Fred Chong's WebBlog

Application Marketplaces and the Money Trail

Fred Chong — Tue, 19 Feb 2008 04:57:00 GMT

This paper describes the forces behind long tail software economics and the architecture of application marketplaces.

In addition, the paper also explains the different roles and benefits of application marketplaces to ISVs, hosters, VARs and enterprises.

Enjoy.

An Application Marketplace Architecture for Commercializing Software and Services

Fred Chong — Mon, 11 Feb 2008 10:14:00 GMT

Recently I've been thinking about the increasing attention being paid to application marketplaces. My current conclusion is that there is a strong linkage between application marketplaces and the 4 forces of long tail software I described in my previous post. I think with the right business strategy in place, the economic potentials of the long tail software market can definitely be unleashed through application marketplaces.

Here in this post, I'll share my thoughts about the architecture of such an application marketplace.

The high level application marketplace architecture consists of four loosely coupled modules: marketplace services, application designer and workspace, business operation services, and social networks. These four modules work together to provide an end-to-end solution implementation that would put the long tail forces into play.

Architecture Components of Application Marketplaces

Marketplace Services

Marketplace services are offered through a public facing website. Like any other commercial Websites, the user interface of the marketplace website influences and helps mold the first impressions of the marketplace customers.

The business model affects the types of marketplace services being offered to one or more groups of partners and customers: the independent software vendor (ISV) who sells applications (and optionally creates or hosts applications at the marketplace), end users who buy applications, and partners and value-added resellers who repackage and resell applications with their own set of value-added services. If the marketplace also provides application hosting services to its ISV partners, it may choose not have any hosting partners and therefore does not offer its marketplace services to other hosters (potential competitors).

The application catalog functions as a directory customers can use for discovering, viewing and buying published applications. In order to provide a better search and an improved buying experience, the application catalog may implement various types of filters that use additional criteria, such as application category and popularity, to help the users narrow down their choice of candidate applications.

In addition to the application catalog, the marketplace also exposes a set of administration applications that customers can use to edit their account profiles and manage business transactions at the marketplace. For example, an ISV can use the administration application to edit and post the company description, revise the pricing of their published applications, and view revenue reports of applications sold through the marketplace. Similarly, a small business can use the administration application to subscribe or unsubscribe to applications and check the outstanding payments for its marketplace account.

Business Operation Services

While the marketplace services provide the public interfaces for the marketplace customers to publish applications and perform commercial transactions, the business operation services are a collection of infrastructure and management services that operate behind-the-scenes to support the marketplace services.

The identity management module provides a core set of authentication, access control and entitlement services that other business operation services use to secure business data and marketplace transactions.

The monetization module makes it possible for application providers to sell applications using various pricing models, such as charging for user license subscription, application transactions or revenue from online ad-displays. To effectively support a monetization scheme, the marketplace should offer solutions to help ISV define and enforce their application pricing policy (e.g. $20 per user license per month), as well as implement revenue reporting engines that will provide visibility into the income stream for published applications.

The metering and billing module uses the defined policy and usage data logged through the monetization module to generate invoices and bill the customers. The billing engine can offer billing-on-behalf services to the ISV by collecting fees from the business users and crediting the revenue-split payment into the ISV bank accounts.

Application marketplaces frequently provide self-service registration to ISVs or business users for signing up as a new tenant. When the tenant management and subscription module receives a new registration request, a tenant provisioning workflow is started and interacts with the identity management module to create a new organization and administrator user for the new tenant account. The provisioning workflow also creates new entitlement records for the new organization so that subsequent application subscriptions can be properly tracked and metered. Finally, the workflow triggers off a sub-workflow within the hosted application runtime infrastructure to provision a new set of metadata that is used to configure and instantiate the application environment for the new tenant.

Social Networks

A social network at the marketplace not only enables the applications users and providers to interact with each other, it also relies heavily on user-generated content to help users find quality applications and to provide ISVs with market intelligence.

Through a ranking and reputation system, users can get a sense of what other users think about the usability and quality of the applications. These opinions also serve as information that the application providers can use to improve on future versions of the applications.

Many business professionals are now connected with their ex-classmates, colleagues and business partners through social networks. In this world where business success hinges on “who you know”, social network connections can be leveraged to mine valuable information stored in the subscribed applications. For example, a business partner from an external social network may recommend potential sales leads to a business tenant at the marketplace place. The recommendation becomes customer data that is stored in a CRM application purchased through the marketplace.

Application Designer and Workspace

The application workspace is the container that hosts the user interface for business users to interact with the applications. Besides providing the dashboard for using the subscribed applications, the workspace can also include features that enable the users to interact more directly with marketplace services, for instance, including links to purchase additional applications at the marketplace.

The kind of user experience that a marketplace can build into the workspace is virtually limitless. However, simplicity, ease of collaboration and the ability for third parties to monetize should be the key tenets for creating the application workspace fabric.

To mitigate performance and security concerns, there are usually constraints on the types of computations that the third party applications can execute in a hosted runtime environment. As such, the developer should only be allowed to create application features that are contained within the defined computation boundaries of the hosted runtime environment.

For example, the development environment could impose constraints over custom business workflows loops and implement branching logic to ensure that workflows will always terminate. In addition, the development tool can also set customization boundaries on application object models, optimizing system performance by ensuring that database schemas are not overly complex.

It is important to note that the hosted version of the application designer and workspace module is just one mode of user experience. This experience is most beneficial when the target user base has heterogeneous operating system platforms and the browser is the lowest common denominator that can be relied upon to interact with the applications.

