So, the article starts off says we are openly attacking the vestiges of the on-premise software model because we are providing all implementation and support services for financial firms interested in salesforce.com, for free. We go on to say that our announcement promises to start a new trend among cloud product providers – free services. This is bad news for legacy software vendors who earn millions of dollars from implementation, maintenance and support fees. You can “read” the rest of the article at:

Multitenancy: The Next Cloud Computing Wave?

After Navatar made the announcement for free services for Salesforce, here are a just a few of several questions I received:

“How will you make money?”

“Free – Ha Ha...”

“Very interesting … still digesting what it means..”

The questions were genuine and their underlying theme was clear – everyone seemed very surprised since they didn’t think it was possible to provide any services free of cost. They were trying to figure out what the catch was.

There really is no catch. This is the way it is supposed to be in the cloud computing model. Cloud products are not physically installed for each customer the way on premise products are.  True cloud products are multitenant and share databases, infrastructure and labor. Which means that the costs of implementing, maintaining, supporting and innovating can be shared too. That’s why, when you buy a cloud product you are supposed to get most services related to product implementation and support free of cost. It’s as simple as that.

All said and done, this is still a concept that will take some time to stomach – particularly, for folks that are like myself and have spent almost a couple of decades in the technology world, have long made a living implementing and maintaining software and have seen several fads come and go (I too spent years helping Deloitte and PwC make money on systems integration work). So their skepticism is understandable.

But there’s another category of doubters – those that have bought into the idea that implementing Salesforce for your business is simple enough to be accomplished with a few button clicks while playing poker.  It’s often hard for them to see the value of what we offer (at least initially) since they are driven by the notion that it’s an easy DIY job.  However, they typically realize after 6-12 months that the task of getting Salesforce to support their business, though not as daunting as plugging an oil well leak, can be extremely cumbersome and distracting.

So the answer is: No, we are not offering free lunches. Cost is one of the important advantages that Cloud Computing delivers – services costs are a big part of the TCO of software that the cloud promises to reduce. Real Cloud Product Companies will offer low cost subscriptions to useful, out-of-the-box (or, shall we say, out-of-the-cloud) products without charging customers for services – which is what we at Navatar are doing. The idea is that every Hedge Fund (or every Broker/Dealer or every Mutual Fund) doesn’t have to spend time and money doing the same thing just to implement and support software. Once customers see that value, they will be the real winners.

Alok Misra

Your Investor Relations team will not have to spend time preparing spreadsheets and performing complicated calculations. The pre-defined logic in the system computes the capital drawdown/distribution and fee allocations to various limited partners. The system also allows flexibility for exceptions – for example, the allocation for a limited partner can be overridden if their side letter states they don’t invest in certain countries or industries. The system also performs automatic rolls ups for each LP and fund, on various metrics, to help users manage the process efficiently.

The IR team will not have to manually create and mail capital call letters either. The Capital Calls functionality will, in a few easy steps, allow them to:

• Set up custom capital call/distribution email templates using the fund’s logo and branding
• Dynamically populate the capital call notice with relevant contacts, limited partner’s commitment and capital call/distribution information
• Identify the contacts across limited partners to whom the capital call/distribution notices need to be sent based on the limited partner’s preferences
• With a single click, email notices to all the relevant contacts across limited partners

We will continue to add more functionality to increase the productivity of your investor relations, fundraising and deal flow teams. If you weren’t aware, Navatar Private Equity CRM is built on salesforce.com’s cloud computing platform. Follow the link for a demo:

Demo of Navatar Private Equity

Shweta Kumar

Take the case of Netage, an established vendor that has been providing CRM to Financial Services. Netage will continue to lose deals to Navatar (read River Cities Capital Funds has selected Navatar’s Private Equity CRM over Netage Dynamo). The reason is simple: for a legacy vendor like Netage, winning the cost/value battle against a cloud provider like Navatar is next to impossible unless they can rethink their entire business model.

Legacy vendors typically give the cloud a try, as a defensive move – they launch a hosted offering, available through the internet to avoid losing business. They often try to save money by using all or some of their existing on-premise infrastructure and practice for their hosted offering (masked as a cloud offering), by avoiding the investment in a new technology infrastructure that supports multitenancy. However, the high cost of replicating and maintaining instances for each single tenant (or customer) eventually catches up with them, and their margins get lower as each new customer sucks up more resources (read Why Multitenancy Matters in the Cloud to learn more).

