Do you remember Kirk Gibson’s walk off home run in game one of the 1988 World Series?  The late Jack Buck’s famous radio call of the exciting moment was “I don’t believe what I just saw!”

Well, try finding the footage on YouTube.  Apparently YouTube does not have the “expressed written consent” from MLB.  If you want to view this moment, share it with your kids, pass on to them your love of America’s past-time, you’ll need to pay the toll to MLB.com.

Interesting marketing approach.

This reminds me of Rob Hagen’s excellent post on standards setting for IP based video.  While not directly parallel, what the situations do have in common are big organizations, using size and influence, trying to derive new revenue streams.

Don’t get me wrong, more power to them if they can pull it off.  And they have had some success in attracting subscribers to their subscription service.  However, my guess is that most people willing to pay are hardcore baseball geeks (not meant as a pejorative) interested in fresh content.  As for the casual fan interested in re-living 20 year-old highlights, I’d venture that revenue is low and irritation is high.  These are my memories.  Why don’t they share?

Tomorrow I go to the National Retail Federation Loss Prevention Expo in Orlando.

For those of you that have ever been to this conference it is a great opportunity to get in front of a large number of security and LP professionals from the leading retail brands in the US and beyond.  While MVaaS has a tremendous value proposition that extends beyond security and loss prevention, the folks that come to this show are still the primary buyers for video services in a large portion of the market.

I’m excited to hear directly from these professionals how their company’s views of video and its potential applications are evolving.  I’m also going to be meeting with some cool companies in this space such as IntelliVid (retail video analytics) and Protiviti (an LP and risk consulting firm that spun out of Anderson) to share perspectives on market developments.

I’ll put out a post when I get back to let you know what I’ve learned.

As I covered in yesterday’s post, the valuations for SaaS companies have routinely exceeded that of the traditional software vendors.  I suggested that there are reasons for this, and they may be different from what you expect.

Phil Wainewright , a SaaS industry pioneer, recently wrote an intriguing post on this topic in ZDNet, “Want Cash? Buy SaaS”.  Mr. Wainewright covers a speech given by the Corum Group’s  Jerome Fougerat at the SIIA OnDemand Europe conference in Amersterdam.  Mr. Fougerat’s contention is that on-demand software companies generate cash flows that are more predictable than their more conventional software brethren.  And due to this, SaaS vendors make especially attractive takeover targets.

But this seems counter-intuitive, doesn’t it?  How can a SaaS company that collects cash over the life of the subscription period better generate cash than a company that collects large upfront software license fees?

The answer, according to Mr. Fougerat, is not the amount or timing of cash flows.  Rather it is in the predictability of these cash flows.  This predictability, he argues, is the reason that on-demand companies command valuations nearly twice as high as traditional software vendors.  This is a fact certainly not lost on savvy VC investors.

I agree with Mr. Fougerat that predictability of cash flows contributes to the equation.  However, I would take his thesis further.  It is not just the predictability of cash flows, but also the overall predictability of results, that make on-demand businesses so attractive to investors.

In the investing world, uncertainty is poison.  Investors demand results that are in-line with their expectations – expectations that are governed by the guidance of executives and predictions of analysts.  Companies that miss their numbers are brutalized.

Take for example GE, the darling of the blue chips.  On the day that Jeffrey Immelt announced that GE had missed its earnings guidance, by 7 pennies per share, the stock plummeted 13%.

SaaS companies are less prone to volatile swings in performance.  This is due to the construct of the recurring revenue model.  When properly managed, the revenue stream becomes very predictable.

In other words, boom and bust cycles are more easily avoided.  And investors are willing to pay a premium for this certainty.

The Celtics victory was the result of very talented individuals that played extremely well as a team.  The Lakers loss, despite having the single most talented player, was in part due to the failures of some members of his supporting cast and in part because he couldn’t do everything himself.  He had some incredible games, but they ended up losing because several of the role players failed to deliver – and rather than help them out he’d glare at them unapprovingly.