There are other hybrid modes of design and runtime experiences where these workspace modules are not hosted by the marketplace. For example, the application may be designed with Microsoft Access running on the application developer’s computer. When the application is completed, its metadata is published to the marketplace. Subsequently, business users who have purchased the application have the option of running the application on their own desktop or within an application runtime environment hosted by the marketplace.

Creating a brand new application platform can be a huge undertaking. Instead of building one from scratch, third parties can create and customize their own application designer and workspace sandboxes by using existing products such as the Windows Sharepoint Services and Microsoft CRM 4.0. These platforms already offer tools for creating applications that can be imported and exported out of the runtime environment as metadata, which can facilitate the process of publishing and subscription applications to and from marketplaces.

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For those of you who have been following my SaaS architecture guidance content, you know that I'm a big fan of making the content hands-on and implementable with current shipping products and tools. As you may have expected, I've been working on an sample application marketplace solution using ASP.NET and CRM 4.0. This sample solution will be publicly available within the next few months.

Stay tune as I should have more to share in the near future.

The Forces of Long Tail Software and Services

Fred Chong — Thu, 29 Nov 2007 10:59:00 GMT

Chris Anderson's book on "the business of selling more of less" has enlightened people's thinking about current market economics where modern day technology and the Internet has enabled long tail ecommerce to flourish. For this blog post, I thought it would be interesting to examine how the forces in his book can be applied to the long tail software market.

As Chris mentioned in his book, the long tail market is really about niches and therefore long tail software are not the top selling applications. Niche software could range from specialized business applications that are interesting to only a small number of audience to simple online social games for connecting with people. For example, the event management software your kids' soccer club uses to manage their league matches; and the custom project management application the construction company who remodeled your kitchen uses to schedule their suppliers and sub-contractors.

Niche software applications have always existed since the early days of personal computers. Many of these existed as DOS and Windows freeware/shareware that are posted at online computer bulletin boards. Some of these applications are developed by PC enthusiasts who have regular day jobs but spend their evenings writing small applications for fun and extra cash. Others are written by "micro-ISVs" who hope to make it big when their applications pop into the top 100 chart some day.

Those were the days of niche software - it didn't have the three forces of Chris's long tail economics to ride on. Today, the creator, buyer and seller of long tail software are all better off because of the three liberating forces, and a 4th emerging one that I have added to the list. Let's examine them one by one.

Force #1: Democratize production

Whether it's building a business, consumer or social application, the tools for developing software applications have come a long way. RAD tools such as Ruby on Rails and Microsoft Access 2007 enable data-driven applications to be created without writing a lot of code. Furthermore, hosted application builders from startups like Coghead and Longjump provide hosted tooling and application runtime environment so that application developers can be productive immediately and do not have to worry about deploying their applications. Using mashups platform like Popfly, Web enthusiasts can easily create Web applications that overlay data and services from multiple sources. The current version of Sharepoint designer simplifies the tasks of building composite applications by producing application templates and Web part components that can be composed with other software modules to create custom business applications. In addition, Sharepoint designer's integration with Office Live enables custom business applications for small medium businesses to be designed, built and deployed quickly. No more fussing with the complexity of coding and deploying three-tier Web applications. (For those interested in diving deeper, here's more videos and demonstration on how to build custom applications for Office Live: http://www.innovateonmicrosoftofficelive.com/LearnBuild.aspx)

This point should need no further elaboration - the improvement in application development tools is key to the wide selection of software choices we have today, and the tools are getting even better as we read on.

Force #2: Democratize distribution

Compared to physical goods, software has some advantages when it comes to storage and distribution - thanks to it's digital form. In many ways, software has as "birth right" the capability to be distributed via the Internet. However, this ease of duplication is a sword double edged with the problems of software piracy. So for software, force #2 should really be "democratizing legal distribution". On the other hand, distributing niche software and physical commodities are similar in the sense that they can both use aggregators to lower the cost of selling. For software, the cost of selling is much more than transporting the bits from one computer to another - there are also the issues of consumer trust, brand and quality association and effective marketing to potential users. In the digital world of computer viruses, phishing attacks, mal- and spy ware, a lesser known micro-ISV has much to gain by selling their long tail applications through well established aggregators. A small business owner is much more likely to buy a project management application listed on the Windows marketplace than buying directly from an unknown micro-ISV's Website.

Although distributing software online does not always require trucking physical goods (except when selling shrink-wrapped software, which is still a common kind of commerce transaction) from stores to buyers, the delivery of hosted software services do require server infrastructure and data center operation support to host and run the application services. In many situations, it is not cost effective for an ISV to build and run their own operational infrastructure. Instead, it is frequently beneficial for SaaS ISV to have their applications hosted by professional SaaS hosting companies. Software service delivery is the subject of our recent paper. Look around at the companies providing application hosting services, and you will notice that many hosters are also aggregators of software services who provide the market channels for the ISVs they host.

However, the tasks of coordinating service delivery with SaaS hoster may still be too tedious for ISV producing long tail applications. This is why we are seeing new breeds of startups like Coghead and Longjump, where they provide a one-stop shop for ISV to develop, host, market and deliver their long tail applications.

