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A while back I wrote a blog post suggesting that datacenter infrastructure would move from an on-premise operation to the cloud. It may have seemed counter-intuitive that the infrastructure itself would become available from the cloud, but that’s exactly what’s happening.

We’ve now seen everything from security to system management to storage evolve into as-a-service datacenter offerings, yielding all the benefits of SaaS — rapid innovation, pay-as-you-go, no hardware installation — while at the same time providing rich enterprise functionality.

As the datacenter gets dis-intermediated with the as-a-service paradigm, an interesting opportunity exists for the “big data” layer to move to the cloud. While big data is one of the newer parts of the infrastructure stack — and should have been architected and delivered as a service from the start — an estimated 90+% of Fortune 2000 companies carry out their big data analytics on-premise.  These on-premise deployments are complex, hard to implement, and have already become something of a boat anchor when it comes to attempts to speed up big data analytics. They perfectly define the term “big drag.”

Without question the time has come to move big data to the cloud and deliver this part of the infrastructure stack as a service. Enter Cazena — our latest investment in the big data sector. The Cazena founders were former leaders at Netezza, the big data appliance leader that went public and was acquired by IBM for $1.7 billion. Prat Moghe, founder & CEO of Cazena, previously led strategy, product and marketing at Netezza. Prat has teamed up with Jit Saxena, co-founder of Netezza, and Jim Baum, the CEO of Netezza — all leaders in the big data industry.

This team knows a great deal about big data and agility of deployment. Ten years ago (long before the term big data was being used), the Netezza team came up with a radically simple big data appliance. Appliances reduced the sheer complexity of data warehouse projects — the amount of time and resources it took to deploy and implement big data.

In the next decade, even faster deployment cycles will be required as businesses want data on-demand. Additionally, the consumption pattern has changed as the newer data stack built using Hadoop and Spark has broadened the use of data. A new cloud-based, service-oriented deployment model will be required. The Cazena team is uniquely positioned to make this a reality.

We could not be more thrilled to be backing the team that has the domain expertise and thought leadership to change the face of big data deployments. Big data is changing the way the world processes information, and Cazena is uniquely positioned to accelerate these efforts.

In this final installment of the SaaS Manifesto, which has examined the rise of the departmental user as a major influencer of enterprise buying decisions, and how building a real sales team is integral to the process, the last critical consideration is the need to rethink the procurement process for SaaS.

The corporate one-size-fits-all process for procuring applications is broken. Many companies adopting SaaS are still using 85-page perpetual license agreements that were written years ago and designed for on-premise software purchases. It’s no wonder that SaaS companies want to avoid central IT and purchasing like the plague! Fortunately, the solution is simple: Every company needs to adopt a SaaS policy and treat SaaS software purchasing in an entirely different fashion from on-premise practices.

The perpetual license and SaaS don’t mix

Perpetual licenses made sense when companies invested millions of dollars for on-premise software, services and corresponding infrastructure. This resulted in procurement and legal teams requiring a slew of contractual terms including: indemnification and liability limits, future updates and releases, maintenance fees, perpetual use, termination and continued use, future software modules, infrastructure procurement, beta test criteria, deployment roll-out and many others.

The use of existing procurement practices makes no sense for SaaS and results in a sluggish and frustrating experience for everyone involved.  Frustrating for the departmental user who wants fast access to much needed business capability; frustrating to the procurement and legal groups who spend an inordinate amount of time negotiating useless terms; frustrating to the SaaS provider who is trying to go around the entire process; and frustrating to the CIO who fears rogue deployment of SaaS apps and their impact on security and compliance.

Like oil and water, the two practices don’t mix, and it’s time to change the game and create an effective three-way partnership between the user, the SaaS provider and the CIO.

Creating an “express lane” SaaS policy

CIOs can enable rapid adoption of SaaS by creating a repeatable, streamlined purchasing process that is significantly faster than a traditional approach. SaaS policies and procurement checklists should reflect this and CIOs can help key business stakeholders identify and map their requirements to the available SaaS offerings and ensure that appropriate due diligence is done.

A starting point should be the creation of different policies and procurement processes for mission-critical and departmental applications. Mission-critical applications still require 24×7 support, high availability Service Level Agreements, data security and disaster recovery considerations. Because these applications may directly impact revenue or customers, substantial up-front diligence is required. Nonetheless, many of the old, on-premise contract requirements are still irrelevant here since there is no infrastructure, no maintenance, no perpetuity, etc.