MVaaS is definitely a team sport – particularly when you look at it from the customers’ perspective.  You have a number of players involved in the delivery of video.  There are equipment manufacturers that make the cameras and recorders, technicians that do the installations and provide the service, software and service providers that provide the functionality, and integrators that can wrap the whole solution together.  The customer sees it as a team because they are looking to a single provider to pull all of these groups together and deliver a complete solution.  Wins and losses for this team are judged by the customer – are they happy with the solution and is it creating value for them.

There are several lessons for MVaaS providers: 1) that teams that are able to work together and deliver on all of the aspects of the service are ultimately better off than teams that are built on one superstar capability but that fall down on one of the other aspects of the service, and 2) it is hard to do everything yourself.

If you provide a service using the top of the line IP cameras but couple it with software that doesn’t enable you to do much with it – you will not win.  If you have a killer service that drives tremendous value for customers, but your installers are not professional and don’t do a good job – you will not win.  If you try to do it all yourself (like Kobe trying to play center, point guard, and power forward all at the same time) you will not win.

Teams that are built on great partnerships amongst companies that are each excellent at what they do will ultimately win.  Service providers that are excellent integrators and project managers, that use high quality equipment, that can provide excellent service through 3^rd party installation groups and that deliver software that enables the customer to easily use and manage video – they will win.  Leading providers in the MVaaS ecosystem need to work together to forge these partnerships so that they can assemble teams that will deliver wins for their customers.

Go Celtics! (and MVaaS providers)

No, I’m not talking about the environment.  I’m also not referring to the Celtics (See Matt Steinfort’s recent posts on the Boston Celtics Part I and Part II).  Rather I’m drawing attention to the healthy revenue multiples of SaaS companies.

A presentation (see page 17) recently at the SIIA On-Demand conference in Amsterdam by the Corum Group draws attention to this fact.  The multiples for on-demand businesses have been routinely higher than their more conventional software brethren.  How much higher?  Nearly 2X for recent and relevant M&A transactions.

Do investors, including the companies that have acquired SaaS companies, have it all wrong?  Are they overvaluing SaaS companies in comparison to conventional software companies?

I don’t believe so.  And my reasons may be different from what you expect.

For those of you that aren’t basketball fans, let me give you a quick overview of the match up between the Celtics and the Lakers.  The Lakers were favored going into the series.  Their team is built around a player, Kobe Bryant, that is generally thought to be the best individual player on the planet.  He has one or two teammates that are really good, but his supporting cast is otherwise pretty average by NBA standards.  The Lakers success is generally a result of Kobe dominating a game – they aren’t generally thought of as a “team-oriented”group.   In fact, Kobe tends to operate by glowering and criticizing his teammates when they fail to meet his incredibly high expectations.  Despite their “one mega-star and some good other players that don’t always play like a team” makeup, they made it to the NBA finals and were favored to win.

The Celtics on the other hand had three very talented players that will each be in the Hall of Fame down the road, but none of them are thought to be in the same class as Kobe.  The Celtics success this year was attributed to these three players and to their supporting cast – a group of young inexperienced but talented players and some veterans that all played very precise roles.   Unlike the Lakers, the Celtics were known as the ultimate team.  They played very unselfishly together, they communicated extremely well together, and got strong contributions from both their superstars and their role players.  The result was the best regular season record in the league and ultimately the NBA championship.

So do you have any idea what lesson MVaaS providers should take from the Celtics victory? I bet the commish knows, he’s already clapping.

I’ve been a die-hard Celtics fan for a long time.  I followed them religiously when they were horrible from the early 90’s until last year.  This year has finally been a year where I can actually root for them to win (in years past I wanted them to lose to get a better draft position)  If you are at all a sports fan and want to read some really humorous commentary on the Celtics and a bunch of other topics, check out my favorite sports writer, Bill Simmons (The Sports Guy) on ESPN.