Force #3: Connecting supply and demand

Technologies that connect consumers of long tail applications are what help drives increasing demand for niche software. Chris calls these types of technologies "filters". Search engine results, reviews, user recommendations, blog opinions, application usage data - all these information influence application adoption and can eventually introduce new user behaviors and habits. Take social apps on Facebook for instance, various filters at that site not only help reduce the cost of search, but also ultimately influence the applications' success and adoption:

As you may have guessed, a one-size-fit-all filter will not do the best job of connecting users with the applications they want to find. We see from the Facebook example above that depending on the user's goal, he may choose among the multiple filters to find applications categorized according to popularity, activities, active users or published date. Not to be neglected is the observation that the purpose of the Websites also act as filters: Facebook is the filter for social network applications; Office Live is the filter for line-of-business applications built for small-medium companies etc.

Force #4: Democratize Capitalism

This particular force is my contribution to long tail software economics. I believe that enhancing the opportunities to make money can further increase the supply of long tail software. The recent proliferation of Facebook applications illustrate this point very well - the authors of Facebook applications get to keep 100% of the ad-revenue attributed to their applications. Furthermore, incorporating an ad-funded software revenue model shifts the economics of when and how software is paid for, which can be explained through a fishing service metaphor. Using ad-funding is as if the long tail aggregator is running a "fishing service" business and software applications are hooks which baits (advertisements) are attached to entice the users to transact for some goods and services. The merchandise and service sellers are willing to pay for the "fishing service" when there is fish action. Effectively, hooks are essential components of the fishing service and the aggregator splits the ad-revenue received from the merchandise sellers with the long tail application providers. The ad-funded model not only provides opportunities for micro-ISVs to get paid, it also reduces the up front cost of trying and using software, thus removing some barriers to drive demand further and encourage software adoption.

Ad-funding is not the only model to monetize long tail applications. Traditional licensing, subscription and transaction models are all still valid means for the ISV to get paid. The key point here is that the supply curve of long tail software is likely to grow when there are effective mechanisms for the developers to be compensated for their work.

Most long tail applications will never command the kinds of price tags that top selling software are sold at. However, with production tools and distribution democratized, it may only take a very short time and almost no capital investment to build long tail software. In fact, when the long tail software economy takes off, it is very conceivable to see many more micro-ISVs creating applications as fast as them can (in matter of days or weeks) and live off the the aggregate income from multiple long tail applications.

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Amazon and Netflix have already proven the profitable business model of selling long tail physical goods and entertainment content. The same cannot be said about the business of selling long tail software yet. However, there are existing and emerging businesses that are standing behind the forces we described above, as noted below in the table:

Force	Business	Current Examples
Democratize Production	Long tail application development tools, mashups and composite application platforms.	Microsoft Access, Ruby on Rails, APEX, Popfly, Sharepoint designer, Coghead, Longjump.
Democratize Distribution	Long tail aggregators, application service delivery platforms.	Office Live, Facebook, AppExchange, Windows Marketplace, BT Application Marketplace.
Connect Supply and Demand	Long tail filters.	Facebook ranking and search, Sourceforge marketplace search for open source software, Windows marketplace rating.
Democratize Capitalism	Long tail monetization engines.	Microsoft Adcenter, Google Ad-sense.

To prove that the market for long tail software is in fact a profitable one, we'll need to orchestrate the integration of long tail development tools, software marketplaces, filters and monetization schemes deliberately.

May the force be with us...

The SaaSy Tale of Martians and Venusians

Fred Chong — Wed, 14 Nov 2007 10:14:00 GMT

Our latest paper is an attempt to match-make software vendors and hosters. The paper explains why their futures are dependent on each other, what they can expect from one another, and how they can have a congenial marriage together.

Happy reading!

Going After the Long Tail? Think Channel as a Service (CaaS)

Fred Chong — Mon, 08 Oct 2007 09:01:00 GMT

Charles Fitzgerald recently posted an article on the elusive long tail market. The article mentioned some interesting stats on Salesforce's top-heaviness - a small number of enterprise customers account for more than 40% of their user base. Which begs the question, if the long tail is why software vendors are rushing to embrace SaaS, where is the evidence of successful Long Tail ISV stories?

Well, here's my theory:- The majority of SMBs in existence are fighting for survival in the market they are competing in, hence they are not (yet) going to spend their hard earned money on software that they are yet to relate with their profits. Unlike the large enterprises and established companies who may be looking to optimize, streamline or differentiate through IT automation, the number one priority for a large chunk of the long tail is finding customers to pay their bills.

When I was working in China earlier this year, Alibaba was one of the Web companies that caught my attention. For those not familiar with Alibaba, it is China's (if not the world's largest) B2B online marketplace. You can find many small and medium sized companies selling all kinds of merchandise through this online exchange. Essentially, Alibaba is offering (market) channel as a service. It also turns out that Alibaba's CaaS strategy attracted the world's largest gathering of SMBs to its B2B service. Serious viral effect is happening at their marketplace.

What does all these mean to SaaS ISVs and catching the long tail?

Well, to begin, if you are serious about selling to the long tail, you should first seek to become their market channel, or minimally, the short link to their channel. Essentially, this is the value proposition you need to create. The SaaS value propositions that convinced the large enterprises do not always work well for the elusive critter looking for the channel to their cheese.

Compared to the aspirations of B2B exchanges like Commerce One and Ariba in the late 90s, Alibaba does not attempt to provide a marketplace that is overly complicated - there is no automation of RFQ, goods requisition etc, just good old basic "listing" and "search". Although the features are very limited, SMB saw the business value immediately. Alibaba's Web site claimed 21 million and 3.6 million registered users in China and outside of China respectively.

