Like most small website owners, I have a very limited view of what really goes on under the covers at Chaotic Flow. I know my own source code and I have Google Analytics and basic Web logs, but without a fleet of operations and security IT staff, I really have no clue who is coming to my website beyond the browser types, IP addresses and keywords they use. I routinely have to battle comment spam and I’ve definitely fended off a couple of real attempts to hack my site. It’s amazing when you consider just how small a part of the Internet Chaotic Flow represents, yet the bad guys have sufficient time and processing power to spend it on little old me. Pretty scary.

Since email spam and desktop virus protection are proven, large markets, you’d think that by now someone would have cracked the nut of protecting websites. There are security options out there, particularly if you are a large site and can afford them. Most provide a combination of site scanning for detection with locally installed security software and hardware for prevention, but to my knowledge no one really provides attack detection and prevention for the Web with the kind of SaaS simplicity and effectiveness of email and desktop equivalents. Until CloudFlare.

CloudFlare is a creative and rapidly growing SaaS startup that wants to eliminate website spam the way Postini did for email, only more, a lot more. So much more that the two year old Cloudflare is already rumored to be valued in excess of $1B. I recently sat down with Matthew Prince, CEO of CloudFlare, to talk about what makes CloudFlare unique. He had no shortage of answers.

This is the first article in a new “Cloud Disrupters” interview-based series that will highlight recently launched SaaS companies and products that have the potential to be real game changers. In keeping with the long standing Chaotic Flow theme, the purpose of this series is not news and friendly buzz, but an exploration of the Internet strategies and technologies that make these companies unique and disruptive. And, maybe a little unsolicited advice.

CloudFlare’s Secret Sauce

The simple, game-changing element of CloudFlare is its approach to the website protection problem at the network transaction level, rather than the Web application level. CloudFlare asks nothing more than that you redirect all your Web traffic through CloudFlare, and CloudFlare will make sure only the good guys get through to your website. Technically, it’s completely analogous to Postini, except as opposed to swapping out MX records, you change your DNS settings.

Cloudflare attacks the website security problem at the network layer,
making sure only the good guys get through to your website.
However, access to all website traffic
opens up myriad business opportunities beyond security.

This approach has the double whammy of being incredibly simple for customers to adopt, while empowering CloudFlare with the maximum amount of community knowledge, business opportunity and network effects to become a truly valuable service and formidable competitive force on the Internet. More on this later.

Community Leverage Lies at the Heart of The CloudFlare Strategy

Growing out of Project Honeypot, an open community-driven experiment to identify and quash website spam, CloudFlare has been community-centric since day one, and the company has reaped the benefits. Prince has a great story about Read more »

This is an open call for nominations of seriously Internet-cool SaaS companies. I’ll be giving a keynote presentation on Future Opportunities in SaaS at the upcoming SaaS & Slam event in Boston at the end of April, and I plan to highlight some case studies. (read: free PR for cool SaaS startups)

In previous posts I’ve claimed that the path to differentiation in SaaS is to be a true Internet-play, not just a low TCO client-server application shoved through a browser. So, I’m putting together a list of software-as-a-service companies that think like Internet businesses and leverage the Web for all its worth.

Suggestions welcome…leave a blog comment or send me a note.

Cheers,
JY

After spending the last couple of years consulting around the SaaS and Web 2.0 worlds, I’ve decided to take the startup plunge again and settle down in the clouds. I recently joined Xignite, a cutting edge on-demand cloud services and mashup platform provider that helps companies incorporate accurate, current financial information directly into websites and applications via Web services, i.e., no integration programming required! The company is off-the-charts on the SaaS Success Top Ten Dos and Don’ts as evidenced by everything from the potential market (market data is a multi-billion dollar industry already…based on really old legacy stuff) to the e-commerce Web site to mass customization via the Splice on-demand mashup platform. Plus, the team is great from the sales reps to the board and the culture is pure software-as-a-service.

