SaaS vs Software for Vendors – Lesson #3: The Real Potential Lies in Business Model Innovation

Posted by Paul Chen, President, Managed Services

I ended my last post by discussing how at Fortiva, understanding our cost to serve helped us to improve our product and even introduce a new product offering. This leads me to my third and final lesson on the difference between SaaS and traditional software – business model flexibility.

The business model for traditional software is typically fairly straightforward – you create and develop it, produce it (on some type of media), and sell it to the customer either directly, or through a channel. From there, you typically have very little communication with the customer, with the possible exception of customer service.

SaaS businesses, on the other hand, have far more flexibility to adopt different business models, even taking advantage of more than one business model at the same time. This flexibility provides significantly more opportunities than traditional software to continually innovate and find new ways to leverage a product in different ways to improve revenues.

Let me give you an example. Google’s founders started out with a business model based on licensing their search technology to key portal vendors, such as Yahoo. Little did they know that just a few years later, they would introduce a keyword advertising program that would ultimately form the basis of Google AdWords, which today makes up the majority of their revenue. If they had stopped with the licensing business model, Google as we know it would not exist today.

Here’s another example – this time, a hypothetical one. At Fortiva, we charge a per-user licensing fee as well as a fee for blocks of storage to access our email archiving solution – essentially a pay-for-use model. But what if we decided to offer email archiving for free? It may sound crazy, but it could be a valid business model. Consider this – a large portion of businesses archive their email to meet requirements in the case of future litigation, and those businesses often have little need to access archived data before that time. Hypothetically, we could simply charge those customers to search and access their archives when litigation arises. This would give us the chance to target companies that don’t feel they can justify the cost of a pro-active approach to legal risk (by implementing an archive), while still benefiting in the long run from the inevitable.

I’m not suggesting that this is something we’re going to do, but it gives you an idea of the type of innovative thinking that can open up new business opportunities in the SaaS world.

At the end of the day, business model innovation can be a key competitive advantage for any company. SaaS opens the door to far greater flexibility in this area, and businesses embarking on this delivery model should not lose sight of that.

Read more on the SaaS vs Software: Lessons Learned series
Part 1 - Part 2 - Part 3 - Part 4

SaaS vs Software for Vendors – Lesson #2: Never Lose Sight of Your Cost-to-Serve Model

Posted by Paul Chen, President, Managed Services

I’ve already talked about how different SaaS is from a traditional software venture, and I shared with you one of the lessons I’ve learned firsthand about running a successful SaaS organization (Fortiva) . Today I’m going to talk about another point that, from my experience, is a critical component to any successful SaaS venture.

I recently came across a very interesting guest post on Will Price’s blog, entitled Magic Number for SaaS Companies. The post is about a talk given by Josh James, CEO of Omniture, at this year’s Opsource Summit, which focused on something called the “Magic Number”. The basic theory is that SaaS companies can determine the health of their organization by measuring the increase in monthly recurring revenue and dividing it by the previous period’s spending on sales and marketing.

The theory is sound, and it’s a must read for all SaaS vendors; however, by focusing purely on sales and marketing, it misses a key metric for many SaaS vendors. In fact, just because you have a strong magic number, does not mean you necessarily have a healthy SaaS business.

Since any SaaS business, by definition, provides customers with access to a managed infrastructure, vendors will always have ongoing costs for backend hardware. This is quite different from the traditional software business where the cost of goods are largely upfront (and mostly involve the printing cost of the CD and user manuals). For some SaaS businesses, the infrastructure investment required will be quite high, and will be subject to change. This is the case at Fortiva, where we are constantly adding new storage infrastructure to support the archive growth of our current customers, as well as the needs of new customers.

This is one of the reasons why, over the past year, I have focused heavily on developing our cost to serve model. This model has helped us to understand and quantify exactly where our biggest costs are – and sometimes the results have surprised us.

By understanding and tightly managing our cost to serve, we have been better equipped to take advantage of both economies of scale and technological improvements (ie. cheaper storage). We’ve also been able to make small product fixes that have resulted in a significant impact on product performance as well as the bottom line…we’ve even been able to develop new product offerings that we otherwise might have overlooked.