Interestingly, Alibaba launched its software company, Alisoft at the beginning of this year with the mission to sell line-of-business applications to SMBs. This press release wrote that Alisoft already has 500,000 active users and 3 million registered users for its free LOB software.

My takeaway from Alibaba's business direction is that bootstrapping for the long tail needs to focus on solving business priorities for the SMB, which to me, is clearly helping those businesses find their customers. As software companies, selling software is of course the eventual goal, but it needs to be bundled with a customers' business channel story.

The combination of offering CaaS and SaaS makes the ISV business model more interesting but also more complicated, such as offering a few different channel + software services bundles with hybrid monetization schemes. For example, the entry level service offering may need to rely on an ad-funded or transactional model, so that SMB that are new to LOB apps can begin to see the value of the market channel and the software. For the more established SMB, the ISV may consider up-selling them to a full featured application that can take advantage of all aspects of the channel offering, and charge a subscription fee for using the application.

Another industry example of players who are well positioned to sell software to SMB are the telcos. Many of the ones I've spoken to plan to become SaaS aggregators. Telcos are not really SMB's channel, but by offering communication services, they are vital links to the SMB's channels. By tightly integrating line-of-business functions (especially those application features that enable interaction with their customers or leads to sales) with communication services, telcos can entice SMB to upgrade their services to include LOB apps.

These last few years, Internet search, consumer-based ad business models and social networks have drawn a lot of high tech investment energy. I suspect that we will soon see a revived interest in online marketplaces since the last of the B2B exchanges dwindled away in the early 2000s. Perhaps this time around, online marketplaces will focus on being the business channels for the SMBs - and they need to in order to fulfill the SaaSy Long Tail prophecy.

Interview with .NET Rocks

Fred Chong — Tue, 04 Sep 2007 19:43:22 GMT

I spoke with Carl and Richard at .NET Rocks earlier this year. Click on the .NET Rocks image below to hear the recording:

Implications of Self-, Outsourced- and OEM-Hosting

Fred Chong — Tue, 12 Jun 2007 05:28:09 GMT

The last couple of month I've been talking to many software vendors in China and Singapore and the topic of SaaS hosting is a recurring pain point highlighted by those I met.

More often than not, my attempt to reassure them that my architecture team in Redmond is now feverishly working on SaaS hosting architecture guidance does not seem to appease their anxieties and concerns. (My previous post here described the high level architecture capabilities of a SaaS hosting platform.) I can understand their phlegmatic reactions - hosting is not a core competency for most software vendors and it is no wonder that they are looking for alternatives other than the laborious option of building their own operational capability.

Generally speaking, SaaS providers may consider the following hosting solutions (which can also be thought of as a continuum of options. If you've been following my posts you should now conclude that I really like the continuum way of representing architecture decisions) :

Software vendor self host and manage their own operational environment
Software vendor partially or entirely outsource hosting to 3rd party hosters
Software vendor OEM and license software to 3rd party hosting partners

The right end spectrum of the continuum represents a software vendor's decision to self-host and manage its entire operational infrastructure. The other opposite end of the same continuum represents the decision to OEM and license the SaaS solution to business partners who not only take ownership of the operational responsibilities, but also own the customer relationships with the application tenants. The points between the two ends of the continuum represent decisions to outsource one or more components of the hosting infrastructure to third party hosters. For instance, a software vendor could decide to self host and operate everything except for the billing system which it outsource to a billing solution provider.

For the rest of this post, I want to share some thoughts on the technical and business implications brought about by the above hosting decisions.

When software vendors self-host, they (willingly or unwillingly) become the trusted custodian of their customers' data. The customer data include actual business data as well as workflows and business rules that are configured to run the customers' business processes. The software vendor is (legally and contractually) responsible for the "well being" of the hosted customer data.

Frequently, the self-hosting software vendor is actually sitting on a gold mine of information - lots of valuable business knowledge can be mined from analyzing the stored data. For instance, if the application is an inventory management SaaS application, business intelligence about best selling products of the month and supply forecasting data can be derived by doing trend analysis on the stored data. Therefore, having access to customer's data allow the software vendor to offer valua-add services and information back to the tenants, potentially for additional fee.

Technically, it may also be possible for the software vendor to perform cross section analysis of all the tenants' data in order to generalize business practices used by the clients. For instance, a CRM software vendor may be able to analyse and derive from all the configured workflows, patterns of sales processes with the shortest sales closing period. Such knowledge may then be used in business practices classes offered by the software vendor. Of course, such usage of customer data remains a controversial topic as many tenants will be nervous about their trade secrets being published as best practices.

Publication and resale of identifiable private data obviously violates legal regulations and privacy laws. However, it is debateable if derivation of business knowledge by SaaS software vendor should be permitted, especially if the mining process is non-trivial and involves analyzing large samples of data. Perhaps we will see more intellectual property protection discussions around this topic when SaaS adopters see their business practices being "popularized" through their service providers. For those who are skeptical about such practices, let me remind you that the financial industry has been capitalizing on customer data and behavior for a long time. (Next time you take a class on stock market trading from an ex-broker, guess where he learned all his best dog tricks.)

The second hosting model frees the software vendor from having to build and operate all or part of the SaaS hosting infrastructure themselves. In most third party hosting agreements, the software vendor would still maintain access rights to their tenants' data, so there should be little contractual restriction limiting the software vendor from pursueing the business ideas mentioned above. Practically speaking, since the hosting is outsourced to third party, there may be technical barriers that needs to be taken care of before the software vendor can have timely access to their customers' data. For instance, the hosting provider may limit when hosted data can be bulk replicated to a data warehouse. This is because the hoster needs to consider the network bandwidth impact on other hosted software vendors when massive amount of (replication) data is being transmitted over the networks.