Xignite has a classic SaaS vs. legacy software value proposition
(on-demand web services vs. data feeds and custom code)

We have an Xignite company blog at xignite.web-services-blog.com, so my loyal readers can rest assured that opinions expressed here at Chaotic Flow will remain as objective as ever, but they may start taking a bit of a bent toward the emergence of cloud services…which differ from application-oriented SaaS in some distinct ways that directly impact the economic and business model dynamics–not the least of which is that they are used by computers instead of human beings.  However, the primary value proposition at Xignite remains classic SaaS vs. Software, or in financial services industry-speak financial web services vs. market data feeds.

Today, Apprenda, a company that I’ve been tracking for a while emerged from stealth mode.  Some of you may be familiar with SaaSBlogs which is managed by the company’s founders.  The timing couldn’t be better from my perspective, because I’m in the middle of this series on SaaS Model Economics 101 that I kicked off this week, concerning the creation of economic value and competitive advantage for SaaS vendors.

Apprenda’s SaaSGrid is a potentially game changing approach to Platform-as-a-Service ( PaaS ) which is a sector that up until now has largely been limited to hosting, billing etc. solutions for existing multi-tenant SaaS applications on one end of the spectrum, and do the whole thing our way solutions, like Force.com from Salesforce.com, on the other end–without much in between.  The reason SaaSGrid is potentially game changing is that Apprenda proposes to allow you to take your single-tenant software application, rapidly plug it into their Web services, put it out on the cloud, and voila! what was not SaaS, is now 100% multi-tenant SaaS.

Before you say that it is not possible, and even if it is it has to be less efficient than native multi-tenancy, here is what the CEO, Sinclair Schuller, has to say about it.  “I’ll go out on a limb and bet my reputation that in most cases, a SaaSGrid application will be more efficient in almost all regards than most native multi-tenant applications…In some cases, a native multi-tenant app can be more efficient if it can exploit some sort of specialization in its architecture, but this scenario is not common.”  My personal view is that storage and processing are free, so who cares.  The real cost advantage comes from aggregating customers onto a single infrastructure, not the 30% higher computing efficiency of a specific infrastructure.   So much for your sustainable cost advantage SaaS vendors–legacy software companies and IT departments may be following hot on you heels.

If PaaS offerings continue to move in this direction, then current SaaS vendors will need to focus much more keenly on creating product differentiation and lowering acquisition and adoption costs.  Something I personally believe is only good business.  Cost advantages NEVER last.  In my SaaS Top Ten Do’s and Don’ts I assert that the technology cost advantage commoditizes SaaS markets.  It is something you must achieve to play in this game.  But, it does not guarantee that you will win.  Without proficiency at mass customization, driving down cost of acquistion and differntiation, you are simply a commodity in a commodity market.  And, that market just got a lot more crowded.

I’ve recently started working with Zendesk, and I can’t say enough about this Web 2.0  SaaS helpdesk company.  In my last post, I made the point that most SaaS vendors just don’t get Web 2.0.  Zendesk is the exception that proves the rule and I think this company has an amazing future.

You might think that the last thing the world needs is another helpdesk product.  I personally can’t think of too many spaces that are more crowded with everything from cheap packaged software to large scale ERP-integrated SaaS offerings.  So, what makes Zendesk special?  They get what all the other B2B SaaS / Enterprise 2.0 companies are missing.  When I submit their offering to the Web 2.0-savvy IQ test, their marks are off the chart.

First and foremost, Zendesk is a native Web-centric application that completely integrates the backend helpdesk with a company’s online customer support presence.  When you turn on Zendesk, you not only turn on the traditional helpdesk ticket tracking, business rule automation and reporting, you turn on your customer support portal, online forums, mashup widgets, pervasive RSS and your support@yourcompany.com email–all these customer communication points are seamlessly integrated to your back end helpdesk.  When I speak of B2B2C being an emerging disruptive force in Enterprise 2.0 SaaS…this is exactly it.

Zendesk launched in November of 2007 and in a short half-year has  [an undisclosed but an amazing number of ] paying customers and an increasingly impressive list of brand names.  Why?  Because you can sign up and get going without any help at all.  The website content, trial sign-up and purchase are seamless and is 100% automated.  And, the minimalist design is so intuitive that no training is required.  Although I know these guys like to give each new account a little tender loving care, the truth is that getting going is as straightforward as any Web 2.0 consumer site.