The key point here is that unlike in a software business, where your cost to serve is a known entity (eg. initial development costs, media, packaging, etc), in a SaaS environment, that cost is subject to constant change due to new product features or technology changes. As a result, it’s critical that you place a significant focus on understanding the costs involved, how they change as the product evolves or adoption increases, and how you can optimize those costs to improve revenue margins.

Read more on the SaaS vs Software: Lessons Learned series
Part 1 - Part 2 - Part 3 - Part 4

How We Keep Email Archiving Costs Low

Posted by Jeremy Hope, VP Operations

As Rick's blog entry from January 28 noted, Fortiva recently introduced an entry-level archiving solution (SmartStore) that is extremely price-competitive. To help people better understand how this is possible, I thought I’d explain the unique storage challenges that email archiving presents, and how we at Fortiva deal with those challenges in a way that allows us to keep costs low.

The majority of companies implement high performance, highly redundant, high priced storage for their transaction-based applications and slower performing, less redundant, lower cost storage for larger amounts of data within file based applications.  The challenge with archived data is that it requires storage with both characteristics, crossing the typical boundaries of storage solutions typically implemented within most IT environments. 

Archive data necessitates storage with high throughput, not only to be able to write the large amounts of data within a reasonable time, but also to allow for the searching of the data.  High redundancy within the archive data storage environment is expected since in most cases only one copy of the data will exist (making tape copies of hundreds of TBs of data is impractical).   Meanwhile the same characteristic, the sheer quantity of data, begs for less expensive storage to stay economical.

This leaves many IT Managers puzzled with how to provide an archive solution at a practical price with reasonable performance.    One solution is the use of a Software-as-a-Service (SaaS) solution like Fortiva, where you let the provider worry about the storage environment.  Still, many may wonder how providers such as Fortiva can provide lower cost per TB solutions (such as our recently announced SmartStore solution) without losing money due to the storage costs alone.

For Fortiva, the solution lies in a grid computing infrastructure that utilizes a large number of 1 or 2U servers with locally attached RAID disk arrays.   This hardware provides for a fast, highly redundant and scalable storage infrastructure.  This storage environment mixed with the Fortiva “secret sauce” – a proprietary Distributed File System at the application layer that tracks where data is within the grid of distributed servers – allows Fortiva to provide multiple redundant copies of data at an extremely low cost.  Another advantage of the solution is the consolidated computing power available by utilizing each CPU within the grid that is used for providing search and other application functionality.

The fact that Fortiva uses a grid environment for all clients distributed throughout a data center provides the economies of scale that no large enterprises can afford to implement themselves – a fact that is reflected in the low pricing Fortiva offers.

SaaS Pushing Prices Down in Email Archiving

Posted by Rick Dales, VP Product Management

Over the past month, three SaaS vendors (including Fortiva) in the email archiving space have made announcements about new or existing products that are being offered at price points that have never been seen before. Fortiva was the first in this trend, announcing SmartStore - an entry-level email archive that allows customers to meet all their compliance and e-discovery requirements for the same price as email storage (pricing starts at $1.10 per user, per month for 1000 users). This was followed by Google announcing new, highly competitive pricing for their Postini archiving product, followed by another SaaS archiving competitor who announced a similarly-priced SaaS archiving option.

While some might speculate that this pricing trend is a result of “the Google effect” (downward price pressure from a large organization), that’s certainly not the case for Fortiva. Our product announcement was planned well in advance of the Google release, in response to a market need for an entry-level archive that meets legal demands and FRCP regulations. 

The reason we’re able to introduce this lower-cost archiving option is twofold. First, as a SaaS provider, we can offer a “pay as you go” model that allows customers to only pay for the services and features they require (unlike in-house solutions). Second, our SaaS architecture (shared resources and greater buying power for infrastructure) allows us to continually lower our cost-to-serve model, and therefore be very competitive in our pricing. I suspect these factors are having a similar impact on the other SaaS vendors in our space.

It’s exciting to see email archiving vendors delivering on the promises that SaaS can offer – including greater reliability and performance, faster implementation, fewer hassles and minimal IT management, and now, significantly lower TCO. This momentum is great for the industry and more importantly, great for customers.