The third hosting model actually involves a major shift in the software vendor's business model. In this model, the software vendor provides the solution to their hosting partners who host and resell the solution through licensing and OEM agreement with the software vendor. Profit made is often split in varying proportions between the software vendor and the hosting partner. A key implication here concerns the software vendor's access (more accurately, potential lack of access) to the tenant data. In many OEM arrangements, the custody of the customer data belongs to the partner hosters. Obviously this shift of responsibility comes with benefits and downside for the software vendor. While the software vendor is no longer responsible for the operational availability, integrity and security of the tenants' business data, the vendor is also giving up potential opportunities to monetize on those data assets.

In addition to value added services that could otherwise be provided, the software vendor may also be foregoing a channel of knowledge about the application usage and users' behavior, both of which can be accurately obtained through the operational environment. Furthermore, successful Websites often trial test new features by deploying and making pre-released features available publicly on the Internet. Without an operational environment, the software vendor will have to find partner hosters who will stage and trial run its alpha and beta release features.

Although this post may read like I'm trying to convince you that you should be self-hosting, be assured that this is not my intent. There is really no absolute right or wrong hosting model. What's important is that you as a software vendor understands the price and reward that comes with your hosting decisions.

It seems like a lot of good things in this world are bitter-sweet, and now that you are aware of the implications, you'll have to accept that the after taste of your SaaS hosting decision is no exception.

SaaS in Innovation Celebration Event

Fred Chong — Wed, 02 May 2007 12:25:52 GMT

It's been almost 4 weeks since I landed in Beijing and began working with my colleagues in China.

2 weeks ago, I had the unanticipated opportunity to be involved in the organization of Imagination Festival - an event held at Beijing University celebrating the past, present and future of innovation in China. University students and high tech entrepreneurs attending the event seemed to be inspired by Bill Gate's keynote speech titled "Innovation through the Digital Decade".

Normally, I would not expect to see an honorary tie to SaaS in a technology celebration event like this. However, I was pleasantly surprised that day.

During the event, Bill Gates presented awards to 5 "innovation heroes" as tokens of appreciation for being engineering and entrepreneural forefrunners of the software industry in China. 2 of the 5 heroes honored by Bill have been involved in SaaS-related endeavors:

o Wang Xiao Cun is a program manager at the Suzhou SaaS innovation center and has been instrumental in the development of the Suzhou software park's SaaS incubation program.

o Mr. Guo is the founder of MaKaDao - a small SaaS ISV startup that is applying the academic theory of marketing science to real world business problems through the company's SaaS application.

Left to right below (Bill Gates delivering the keynote; China Imagine Cup winners; me with Mr. Guo, the honored innovation hero):

Another highlight at this event is the final competition and announcement of the China Imagine Cup winners. The Imagine Cup is the world's premier student technology competition challenging university students all over the world to innovate with their programming skills. The winner of the China Imagine Cup gets to represent their country in the grand finals that will be held in Korea later this year.

Among the China Imagine Cup entries is one from XinHua University in ChengDu, where the students have implemented a multi-tenant SaaS application for creating and managing university portals. The team also sumitted a commercialization plan intending to capitalize on the long tail of Chinese universities where custom designed college websites for managing student and faculty activities are still considered unaffordable operational expenditure. Although this entry is not the final competition winner (perhaps the demo factor is not as cool), I think the SaaS business plan looks very promising if executed properly.

So there I was, witnessing and enjoying the presence of SaaS at a non-SaaS event.

Spring Time Christmas Gift: SaaS Architecture Workshop

Fred Chong — Tue, 03 Apr 2007 08:32:50 GMT

I just finished conducting a 3-day SaaS architecture workshop for our internal employees and ISV partners last week.

The workshop content includes presentations on a bunch of SaaS architecture topics, such as:

SaaS architecture tenets: Gianpaolo introduced the technical shift towards a meta-data driven paradigm for maximizing the sharing of compute resource within a multi-tenant environment and enabling tenant specific customizations.

Multi-tenant data architecture: Architecture is about making tradeoffs, so in this session I laid out the pros and cons of the three distinct data architectures mentioned in our multi-tenant data architecture paper. I also touched on the security implications and solution patterns that address data privacy and access concerns, the different approaches of enabling data model extensions, and techniques for scaling multi-tenant data architecture.

Securing SaaS applications: Identity management is the key subject of this session, covering federation, using security token services, integrating role and rule-based access schemes. I also explained flowing tenant context securely between application tiers using trusted subsystem and delegation approaches.

SaaS Hosting Platform: I started with an overview of the expected capabilities of a SaaS hosting platform and then switched gear and took it from the ISV angle to dive deeper into the subject of design for hosting (DfH). I described the objectives and process of application health modeling - a crucial DfH step for mining information and requirements that will help surface the instrumentations and management rules to be consumed and enforced within a SaaS hosting environement.

SecureLM - a solution for monetizing SaaS applications: Microsoft recently acquired SecureLM. To protect software IP, SecureLM's technology injects code into application modules so that only licensed subscribers are authorized to use the SaaS applications. The SecureLM solution can be used for both Windows and browser-based applications. The SecureLM technology also addresses the separation of concerns between technical and business decisions. Licensing terms are not hard coded into the application modules. Instead, SecureLM tools allow licensing and software packages terms to be separately defined from the implementation of the application features.

