Signs of an Last Generation SaaS Product

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?

The API Economy

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?

The Next Generation Competitor to Every Public SaaS Company

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?

2017 Internet Trends

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.

Software 2017

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.

Terminus Raises a $10M Series B

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.

Notes from the MuleSoft S-1 IPO Filing

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.