If your run a Web-based business, or simply want to provide better support over the Web, and agile customer service is more important to you than heavy-iron process automation and compliance on the backend…my pick is Zendesk.

It’s been a while since I have written a blog entry, but I am happy to say that it is for a good reason. I recently joined Conduit, an exciting B2B2C Internet startup as VP Marketing. The company has some incredibly cool things going on grounded in cutting edge, on-demand website syndication technology, so I have no doubt my experiences here will provide great inspiration for future blogging. We just closed a round of financing with Benchmark Capital, led by Michael Eisenberg and we are ramping up for some serious growth, marquee customer deals, and new product introductions (read: I am hiring in marketing…resume’s welcome) Our website has just been updated with the next-level of evolution in the company’s positioning (not the least of why I have been on a blogging hiatus). Finally, I am personally enjoying working with a fantastic, talented team and working at Conduit’s dual-country headquarters in Silicon Valley and Tel Aviv which keeps me commuting between two of the most beautiful cities in the world.

What’s not to like. Sababa!

The Internet sector is rife with companies that seem to have great product ideas, but can’t seem to monetize their offering. Strategically, this is almost embarrassing. I honestly can’t think of another industry that has this issue (feel free to clue me in if you know of one). While most small businesses and startups fail to ultimately turn a profit, Internet startups seem to stand alone in not having a clue as to what they intend to sell in the first place. It seems the only exit strategy for these startups is to be bought by a larger, cash rich company that offers something others are actually willing to pay for, like Microsoft, Google or Amazon, where they become a permanently free service or are absorbed into some larger tech stack as simply another feature. At any rate, because this blog is about strategy, many of the posts can be very critical. So, in the interest of balancing things out with a little optimism, I’ve decided to start a series called “Joel’s Picks” The companies I plan to highlight in this series are those that IMHO have real substance (read not hype) to their business model and exemplify sound business strategy and execution (and only time will tell if my judgment is sound).

LinkedIn recently announced it’s first baby step into the open social network platform game, and received no end of criticism in and around the social network futurist blogosphere. So, I’d like to go on the record as saying that while this criticism may be accurate from a technology evolution viewpoint, it is absolutely wrong from a business strategy point of view. LinkedIn is right to move slowly, because, a) their target audience is not using it for entertainment and doesn’t need all the newest gadgets now, b) isn’t on the bleeding edge of Web tech sophistication, and c) will not be as forgiving as Facebook’s if they screw up (and they could still screw up…social networking trust and privacy are risky business.)

So, why LinkedIn? Find me another social network that has a real chance right now of becoming huge based on subscription revenue alone. When I think of the recent trials and tribulations of Facebook, my first reaction is that “you get what you pay for.” While I know that most users do not pay the subscription fee on LinkedIn, this does not damper my optimism. The fact that some do exemplifies the value of the service. I can remember when Salesforce.com was free for licenses of 5 users or less; it isn’t anymore, in fact the license price is higher across the board. Too many social networks are going after target markets that simply don’t pay. Or at least they think they won’t. Haven’t these guys ever heard of market segmentation??!! I am talking to you Facebook.. My main point here is that it is strategically important to put a pricing structure in place that maintains a very low barrier to adoption, but does not preclude future revenue, i.e., users expect that once Facebook is free, it should always be free.

Rather than go on and on…here is a list of some of the things I really like about LinkedIn.

• A HUGE target market that truly leverages the inherent global reach of SaaS.
• A segmented, balanced revenue portfolio based on recruiter posting, limited advertising, and user subscriptions.
• Solves a problem for users, and it not simply entertainment that is used to capture users to solve the problems of marketers (like me).
• 2 and 3 imply that LinkedIn has all of its stakeholders coming and going and they LIKE it.
• Balanced revenue, plus a professional target audience encourages a proactive approach to privacy and trust, limited risk and liability.
• Social relationships/processes mirror their real-world counterparts, i.e., recruiting, networking, getting and giving advice, etc. These processes are enabled, not distorted by the technology or the business model.
• SIMPLICITY in design ala Google

So, please LinkedIn, don’t prove me wrong.