The hands-on-lab for the workshop is based on the Litware HR sample application and is developed by our development partners at Southworks. Matias flew out from Argentina to help faciliate the lab sessions at the workshop. In my (most probably biased) opinion, this is an excellent set of lab materials:

Lab 1 is all about extending data model. We show you how you can implement the "shared database shared schema" data architecture using SQL Server 2005. Data models are extended using the name-value pair pattern. Furthermore, this lab also shows you the kinds of meta data you need to factor into your design to describe the persisted data model extensions and the customized business entity view that is seen by the users.

Lab 2 uses Windows Workflow Foundation to demonstrate how a simple templatized designer can be implemented to enable workflow and business rules modifications.

Lab 3 can be very insightful to those who have been thinking about using Web services standards to secure their SaaS applications. In this lab, we used the Windows Communications Framework (WCF) to implement a security token service that issues SAML tokens to authenticated clients. We also show how authorization policies can be inserted as signed identity claims inside the SAML tokens.

Lab 4 intends to show ISV the tenant provisioning tasks for on-boarding customers. This lab is based on the Litware HR tenant provisioning scenario and therefore we have greatly simplified the task list to exclude provisioning real world OSS/BSS components such as the billing infrastructure. Neverthless, the lab is still very valuable for getting to know the kinds of application platform provisioning that has to happen (such as creating IIS virtual directory and tenant specific database rows and views).

So that's the SaaS architecture workshop in a few paragraphs, consider it an early Christmas gift from us to you. You can download the workshop slides and hands-on-labs by clicking on Santa:

For those who are enrolled in the Microsoft ISV partner program, you may also want to watch for the worldwide launch of SaaS architecture events and programs conducted by our field technologists using the same workshop content.

Windows XP Version of Litware HR Available

Fred Chong — Sat, 24 Mar 2007 23:43:00 GMT

We recently released an updated version of Litware HR sample application that runs on Windows XP.

This updated release answers the feedback that we are getting from the codeplex community to have a version that most developers can run and test on their machines.

Initially when we designed Litware HR, we wanted to have an implementation that runs on an OS platform that is closer to real production environment, so that we can demonstrate scenarios such as allocating each tenant their own IIS 6 virtual directory. Hence our decision to have the first release implemented on Windows server 2003.

You can download the Windows XP version of LitwareHR from here:

http://www.codeplex.com/LitwareHR/Release/ProjectReleases.aspx

SaaS in China

Fred Chong — Fri, 02 Mar 2007 06:00:00 GMT

Besides my technical role in developing SaaS architecture guidance, I've had the privilege to be deeply involved in molding the SaaS industry in China. Over the course of the last year, I've travelled to different cities in China, working with my colleagues there to understand the needs and opportunities within the local Chinese software industry. It has become obvious to me that China has a very promising and large SaaS market. However, there are a number of barriers to entry and adoption that I think we can all play a part to overcome.

Here are my thoughts on the SaaS opportunities in China:

There are tons of small and medium enterprises in China, many still relying on only paper-based accounting to carry out day-to-day business transactions. Even when IT exists in big scale operations, the full automation potential is severely hampered by process and design oversights and bureaucracies. In fact, every time I travel through Beijing’s International Airport, I’m bewildered by the extent of disconnectedness within the process and technology that deals with passenger check-in, ticket issuance, payment and baggage handling. For instance, e-ticket in China is not the same as those in US or Europe. You still have to present an ID at the airport to retrieve your paper ticket from a service desk before heading to the check-in counter. My point here is not to criticize the system, but to highlight the fact that there are lots of head rooms for mass automation in China – even the slightest business process improvement through IT can bring significant business benefits. Hence the relevance of SaaS – no big fancy customized systems are required to reap justifiable returns on the decision to automate. The factories in Guangzhou, the retail chains in Shanghai, the import and export trading outfits in Fujian, and the human service agencies in Beijing are just some examples of industries that has little if any legacy systems in place. Because the nation as a whole is just taking baby steps in IT adoption, there will be fast growing demand for horizontal business applications like accounting, inventory management and human resource management offered as SaaS. The long tail is in fact very long in China.
Over 90 % of software sold in China is pirated. The ones who are losing out are not just companies like Microsoft, Oracle and SAP. China is also paying for the problem in loss of GDP and the lackluster local software economy with many small scale local software vendors that are struggling to stay profitable despite a potentially huge domestic consumer market. Anti-piracy measures have to take a long and short term approach, involving both education and technology. By changing the software delivery model, SaaS can be more effective at protecting software IP than most license protection technology in use today.
We all already know that before the Internet, news and information never traveled so fast and so wide. Now the combination of the Internet and SaaS can help overcome the tyranny of space and time to connect software service providers and consumers. As the Web becomes the natural channel for software distribution there is less need for software providers to establish distribution channels with brick and mortar computer stores and outlets in order to reach a broad market. In a nascent software consumer market with few established market channels, this is a godsend to the Chinese software vendors.
If you’ve travelled to China, you know that the Chinese can turn anything that moves into a delicacy, leaving nothing to waste. Perhaps it is this same mentality that gets carried over – the thought of maintaining on-premise servers, having redundant hardware idling around for fault tolerant reasons does not appeal to a businessman that is running a factory. Anything that is not visually perceived as utilized is considered wasted. Besides, paying lots upfront for perpetual software licenses and server side hardware is often seen as unjustified cost for capabilities that are tangential to core business functions. Just take a look at the exploding mobile phone market in China. The low-cost of adoption, the pay-as-you-go scheme sits better with the Chinese consumers.