How SaaS Keeps Sales Honest - Honest Pricing (Part 1 of 2)

Posted by Craig Rennick, Co-Founder and VP Sales

One of the largest challenges we face as a SaaS provider is pricing. Why? Because unlike software vendors, we have to be fully transparent upfront about the cost of operating and managing our solution 7/24. There’s also a level of scrutiny that drives honesty into the rate card for the service all-in – customers want to know exactly what they’re paying for and why. At the same time, they expect SaaS solutions to be more efficient than running software, and they expect to experience higher levels of service than they could achieve in-house.

With an on-premise solution, the IT department is responsible for accurately planning the resources they’ll need over time to run and manage it. This leaves a lot of room for error, especially with an email archive. There’s a lot involved and because of the very nature of it growing in size and complexity plus the forever changing user requirements you can flush a lot of money away before you know what you’re into. On top of this, of course, is the inevitable administrator turnover you’ll experience.

Of course frequently the perception is that buying, managing and running context applications like email archiving on-premise is cheaper. As a SaaS provider we know better. Our pricing has been examined and revised more than a dozen times since our launch 3 years ago. Since we charge annual fees in exchange for running and delivering the service, we’re under downward price pressure and ongoing scrutiny that requires us to make ongoing technology advancements and operating efficiencies.

As a SaaS provider, we’re always working with our customers to deliver the product and SLA’s they demand. Every day we’re accountable to our customers and challenged by shrewd IT buyers. This transparency keeps us naturally in check, and translates to value-based pricing. With this natural progression for SaaS providers it’s easy to understand why their growth is expected to far exceed software.

Archiving Your Email for the Same Price as Email Storage

Posted by Rick Dales, VP Product Management

First of all, let me start by saying that this is one of the rare times on this blog that we’re posting specifically about a Fortiva product…my apologies in advance for the self-promotion, but we felt this was worthy of a post.

We believe that every company should be diligent in storing their email in a way that complies with the FRCP requirements and allows you to meet e-discovery requests. Most companies have avoided this until now, largely because it’s too expensive. At Fortiva, we don’t think it should be. After all, if the data is being stored anyway, why should it cost so much more to do things like apply a policy or enforce a litigation hold against that data?

Which is why today, we announced the Fortiva SmartStore™ archive, a Software-as-a-Service product that allows you to centrally archive all your email, enforce policies and litigation holds, perform enterprise-wide search and easily conduct early case assessment, all for the same or less than the cost of storing and managing the data on enterprise storage in-house.

What this means for your average company is that there is now a way to protect against a potentially crippling e-discovery request, without adding significantly to your costs or to the demands on IT.

Until now, adding an active archive has been prohibitively expensive for companies that don’t face litigation on a regular basis. This wasn’t such a problem until the Federal Rules of Civil Procedure (FRCP) were amended in December, 2006, clearly identifying email as discoverable. Since then, there have been over 100 cases that have been impacted by the FRCP e-discovery rules in some way. Ultimately, no company is exempt, and cost is not considered a valid argument for not producing email requested during discovery.

Essentially, SmartStore acts as inexpensive insurance against potential litigation. You can rest assured that your email is being stored in accordance with the FRCP, and that you can quickly search and retrieve that email if a lawsuit comes up.

If you’re wondering how we can do this, it’s fairly simple. First, as a SaaS solution, our customers benefit from lower costs resulting from the shared infrastructure of Fortiva's multi-tenant architecture.

Secondly, we’ve significantly reduce the costs associated with search. As we’ve mentioned in previous posts, the cost of providing real-time search across all of a company’s email can be extremely expensive. Since SmartStore returns search results in a few hours instead of seconds, the archive costs are considerably lowered.

We know that companies that face infrequent lawsuits don’t require real-time search on-demand; in fact, a search response time of under 3 hours is fairly common for an email archive, and can easily meet the needs of many organizations. With SmartStore in place, customers can meet their basic requirements and upgrade at any time to real-time search if they faced intensive e-discovery requests.

If you want to learn more about Fortiva SmartStore, you can visit our website at www.fortiva.com/smartstore.