economy?
Yesterday I was talking to a very successful SaaS entrepreneur and the topic came up of when the next generation NetSuite replacement is going to emerge. NetSuite, an enterprise resource planning platform (think accounting, inventory, etc.), is incredibly powerful, but has an interface unchanged for 10 years along with a very difficult customization process. Taking the idea one step further, every public SaaS company already has several next generation upstart competitors building a product that is better, faster, or cheaper (pick two).
Here’s what every next generation SaaS winner will have:
- API-First – In lieu of a slow, cumbersome API, the next generation has fast, elegant REST APIs that make connecting to quick and easy.
- Rich, Responsive UI – In lieu of basic web interfaces, the next generation has rich, responsive interfaces that feel like a native app.
- Approachable Pricing – In lieu of cryptic, talk-to-a-salesperson-only pricing, the next generation has straightforward, readily understandable pricing (see Zoom).
- Modularized Platform – In lieu of a large, monolithic platform, the next generation is built on micro-services that allow for much more rapid development and cloud-native scalability.
Technology innovation goes in waves every 15-20 years and SaaS is no different. The next generation winners are already out there, just give it a few years and you’ll start to notice them.
What else? What are some more thoughts on the idea that the next generation competitor to every public SaaS company is already out there and building momentum?
Mary Meeker is out with with her excellent annual Internet Trends 2017 report. Mary has been publishing an influential annual report for many years, and this one doesn’t disappoint.
Here are a few sections from the slides:
- Global Internet Trends = Solid….Slowing Smartphone Growth
- Online Advertising (+ Commerce) = Increasingly Measurable + Actionable
- Interactive Games = Motherlode of Tech Product Innovation + Modern Learning
- Media = Distribution Disruption @ Torrid Pace
- The Cloud = Accelerating Change Across Enterprises
- Heathcare @ Digital Inflection Point
Want to know the major Internet trends? Go read the Internet Trends 2017 report.
Battery Ventures put out a great slide deck on the state of the software industry in 2017 as part of the recent CloudNY event.
Here are a few notes from the slide deck:
- 18.3% expected compounded annual growth for SaaS companies over the next four years (compared to 6.9% for general software)
- Software industry in the United States supports 10 million jobs
- The Five Forces of Software’s Accelerating Growth
- Existing software markets are growing over time
- Software is infiltrating what were once niche markets
- Software is displacing hardware
- Every company is becoming a software company
- 60% of organizations to increase spending on cloud applications
- The global software industry is $500 billion per year
- Continuing at a 5% compounded annual growth rate, software will be $1 trillion/year by 2030
- Category kings consistently captured more than 70% market share
- Tactical considerations:
- Software innovation is now global
- There are competitors in all segments of the market
- Product now drives software sales
- Network effects and ecosystems build moats and drive stickiness
- AI and machine learning are enabling applications
- Microservices architectures and rapid product delivery are now must haves
- Culture is paramount and employee feedback is public
- Find a wedge and change the market dynamic
- Grow fast or die slow
Check out the slide deck on the state of the software industry in 2017.
Earlier today Terminus announced that they had closed their $10.3M Series B financing from Atlanta Ventures and Edison Partners. Terminus is the pioneer of account-based marketing (ABM), one of the fastest growing areas of marketing technology. Here’s how Terminus describes the value of ABM:
ABM enables B2B marketers to target key accounts, engage decision-makers, and accelerate marketing and sales pipeline velocity at scale
As marketers look beyond inbound lead generation and become more focused on the account, they need corresponding tools and systems to orchestrate engagement across multiple systems, trigger the right ads to the right people, track behaviors across the account, and understand account-level analytics.
Terminus created the FlipMyFunnel movement and is building a large, category-defining ABM company. Now, they have the resources to grow even faster and help more companies achieve ABM at scale. Congratulations to Eric and the entire Terminus team on their next milestone in the journey.
Want to learn more? Check out Terminus.
MuleSoft, a fast-growing data and application integration software provider, just released their S-1 IPO filing. As more companies move to the cloud, the demand for connecting these applications, and the legacy installed applications, has grown as well.
Here are a few notes on the MuleSoft S-1 IPO filing:
- Key metrics as of December 31, 2016 (pg. 1)
- > 1,000 customers
- 117% dollar-based net retention
- 70% revenue growth
- $188 million in revenue
- -1.4% operating cash flow margin
- Customers use the Anypoint Platform to connect their applications, data, and devices into an “application network” in which these IT assets are pluggable using application programming interfaces, or APIs, instead of glued together with custom integration code. (pg. 1)
- Estimate the current market opportunity to be $29 billion. (pg. 3)
- 30 customers with over $1.0 million in annual contract value of subscription and support contracts. (pg. 3)
- Revenue (pg. 3)
- 2014 – $57.6 million
- 2015 – $110.3 million
- 2016 – $187.7 million
- Net losses (pg. 3)
- 2014 – $47.8 million
- 2015 – $65.4 million,
- 2016 – $49.6 million
- Professional services revenue (pg. 8)
- 2014 – $9.1 million
- 2015 – $22.2 million
- 2016 – $34.9 million
- Accumulated deficit of $236.2 million as of December 31, 2016 (pg. 12)
- In 2014, 2015, and 2016, total sales and marketing expense represented 102%, 84%, and 65% of revenue (pg. 15)
- Outsource the cloud infrastructure to Amazon Web Services, or AWS, which hosts the platform (pg. 16)
- Platform is deployed in a wide variety of technology environments, both on-premises and in the cloud (pg. 16)
- 38% of the revenue from customers located outside the United States in 2016 (pg. 27)
- 156 employees located in Argentina at the end of 2016 (pg. 29)
- Ross Mason created Mule in 2006 to address the frustrations of manually connecting disparate systems and applications. Mule took its name from Ross’s desire to take the “donkey work” out of legacy approaches to technology integration. (pg. 57)
- Annual contract value of $169,000 in 2016 (pg. 58)
- Subscription pricing is based primarily on the amount of computing capacity on which the customers run the software (pg. 58)
- Founder owns 5.9% (pg. 134)
- VCs own 67.8% (pg. 134)
MuleSoft is a hybrid cloud and on-premise software provider with a pricing model that bills everything like SaaS. Data and application integration is a massive market and MuleSoft is well positioned to grow for many years and have a strong IPO. Like AppDynamics, look for large strategics to take an interest in MuleSoft as well.