Before you start drooling over the thought of starting your SaaS outfit in China, here are a few bumps to consider on your journey to the saasy middle kingdom:

Like SaaS adopters in other parts of the world, security and privacy of their data is utmost concern for using third party hosted business applications. In fact, it can be even harder to convince the prospective Chinese SaaS consumers since the Chinese are traditionally more conservative and skeptical of unknown parties.
The second barrier I believe is unique to economies where tax evasion is common business practice. The first time I heard this from a SaaS vendor in China, I had to ask for a second clarification to make sure I understood him correctly. In any case, businesses are concerned that cooked business data that is stored at the provider could come under the scrutiny of the Chinese tax authority.
Guan xi (Mandarin for relationship) has always been the cornerstone of business trust and dealings in China. Sometimes, a known brand can be the substitute for Guan xi. This situation placed Chinese software vendors in a tight spot because of two main reasons. First of all, most of them are not very well known even within China. Second, the SaaS model’s emphasis on low-touch and broad-scale makes it difficult to cultivate guan xi and trust between service providers and potential adopters.
One of the inconveniences of traveling and living in China is that you have to carry a fat wallet full of cash with you in order to pay for most daily commercial transactions. Unfortunately, the lack of non-cash payment systems is also a SaaS growth inhibitor because SaaS providers are finding it difficult to get timely collections from their tenants.
Many of the operational activities like provisioning tenants, monitoring the SLA are tasks that are unfamiliar to software vendors. The situation is even more jarring in China as there are very few hosters that can provide SaaS hosting services beyond the basic 3 P’s of ping, power and pipe.
Finally, the three headed monster that haunts SaaS ISV also roams in China. Many Chinese ISVs I’ve met are having a difficult time grappling with the necessary multi-tenant architecture shift for their applications.

Sounds like a very bumpy road? So this brings me to describe some of the efforts I've been involved in:

The Suzhou SaaS incubation Center. The incubation center is a joint collaboration between Microsoft and China’s Suzhou Software Park - one of the many government funded software parks scattered around the country. Suzhou software park provides the lab facility for SaaS vendors to design, implement, test and eventually have their SaaS application hosted at the data center managed by the software park. Microsoft has been providing technology training and transferring SaaS architecture skills to technical personnel at the software park. You can find more information about the Suzhou SaaS incubation center here (the info in Mandarin only).

A firm handshake to establish the SaaS incubation center collaboration with Suzhou Software Park CEO:

A couple of Suzhou's many idyllic sides despite its fast growing software industry:

Another project that is underway is a sample SaaS application that we are collaborating and delivering with Suzsoft, a local Chinese software vendor. We intend to use this sample application as a training tool to help Chinese software vendors learn about SaaS architecture practices and technologies that they can use to implement their solutions. This sample application features an import/export custom application that is somewhat unique to the needs of businesses in China. It will also feature Mandarin architecture documentations as the software community in China is still much more comfortable with their Chinese language. My colleague Wu Hao is managing this project. Contact him directly if you are interested. This sample application will be available in a couple of months.

Despite all the challenges of doing business in China, it is an interesting place for one to be amidst in the actions. I can never get enough of the rich historical and cultural gems that you encounter just in everyday travel and conversations, not to mention the diverse flavors of Chinese cuisines. So, this coming April, I’m taking on a short term assignment in Beijing to help build awareness and create new SaaS initiatives with the Chinese government and industry.

If you're a non-China based SaaS ISV and VC looking for opportunities in China, you may also like to know that we have a team in China dealing with China ISV and VC relationships. Contact me directly if you are interested in getting hooked up.

More news and information on Microsoft and China:

Tech news on Microsoft and Suzhou SaaS incubation center: http://www.chinatechnews.com/2006/10/11/4405-microsoft-signs-saas-deal-in-suzhou/

Dan’l Lewin’s article on Microsoft’s initiatives in China: http://alwayson.goingon.com/permalink/post/9674

Release Announcment: Litware HR - A Sample SaaS Application

Fred Chong — Fri, 09 Feb 2007 01:12:00 GMT

It sure feels like a long time ago since I first started working on this project. I'm very happy to announce that the sample SaaS application has finally arrived!

Litware HR is a sample SaaS application that is implemented with current generation of application platform technology: .NET framework 3.0, SQL server 2005, Windows server 2003 and ADAM.

Definitely more important than the actual (limited) recruiting features of the application, is our vision for Litware HR to be a practical learning tool for ISV to learn about the techniques for taming the three headed monster of multi-tenancy.

Multi-tenancy covers a lot of grounds and it is impossible for us to cover all the topics in this release. For this release, I would say that the technical focus is definitely on the configurability aspect of the application. We have done quite a bit with meta data to show how UI, workflow and data models can be configured for each tenant. Around security, we have implemented a security token service for authentication, and demonstrated the use of the tenant filter view pattern explained in our multi-tenant data architecture paper.

My hope is that this release marks the birth of a SaaS architecture learning tool that with the help of the community, will grow to incorporate other SaaS architectural gems.

As I mentioned in my first SaaS blog post: "SaaS is a journey, walk with us". For this instance, let's take a walk through Litware HR...