It isn’t just smaller companies – larger companies such as Oracle are faced with the same issue when it comes to competing with cloud providers (read Oracle Cloud Computing and the CFO’s Dilemma). But because of their size and scale, larger companies like Oracle have the ability to change the market demands/dynamics and fight the battle on a different turf. 

The clock, in the meantime, is ticking for most other legacy software providers. If all they do is launch a cloud offering in addition to their on premise offering while maintaining the same business model, they will die soon. Their survival will depend on whether they can make a complete transition to the cloud world.

I think that you can offer Cloud/SaaS products as single-tenant, multitenant or both (meaning one model for Goldman Sachs and another for Peter’s Garage) and also label them the way you want … the main question is that of revenue and cost … or, more plainly, whether you will become a winner in your space in the long term.

The keywords are both “winner” and “space.” If most of your customers can be served through multitenancy, you will have a winning SaaS/cloud product since you will eventually win the cost/value battle over your competitors. If most of your customers, on the other hand, require customizations that make your model single-tenant you may eventually become a winner in the consulting/SI space but not in the product space (someone else will figure out how to offer a multitenant product at a lower cost).

It’s a well known fact that Marc Benioff’s early investors pressured him to also offer single-tenant versions of Salesforce and give customers a choice… we can all guess where salesforce.com would have been had he accepted that compromise. But let me also give you examples from experiences that I have lived (through Navatar).

Our cloud products for Financial Services on the Force.com platform are all multitenant. For instance, 70+ Private Equity firms that use Navatar’s Private Equity product run their own instances of salesforce (where the product is loaded), have made their own configurations (and customizations) … however, they are still able to receive upgrades seamlessly from salesforce.com as well as from Navatar. That’s the architecture we were able to design (force.com surely helped). We sometimes have to stay away from potential customers who want heavy customizations that can prevent us from offering them seamless upgrades (even though we have a consulting practice)… that’s a price we pay.

Another example: Our consulting practice specializes in building products (on Force.com) for others. One such product we recently built was for Points of Light Institute, a pioneer and leader in facilitating volunteering. They offered a client/server product to nonprofits, to manage volunteer activity within their community. The cost of maintaining and supporting their 300 customers/affiliates was too high and the model wasn’t scalable. The new Force.com-based multitenant product allows each customer to customize, create their own web pages etc, without losing the ability to upgrade to the next version (in development). However, it was the targeted saving of 50% in the cost of maintenance/support that made the move to the cloud worthwhile for them … without multitenancy, instead of savings, they would have been building fatter maintenance and consulting practices.

Also, as someone pointed out, multitenancy is a necessary, but not sufficient condition for a profitable cloud product business – there are a whole bunch of others, and I complete agree.  It’s also worth mentioning the blogs of those that actively participated in the debate and helped me enhance my own learning on all of this. Here are some of them that you may find interesting:

Customization: An enemy of SaaS, There goes the neighbourhood, Multitenancy in the Cloud, Principal-driven Customization, Trident Capital blog.

There is no doubt that Force.com, Salesforce.com’s platform-as-a-service (PaaS), is the leading cloud computing platform today. If you are an independent software vendor (ISV) or an entrepreneur looking to build commercial products in a public cloud, it’s probably on your radar already. Force.com gives you the potential to save on development time and get a product to market faster–even more important, the potential to build a business with fewer resources.

Does that mean you can create a profitable cloud business by building your product on Force.com? The answer is–not necessarily.

In reality, most companies struggle to see the return on investment after all their development effort. Here’s why: In a perfect world, seat sales through the AppExchange would happen at the same rate that consumers download music on iTunes. Business buyers, however, are harder to reach and take forever to convince. Both traditional ISVs and startups usually discover they have been overly optimistic not only about how fast they can sell but also about what price targets they can achieve. To make things worse, ISVs find the product development, maintenance, and delivery costs to be much more expensive than anticipated.

Please join us to meet other Salesforce.com customers in the great State of New Jersey, network, to learn more about this important initiative as well as share your tips and best practices! Hope to see you there!

Date/Time:   Wednesday, December 2, 2009 •  5:30 p.m. to 7:30 p.m.
Location:      Princeton Overlook – Regus Business Center • 100 Overlook Center, 2nd Floor • Princeton   Location Information

RSVP: njusergroup@gmail.com by Wednesday, November 25, 2009.

Agenda:       

5:30 p.m. – Networking & Refreshments
6:15 p.m. – Introductions & Announcements
6:30 p.m. – Application Demo – Ketan Khandkar, Navatar Group

7:00 p.m. – New Salesforce.com Community Site Preview

Hope to see you there!