Aside from mission-critical SaaS apps, 80-90% of all SaaS solutions are departmental apps and these are the applications that should have an “express lane” for procurement. Imagine a streamlined process for most SaaS purchases that enables fast, easy and safe deployment. Everyone wins and everyone is thrilled at the result.

The Express Lane checklist for departmental apps

The following checklist is a framework for establishing the Express Lane:

  • Data ownership and management – Clearly define that all data is owned by the company, not the SaaS provider, and can be pulled out of the providers system at any time.
  • Security – the ability to control the level of access by the SaaS provider and the company’s employees, as well as shut off access when an employee leaves the company.
  • Dedicated support and escalation path – Access to a fully staffed support team, but probably does not need to be 24×7.
  • Reliability – Set a baseline for the provider’s historical reliability, including lack of downtime and data loss.
  • Disaster recovery processes – Internal plan to minimize information loss if the vendor goes out of business or violates the user contract.

Applying a framework creates a partnership with all stakeholders and has the following benefits:

  • Cost savings – Save money in terms of company resources needed to take providers through approval process and in up-front overhead on long-term contract commitments.
  • Scalability – Ability to use a SaaS solution for a specific segment of a business or across an entire enterprise.
  • Efficiency – Streamlined process with legal and billing.
  • Flexibility – A month-to-month contract, instead of a SLA, means a company is not locked into a long-term contract.
  • Eliminates rogue solutions – IT gains greater control by eliminating the practice of employees signing up for services on their personal credit cards and expensing.

Ending the use of perpetual license practices for SaaS applications will result in much better alignment between the SaaS supplier, the internal user and the CIO. And the creation of an Express Lane for the vast majority of all departmental apps will enable rapid adoption of business applications by the departmental user, while giving IT the oversight in the rapidly evolving world of SaaS.

The SaaS revolution has not only changed the way products are delivered and developed, but the way products are brought to market. SaaS and the departmentalization of IT recognize that the line-of-business buyer and new sales approaches target that buyer with a combination of freemium and inside sales. Couple this with a streamlined process for procuring SaaS and we create the perfect storm for a massive transformation in application deployment and productivity.

Note: Part 3 of “The SaaS Manifesto” first ran in The Wall Street Journal‘s CIO Journal.

It may sound a bit ungrateful, especially coming from someone who invests in these things, but many early SaaS companies in many ways have been successful in spite of themselves. SaaS customers have had their pick of great software products, all available from the cloud, and without the long, tortured installation efforts of previous generations of software. On the back of these frictionless software deals, SaaS companies have been growing like mad, and often without any formal sales effort. But if they haven’t already, these up-and-to-the-right companies are about to hit a wall. The reason is that early deployments and usage do not necessarily translate into sustainable revenue growth.

In order for SaaS businesses to really scale and reach their full potential as industry leaders, they need a real and robust sales effort. That’s right, you need to build a sales team.

It won’t be easy. I won’t pretend that it is. But scaling sales, while expensive and culturally challenging to implement, changes the size of the potential opportunity. The big opportunity for SaaS companies is to drive adoption across the whole organization, which requires a centralized effort to redesign corporate processes, facilitate training and manage customer success. This is especially the case with tools that work best when used by everyone at a company, like CRM, human resources or accounting

Freemium is only part of the story

Before we dive in, there’s one thing I have to set straight: Freemium is a fantastic starting point for SaaS, but freemium is not the same as building a sales organization. Freemium is a product and marketing strategy designed to generate a massive base of users, which can be approached for a future sale. Freemium is all about seeding the market and establishing a platform for building a winning offering. The best SaaS companies use their free product to iterate and improve their offering with data and feedback. But even with an effective freemium go-to-market strategy, SaaS companies still need to think about augmenting with a sales organization. Start with freemium, but don’t end there.

The evolving role of the CIO

The CIO’s role is evolving in that for most SaaS applications, the department will drive the purchase. This is different from past generations of software, where on-premise installations and routine software upgrades required the CIO to hand-hold every buying decision. In a sense, SaaS has liberated the CIO to focus on longer-term strategic business issues, rather than worry about the next Oracle or SAP upgrade.  The CIO will influence security, support and data protection policies, so understanding these up-front becomes a key part of the selling process.

