2008 - The Breakout Year for Niche SaaS ISVs

I'm not going to attempt to predict the future, but I believe 2008 will be the year of the Small Vertical (intra-vertical focused) and Niche Horizontal (spanning only a few, related verticals) SaaS ISV. The headline producing SaaS ventures in 2007 were the big players, with horizontal offerings. These were Salesforce.com (CRM), Business Objects (BI), and NetSuite (Office Productivity). Just as in the deployed world, "big" horizontal applications are the same ones that have traditionally received the press. And 2008 will not be much different.

Small ISVs that until now have remained in the "deployed" software and traditional licensing game will begin to break out. I predict that 2008 will see the largest influx of vertically focused and niche horizontal SaaS offerings to the market to date. The future of SaaS (the long tail, if you will) is the Small Vertical and Niche Horizontal products and tools. These will be new tools, tools ported from "deployed" solutions, and internal tools utilized by technology services organizations they would like to productize.

The problems I wrote about in my articles in early 2007 regarding selling SaaS solutions to the Enterprise for the most part still hold true. Sure, the climate is changing, but many of the objections are still being faced. These challenges are actually a good thing for well-prepared ISVs as they provide barriers to entry for those SaaS vendors that are not ready to overcome them.

In 2008, these barriers will become an even larger part of the story as more and more small ISVs attempt to sell SaaS products to F1000 companies. Large, well-funded, and well-connected, SaaS vendors had to overcome these same hurdles to get to where they are, but had the resources to wait out the market; small ISVs do not have that luxury.

Since I work with companies to bring their vertically-focused and niche horizontal on-demand software and technology service products to market, 2008 will present some interesting challenges and opportunities.

Happy New Year!

Saving Starbucks

Brand Autopsy has an incredible series on what it is going to take to save Starbucks. While Starbucks is far from heading into the deadpool, its same store traffic has dropped for the first time in history. While the folks over at Brand Autopsy have some wonderful ideas, and I can see where Seni Thomas is going with his new media ideas, but I say it is even simpler than all of that. In fact, it is simpler than what Starbucks is doing with traditional advertising. Are you ready for this? They should make their wi-fi free. That is all.

You see, when their store traffic was high, they didn't need, or even want, people hanging out, leeching off the free Internet, even if they might buy an extra cup of coffee. The customer turnover was the key to the model; pushing people through like cattle. They simply had plenty of foot traffic and many of their stores were packed. Those that really just wanted a place to hang out, drink coffee, and work on the web found the local coffee shops, and some national chains, more than accommodating. And, frankly, for people still going to Starbucks for business meetings, many find a signal from an adjacent apartment complex or other business or use a mobile data card and connect that way. Starbucks lost a large share of people, not because the people found a better coffee product, but because the thing that was once a luxury, a free Internet connection, was now at the core of their decision on where to go for coffee.

So, the net effect of providing free wi-fi is that you instantly get back the folks that would prefer Starbucks but choose the local coffee shop that has the free wi-fi. This, by the way, will also cause the local coffee shops to have to step up to compete on different level, rather than just offering something Starbucks doesn’t. Additionally, by providing a web-interface to gain access to the free wi-fi system that displays terms of service and disclaimers, Starbucks can also advertise to a captive audience (similar to Panera).

While I wouldn't suggest selling ads to third-parties (or worse using contextual advertising from Google) on the login-portal outright, as that might dilute the brand, they could certainly drive users to partner online services, such as their iTunes tie-in. As an additional value-add, and revenue driver, Starbucks could present coupons that the customer can send to their mobile device and show the cashier for discounts on non-standard items, such as takeaways like mugs, packaged coffee, etc. No need to discount drinks, they'll already buy those at full price, but this would drive revenues through ancillary items and push slow movers in a big way. Additionally, I would provide a pay service that offers a better QoS guarantee for people that still want that, but they would still get the advertising and coupons because it is a value-add, not just a nuisance.

So, in my estimation, that 1% traffic drop could be made up, and revenues increased, by opening up their wi-fi and marketing their retail products through that channel. No need to spend any money advertising through traditional channels, no need to develop new innovative drinks, no need to glue cups to cars, etc. I don’t think this is the end-all, be-all of what they need to do, but it is certainly a start. I do like the Brand Autopsy suggestion of making the stores smell more like coffee, however.

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