Microsoft expects to lose margins as "cloud" competitors start to eat away at its core businesses.
Kudos to Microsoft for calling out the obvious. But the software maker still has a lot to learn, if it thinks it can charge more under its own cloud model because "the customer will pay Microsoft a larger fee, since Microsoft also runs and maintains all the hardware," as Nick Carr notes:
Capossela's assumption that Microsoft will be able to charge companies more under the cloud model seems optimistic, given the different economics of providing software as a Web service and the aggressive pricing strategies of cloud pioneers like Google, Zoho, and Amazon.
Put more bluntly, there's not a chance in Hades that Microsoft will be able to charge more for its cloud-based offerings--not when its competitors are using the cloud to pummel its desktop and server-based offerings. This is something that Microsoft (and everyone else) is simply going to have to get used to. The go-go days of outrageous software margins are over. Done.
... Read moreBenchmark Capital has invested $6.5 million in online subscription software company Zuora, which launched its Web site Thursday, according to the company.
The series A round of funding also included investors Salesforce.com founder Marc Benioff and Min Zhu, founder and co-CEO of Web conferencing company WebEx.
Redwood City, Calif.-based Zuora, founded in March 2007, has built a platform that automates purchasing and billing for online subscriptions. With its automated platform, which has yet to fully launch, the company hopes to make it easier and less expensive for any online service provider or publisher to regularly bill customers. Customers could include software providers like Salesforce or consumer companies like Zipcar, a car-rental service, according to founder and Chief Executive Tien Tzuo, one of Salesforce's first employees.
"We want to be the PayPal for the subscription business," Tzuo said.
For now, Zuora is available only by private invitation. But the company's first customer is Coremetrics, a Web analytics firm.
Zuora's product competes with services from credit card providers, some of which allow customers to bill buyers on a repeat basis. It also competes with Portal Software, a large subscription-billing provider that typically services larger clients. Most often, however, companies like Salesforce or Zipcar build their own online billing systems. Tzuo said that Salesforce put half of its developer staff on the job and it took them nine months to create a customized billing system.
"Our system is on-demand, so you can use as much or as little of it as you want," Tzuo said.
The company was also founded by Zuora President K.V. Rao, an early architect of WebEx. He's joined by Chief Technology Officer Cheng Zou, also an early staff member of WebEx.
"The team's deep understanding of complex billing needs has allowed them to develop a simple, modular, and highly scalable offering to enable on-demand billing," Benchmark General Partner Peter Fenton said in a statement. Fenton will join the board.
Zuora plans to use the money to launch its platform, build more functionality, and expand sales and marketing.
Hosted business application provider Workday said Wednesday that it has acquired Cape Clear to create an integration on-demand offering.
Financial terms were not disclosed.
Launched in 2006 by PeopleSoft founder Dave Duffield, Workday sells online versions of traditional ERP business applications, such as human resources management and accounting.
Cape Clear's standards-based integration software, called an enterprise service bus (ESB), will form the basis for an integration on-demand offering the company plans to add to its products. The integration service will allow people to exchange information between Workday applications and those from other providers, including Microsoft Office programs.
Workday said it would continue to support Cape Clear's existing customers who use the software on-premise. Cape Clear founder and CEO Annrai O'Toole will join the company as vice president of integration.
Started in 2001, Dublin, Ireland-based Cape Clear was one of the first companies to build a product on nascent Web services communications protocols. Its job got harder once all of the large software providers built their own ESBs.
In his blog, O'Toole said the acquisition signals how integration software technology is essential to on-demand software and services-oriented architectures.
"It is this vision, that integration is at the heart of hosted applications--and not an on premise, bolt-on like other enterprise vendors believe--that separates us from the rest of the pack," he wrote.
Underneath the software-as-a-service hype, large organizations have a real concern. Yup, security jitters again. Just as security slowed down the Web services train, it appears to be putting the old kibosh on SaaS deals.
Why the concern about security? It isn't about basic safeguards like firewalls, desktop antivirus, or intrusion detection systems. It's about end-to-end security from user authentication to data privacy to physical security in data centers to off-site transport and storage of backup tapes.
Before outsourcing my HR applications, you can certain that chief security officers will put service providers through the security "white glove" treatment and demand on-going auditing of security henceforth.
What does this all mean?
1. SaaS vendors must become security beacons to succeed. These demands go beyond information and physical security; service providers will have to be familiar with their customers' business processes in order to understand where their services are most vulnerable. In my mind, "business process security" is the new frontier and SaaS vendors must blaze the trail.
2. Data privacy is tantamount. Strong authentication, proactive auditing, and encryption must be a part of the SaaS design in order to restrict access to private and confidential data. The SaaS providers must assume liability for the cost and damages associated with any data breaches.
3. SaaS vendors find security partners from the get-go. Managed service providers like IBM, VeriSign, and Symantec have a huge opportunity to be the Good Housekeeping seal of approval on SaaS offerings. As part of these big deals, SaaS vendors must transfer risk to security experts, use these partnerships for marketing advantage, and maintain their focus on solving business problems.
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