The balance of influence between the departmental buyer and the CIO differs by application as well as by company—the more mission critical, secure, and integrated, the larger the CIO role. For infrastructure purchases, as an example, the CIO continues to be highly involved in the purchasing decision.

A framework for an effective SaaS sales organization

Designing a sales and marketing function targeted at the departmental buyer is key to creating long-term competitive advantage. I’ve seen many early SaaS companies reluctantly stumble into half-baked sales efforts, only to find a flattening in revenue and customer engagement.

To convince the skeptics, I’ve asked Dan Shapero at LinkedIn, one of the most successful SaaS companies of our time, to weigh in. Dan is the VP of Talent and Insights at LinkedIn and runs a 1,200-person sales organization. While most people think that LinkedIn sells itself with great product and no sales effort, nothing could be further from the truth. Here’s a framework that LinkedIn has developed to apply:  

Organize around the buyer. LinkedIn has multiple business lines that work with three different corporate functions: talent, marketing and sales. These departments typically make discrete decisions, with independent budgets, so LinkedIn has different teams that focus on partnering with each function.

Distinguish between new account acquisition and account success. Two of the most important lessons at LinkedIn have been (1) successful clients buy more over time and (2) the process and expertise required to acquire a new customer is very different from nurturing that customer. As a result, there are separate and distinct teams, sales processes and measures of success for managing new and existing customers.

Land, then expand. With SaaS, customers can purchase on a small scale before going all in. Rather than focusing on landing huge deals, Linkedin has been better served by acquiring many smaller scale deals at clients with huge long-term potential. Albeit smaller, success with the initial deployment often results in tremendous upside in the second, third, fourth year of a client’s tenure. Expanding in a SaaS/freemium model is particularly effective because you not only can demonstrate success, but you can also pinpoint and size future demand based on who is using the technology for free.

Leverage inside sales for the mid-market. The creation of a robust, inside sales organization to serve clients over the phone, from regional hubs around the world, is a critical part of LinkedIn’s successful SaaS franchise. Inside sales reps close their own business and manage their own territory. The SaaS model enables the client to be engaged, sold, provisioned and serviced in a highly scalable way, without the need for an in-person visit.

Monitor customer engagement. SaaS provides incredible transparency into how actively engaged customers are with the product. Understanding where usage is strong and weak across customers allows LinkedIn to improve customer experience by deploying training resources proactively, offering targeted advice on best practice, and improving the product roadmap. Most enterprise vendors are flying blind when it comes to understanding the success of their customers, while SaaS companies have a fundamental information advantage.

When you are in the throes of viral adoption, it is not immediately intuitive to many SaaS companies to build out a sales organization. Right now, those of you in all the rapid growth SaaS companies might still be thinking, “Not us, we’ll just keep booking those inbound leads.” You’ll keep thinking that until the inbound stops. The paradox of great SaaS companies is that the more successful a SaaS company is with early deployments, the more challenging it becomes for that organization to recognize and embrace building a formal sales organization to address the needs of the enterprise buyer. That’s why I want every SaaS company to consider the SaaS Manifesto a call to arms. We are at a point in the maturity of SaaS where mature sales are important.

Up next: The SaaS Manifesto: Part 3 – the requirements for enterprise-wide SaaS adoption and deployment 

Note: Part 2 of “The SaaS Manifesto” first ran in The Wall Street Journal‘s CIO Journal. You can read Part 1 here.

It doesn’t happen often, every 10 to 15 years or so, but we are in the throes of the reordering of the $4 trillion corporate IT market. And depending on which side of that transformation you sit, this is either the best time to be an enterprise technology company (see: renaissance in enterprise computing), or reason to start looking for a new line of work.

I certainly sit among the group that sees this as a huge opportunity, and it’s far from finished. If the first phase was to build replacement technologies for every part of the IT stack, the next phase—and the next golden opportunity—is to re-imagine the business side of the equation and change how buyers and vendors come together. That is where this SaaS Manifesto comes in. Think of it as a three-part field guide to the new way enterprise computing will be bought and sold.

Part 1: Navigating the Departmentalization of IT

In the enterprise IT world, companies like Oracle, Microsoft and SAP are established giants, so entrenched that every new company has had to either peacefully co-exist with them or else face getting steamrolled into oblivion. But that strength comes with a weakness: These companies are slow adapting new practices and evolving to new models. In fact, both SAP and Oracle recently attributed their missed earnings targets to “the cloud.”