Ironically, this is happening at a time when it has never been easier for a Venture firm to switch to better systems with almost no effort. The same browser they use to search for news and research can also be used for the industry’s most sophisticated CRM. No hardware needed other than the laptops they are now using and access to the Internet.

Whether they use our service built on the force.com platform or on top of salesforce.com or some of the other services out there, you have to wonder why, during this time of great stress they are still trying to make do with Excel and Outlook. If it is cost that is holding them back, you really have to wonder. We have priced our service at about the price of a couple of cups of coffee a day on Wall Street. On top of that, our Marketing Department is launching a “buy one get one free” promotion.

If you are in one of these financial firms and suffering from the funding drought – maybe it’s time to think about improving your pumping equipment?

Is it true then, that our Financial Services solutions for Force.com are popular because they’re low cost? Of course. Navatar’s solutions to manage CRM, Operations and Portfolio for these firms are probably the most cost effective alternatives. They deliver on the Cloud Computing promise – to lower costs and enable scalability as financial firms navigate the turbulent waters of today and prepare for the future. You can read about how Transparent Value, a Guggenheim Partners Company is achieving this, in the article, Asset Management Firm Moving Apps to the Cloud, written by Penny Crosman at Wall Street & Technology.

However, there is another important aspect to all of this.  Around 60% of our financial customers bought from us since someone (another firm) recommended us.  You would think the recommender probably said, “Yes, indeed, the cost is low and the product has all the features we need.”  In reality, our recommenders endorse us for much more than that - they are happy to recommend us for the combination of product features and the service they receive from folks well versed in Financial Services. They like the idea of a one-stop-shop they can turn to, for anything related to running their operations efficiently. And it’s all baked into the cost of the service.

The service aspect really is the crux of the Cloud Computing model.   A cloud service provider is a company that delivers cloud services as part of its business model. The public “Cloud” will be an abstract place through which service providers will deliver things like storage as a service, software as a service, or maybe even sushi as a service in Indiana one day.  But the common link between all those things is, and ever shall be, the delivery of “service”.  That quote is from an article Delivering Cloud Services: ISVs – Change or Die or both! written by Daryl Plummer at Gartner.

So, let’s ask the question again. Is it really the cost?  My answer is that the big differentiator is the value that the Cloud Computing model enables us to provide.  It makes us successful and it is exactly that value which will help our Financial Services customers take advantage of the new upcoming opportunities in this downturn.

Let’s tackle the first part of the question. It is, indeed, a huge shift, moving to a subscription based pricing model.  Oracle probably has a twofold objective – to protect the current customer base (probably a bit easier because these customers have already spent millions on software/consultants and are seemingly ‘locked’ in) as well as acquire new midmarket customers that haven’t yet had a taste of Oracle’s software.  Can Oracle potentially repackage what customers would have paid into annual license and ongoing maintenance fees into a monthly subscription fee spread over the life of the contract, and protect current revenues as well as get new customers?

I don’t think so. When it comes to midmarket, vendors more grounded in the SaaS world (or the multi-tenancy experts) will surely come with lower priced options and Oracle will have a tough time competing.  The answer would have to be lower revenue per customer. Which means that just to produce the same revenue numbers, Oracle will need to acquire more customers. More customers implies more salespeople, more infrastructure, more support, more (you fill in the blanks).  In summary, that means incurring higher costs but getting the same revenue.  Safra Catz will not like that.

Which brings me to the second part of Mary’s question – will Oracle need to invest heavily in a multi-tenant architecture to solve this? Absolutely. Multi-tenancy will be necessary to deliver cloud services and shift to subscription-based pricing, while protecting the bottom line at the same time. Yes, building and delivering that kind of architecture isn’t Oracle’s forte. But their industry and financial stature gives them so many interesting choices that it shouldn’t be that hard for them either. They could go and buy a company (and a platform) tomorrow. They could sell more database licenses to salesforce.com and then use Force.com as the platform to build and deliver multi-tenant versions of Oracle apps (Peter Coffee points out in his blog entry What the Cloud Entails how increasingly complex multi-tenant apps are being built in a faster timeframe on Force.com). Or they could hire the best cloud talent and build the multi-tenancy infrastructure themselves.

Did I miss any other options that Safra has? I’d love to hear your comments. Oh, and of course, here’s a  (free) whitepaper (from yours truly) that may have a useful point or two about the pitfalls and benefits of the subscription-based pricing world:

Whitepaper: The Dos and Don’ts of the transition to Cloud Computing