Here are the pointers to the relevant resources:

Code and related documentation (including webcasts):

http://msdn.microsoft.com/architecture/saas/sampleApp

Community site with forums for discussions, reporting bugs, suggestiing and voting on new features and most definitely, contributing code:

http://www.codeplex.com/litwareHR

For those who just want to sit back, take it easy and watch some movies on what this is all about, here are the video links:

Demo Walkthrough: http://files.skyscrapr.net/users/saas/sampleApp/Videos/LitwareDemo.wmv

Architecture Webcast: http://files.skyscrapr.net/users/saas/sampleApp/Videos/LitwareArchitecture.wmv (this video is meant to be seen after the demo walkthrough)

Bonus materials, "behind the scenes" and "deleted scenes" describing the making of Litware HR:

http://www.skyscrapr.net/architects-in-action.aspx

Architecture Dimensions of the SaaS Ecosystem

Fred Chong — Mon, 08 Jan 2007 10:13:00 GMT

GP and I wrote an article on "The Architecture Dimensions of the SaaS Ecosystem" for the International Association of Software Architects (IASA) Special SaaS Issue newsletter a few months ago.

In this article, we provided an overview on the market players in the SaaS ecosystem and described the application, consumption and hosting architecture concerns of the ISVs, enterprise consumers and SaaS hosters respectively.

You can download the IASA newsletter from here.

Practical Limits for Configurability

Fred Chong — Wed, 03 Jan 2007 05:34:00 GMT

The last few months, my team has been working on a sample SaaS application to demonstrate the multi-tenancy concepts I’ve been describing in my papers and blog. One of the areas we spent some cycles thinking about are the aspects of configurability that a SaaS provider should allow the tenants to have. I want to share some design lessons from my team’s discussions:

· Code upload – allowing third party to customize behavior through code upload is a dangerous pursue. You never know what kind of security holes can get introduced by untested third party code. If you think that this point is too obvious, imagine the scenario when you are considering letting your tenants customize the application workflow by introducing new steps in the workflow. It is tempting to make the configuration really powerful by letting tenants upload code that would handle the new steps in the workflow. (In Windows Workflow Foundation, the steps are known as activities). It is usually better to back off such temptation and scope down the level of configurability from a list of “templatized” activities instead. By templatized, what I mean is pre-canned activities that you the ISV have implemented yourself. For example, our human resource sample application has a recruiting workflow that lets the tenant add a new activity at the end of the workflow, but they can only choose from a list of approved activities that we implemented, such as one that sends email notification to indicate the outcome of a job applicant’s interview loop.

· New application logic – can get introduced even when the tenants are not uploading code. For instance, while allowing the tenants to modify the business rules seems like a good idea, you should limit the kinds of rules operators they can use. As an example, you may only want to allow the use of the <, > and == operators in business rules. Allowing tenants to add branches (for e.g. new if-then-else branch statements) in workflow can lead to workflow that does not terminate, hence resulting in non-deterministic behavior such as infinite loops. So again, the application should allow such modification very judiciously. Your application workflow designer may want to incorporate a validator to ensure that workflow changes will terminate deterministically.

· Extensions to entity definitions – Real world business concepts are often represented in the application as business entities. For example, the notion of a product catalog. In the physical world, what a product catalog looks like very much depends on the type of business the catalog is used for: a book dealer’s catalog item will want to include a field like “publication date” whereas a car dealer will want to keep track of the car model in the catalog. Therefore, a SaaS solution must often make provision for entities to be extended by the tenants. In many situations, adding new fields or modifying existing optional fields within an existing business entity can be accomplished without too much problems, as long as there is no new data relationship that needs to be specified between the new fields and other entities. On the other hand, allowing the tenants to specify entirely new business entities is very difficult and can break the application. For instance, if the tenant runs a pharmacy business and wishes to add FDA information to the product catalog. Instead of allowing a new business entity to be defined for the FDA data, the application should limit the definition of the FDA data as new fields defined within an existing entity. Allowing tenants to add and define new entity is a tricky feature because new database tables and often data relationships with other existing entities will have to be defined. Without doing a proper data schema analysis, it can be difficult to decide if the database tables and relationships supporting the new entity make sense or needs to be further optimized. This task is even harder when you consider a data architecture that uses the shared database, shared schema approach (as mentioned in our multi-tenant data architecture paper). Another consideration is, allowing tenants to add arbitrary new tables can potentially cause the shared database to run up against the maximum table limit pretty quickly.

In practice, does it mean that the ISV should always disallow code upload, new workflow activities and branching logic and new entities? This, I think, is a business question. All the above can definitely be done with additional code and data level design, implementation, testing and perhaps isolated deployment. The cost of providing the solution increases and it becomes a custom hosted solution for the tenant. You the SaaS ISV will have to decide if it makes good business sense to try bow hunting in Mongolia if there are low hanging tropical fruits in the long tail market.

I suppose it depends on how hungry you are.

More SaaS TV

Fred Chong — Wed, 29 Nov 2006 09:48:00 GMT

Here's more video episodes of the Remend architecture case study I wrote about in my previous post:

ARCast.TV - SaaS @ Work - Remend Overview
ARCast.TV - SaaS @ Work - Remend Architecture Overview
ARCast.TV - SaaS @ Work - Remend Architecture Drilldown on Workflow and Services
ARCast.TV - SaaS @ Work - Remend User Experience
ARCast TV - SaaS @ Work - Remend Database Architecture

Interestingly, I got an email from a customer today saying that there are VC's out there with the perceptions that SaaS solutions built on Microsoft stack has scalability, cost and blah blah blah issues.

It's time to let the truth speaks for itself.