And there is a major change occurring in the enterprise: Beyond the technical and architectural innovation we see in new products, there are fundamental opportunities appearing on the distribution and customer side that simply never existed in the past. In past technological shifts (e.g. from mainframe to client server, or from client server to PC) purchasing was always done through a centralized CIO organization, no matter the product. Large vendors could rely on the depth of their existing sales channel and the reluctance of customers to move outside their respective fiefdoms to successfully enter newer areas. Sure, vendors would be left behind in each shift, but it was largely due to lack of new technology, as opposed to a lack of changes in the go-to-market landscape.

Today, the new buyer is the operating department—HR, sales, development, marketing—and the decisions of which technologies to procure are no longer solely centralized through the CIO. In fact, nearly 50% of all IT purchasing decisions are now being influenced and/or made by an operating department, says an August 2013 study by Enterprise Strategy Group, as these departments look for purpose-built applications. This change creates one of the most meaningful differences in the new world of enterprise computing: Not only do the large players have to create or buy new technology, but they must also adapt their offerings and sales models to appeal to this new buyer.

Here’s why this shift is difficult for established players:

Perpetual vs. subscription licensing. Many current operating plans and sales organizations at the largest technology companies are built on the perpetual license model, where a customer pays one large sum up front and the vendor immediately recognizes nearly 100% of that payment as revenue. This perpetual license gives customers the “privilege” of paying an annual maintenance fee regardless of whether or not they take advantage of future upgrades. With subscription licensing, however, revenue is recognized over the life of the contract, making this an extremely difficult economic and organizational shift for an existing vendor.

Product cycle and software development methodology. For packaged software, new features are delivered (in the best case) twice a year. Often these feature releases are never deployed due to the complexity of field upgrades, resulting in users working with software that is years old. With SaaS, development is near continuous, allowing for rapid feature innovation and instant deployment of new features to all users.

Ease of adoption and trial-use. In the pre-SaaS, on-premise world, software purchases were made through a central CIO organization, which was equipped to deploy infrastructure and then test, certify and validate every new application. This highly concerted—not to mention, costly—effort required salespeople and systems engineers to run pilots, alphas and internal rollouts. The process would often take months, and by the time the software was ready to be deployed, there was no clear indication as to whether the product was really useful to the company.

However, with the advent of cloud and SaaS, the end user/department can easily try new software without an on-premise install, often at no cost. Developers and startups have found a replicable, reliable way to circumvent the iron grip of the industry’s major players and innovate, rather than iterate, on solutions to complex business problems. It’s a meritocracy of applications, where the best wins.

Inside sales leverage. With easy adoption and trial-use, a typical SaaS customer will have used a product and know its capability. This makes selling an upgrade or enterprise-wide deployment much easier and more economical.

Because of SaaS, the inside sales function is growing at 15 times the pace of direct sales. For existing companies that have large direct sales groups, moving to an inside sale model requires a complete re-tooling of the sales organization. This is a difficult transition and provides an opportunity for new companies to prevail.

Customer relationships. Customer lock-in has long been the hallmark of incumbent companies. Selling on-premise software directly to the CIO resulted in a tight relationship between the CIO buyer and the incumbent vendor. No matter how slow the rollout or buggy the end result, the fact that any new product had a receptive, locked-in customer, made it incredibly difficult for a new company to wedge its way in.

But with departmentalization, individual operational units have more autonomy to purchase technology. This gives the newcomer a real opportunity to establish relationships that the incumbent may not have. In fact, several large, incumbent companies are now making an effort to get to know the departmental buyer and get ahead of this trend.

The cloud and SaaS are stripping the complexity of IT to the point where any given operational department now has the confidence to purchase the tools they need directly from the vendor, circumventing a large part of the traditional IT procurement process. Moreover, the new buyers are not encumbered by risk-averse, IT decision-makers who operate under the belief that “nobody gets fired for buying IBM.”

By targeting this departmental user, Goliath topples almost before he sees David coming.

Up next: The Saas Manifesto: Part 2 – Building a sales organization that caters to the department, but recognizes the critical aspects to enterprise-wide requirements, and the changing role of the CIO.

Note: Part 1 of “The SaaS Manifesto” first ran in The Wall Street Journal‘s CIO Journal.