As I watched them play through the playoffs and then beat the Lakers I realized there was an important lesson for MVaaS providers in the Celtics’ success.  Any idea what the lesson is?

That was a really funny line coined by Milo Medin during the OSI/ IETF wars of the late ‘80s. Back then I was a naïve software developer who had been volunteered to run the OSI area of the IETF. Talk about walking into a buzz saw. See, the problem was that the IETF, the standards body of the Internet, was based on the general idea, as Dave Clark put it, of “rough consensus and working code”.

IETF standards are open documents. Anyone can download one for free. Anyone can publish a starting point, know as an Internet Draft. There are no fees to join, requirements for membership, closed meetings or other mechanisms designed to keep people out.

The ISO OSI process, on the other hand, was closed – you had to be a certain somebody to contribute, you had to pay money to purchase the documents, and in general it was a very difficult environment to accomplish change. These conferences were generally attended by, as Marshall Rose would say, “go-ers” where as the IETF was generally attended by “do-ers”.

So the ISO OSI folks, it turned out, were trying to define a whole bunch of new protocols that duplicated what the Internet was then running. Some of these protocols actually were superior or at least on par with existing IETF protocols (IS-IS vs. OSPF) for example, while others, such as TP0-4 or CLNP were destined only to be known by wikipedia and a few SONET/SDH transport vendors who probably wish they had never built them in the first place (but that’s another story).

Well the real fun began when the US government mandated that everyone would have to use OSI. This was done in a document called GOSIP. That action spun everyone in the IETF up to warp speed, and led to Milo’s famous quote above, which was in reference to ISO’s OSI protocol set providing same day service in a nanosecond world. (By the way, there was a wonderful graphic that accompanied this tee-shirt slogan…anybody out there remember it?).

What was the outcome of that period of history? I’ll explore that tomorrow.

Sony, Bosch and Axis have recently agreed to cooperate in forming a new, open forum aimed at developing standards for networked video.  Here’s a quote:

The main goal of this new standard is to facilitate the integration of various brands of network video equipment and to help manufacturers, software developers and independent software vendors ensure product interoperability.

This is a great thing and could really advance MVaaS. In fact, given the players involved, it is an indicator that a more healthy ecosystem of service providers, equipment providers and resellers and installers will be possible. The Internet is proof that a model that which allows a low barrier of entry and rapid innovation can generate a lot of value.

Increased interoperability between the various players in the industry will allow each player to increase their core value with less burden of having their focus split across the myriad of functions needed to bring a plug-and-play solution to the end customer. This focus will foster increased competition and innovation.

Axis, Bosch and Sony are waiting until October 2008 to announce their plans, so it remains to be seen exactly what they will come up with. I am impressed with Axis and their open model, but Sony and Bosch have a business built on being closed and non-interoperable.

Successful Security VAR Seeks Compelling Managed Service Product; No Old School Providers Need Apply

It’s always a good day when you get an inbound call from someone that you’ve never met that is interested in exactly what you do that turns out to be a great opportunity for your business.

Yesterday was a good day. I got a call from a gentleman, “Jeff”, that has a successful security/integration firm in the Pacific Northwest. He’s run the company for the last 15 years and has a strong presence in the healthcare and multi-tenant markets. They have about 30 sales people and position themselves as a high-end VAR that provides leading edge solutions to their customers.

Jeff is looking to add a differentiated and compelling managed services element to his business. To get there, he’s doing his diligence on managed services products that are relevant in his space and came across us. (Special thanks to Joe Panettieri at MSPMentor for making the connection that put the two of us together)

We had a great initial conversation and I’m hopeful that this evolves into a strong relationship for both of us. We need to keep driving awareness of the growing MVaaS segment so that there are lot more conversations like this between potential MVaaS channels and MVaaS providers. The end customers are certainly realizing the value MVaaS provides – we as the channels and providers need to step up our efforts to reach them.

Jeff – I look forward to our next conversation!