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!

MySpace’s “Data Availability” Project might make for an interesting model to approach processing data captured from today’s business systems.

Granted, social apps are ALL about sharing with only minimal consideration for control and privacy of data. However, imagine if there were de-facto standard ways of handling managed video. Software providers, service providers and manufacturers could much more easily work together. I suspect it would be useful and valuable if the following product and service providers could connect to each others services over the Internet:

• Video monitoring service providers
• Media storage service providers
• Mediaserver/camera configuration services
• Video camera equipment
• Access control providers
• Fire alarm providers
• First responders (lawful intercept/access to private media system)
• Installation/field services
• Network security services

I’m sure there are many others.

No, I’m not talking about genetic engineering.   I’m talking about whether a company can change the very core elements of how it both views and approaches its business and the world around it.

A company’s DNA is a complex result of the people that work there, the values and beliefs that they share, the practices and processes that they put in place, and the language that they use to communicate what they hold to be most important. 

Culture is probably another word that could be used to describe a lot of this, but I like DNA better because it gets to the heart of an issue that is relevant both to my firm and to a number of others in the physical security world.

Now that I’ve explained what I mean by DNA, I’ll repeat my question: Can you change your DNA?

I have now employed several measurement techniques to answer our question.  But I am surely missing something important.  Isn’t there a more appropriate measurement of enterprise size than those presented?

Of course there is, and it is called market capitalization (Salute to Dan Caruso for answering correctly in the comments section).  Calculated as the share price times the number of shares outstanding, market capitalization is the measure of economic value that is placed on an enterprise by investors.

Now that this settled, care to guess who has a larger market capitalization, GM or Salesforce.com. . .

Yesterday I linked to two recent earnings releases, and asked the question – Who’s bigger?

If you answered “it depends”, you were correct.  It is not possible to answer this question without knowing the basis of comparison.

Should the size of an enterprise be based on reveneues?  How about profits?  Total assets?  Number of employees?  

In the first quarter of 2008, GM recorded $42.7 billion (with a “b”) in revenues.  Salesforce.com recognized only $248 million in their first quarter.  GM has 266,000 employees worldwide.  Salesforce.com is still under 3,000.  GM has nearly $149 billion in total assets.  Salesforce, on the other hand, has only $1.1 billion.*

GM is clearly the larger company, right?

But what about profitability?  GM has been posting recent losses, including a $3.3 billion first quarter loss.  Salesforce.com posted $18.4 million in income in their first quarter.*

So, Salesforce.com is the winner, right?

But haven’t I missed another important measure?

* Data sourced from either the earnings releases or annual SEC filings.