M&A in a SaaS world

People often casually talk about mergers and acquisitions in the SaaS space. Some say this space is "ripe" for M&A. There is already enough statistical evidence that M&A has more chances of failure than success. SaaS company acquirers should take this data point even more seriously.

There may be several reasons to acquire a company in the SaaS space e.g. to buy your way into a market, buy innovation through acquisitions etc. But the most critical part is the post-acquisition integration. Since SaaS is still an evolving space there are no clear SaaS platform leaders. In fact there are hardly any SaaS platforms in the market.

Without a standardization or maturity in the SaaS platform market, every SaaS vendor has a purpose built platform for their product. This applies to any company out there including Salesforce.com, SuccessFactors, NetSuite, Concur etc. Imagine integrating the platforms of these companies if they were to merge. It is a non-trivial problem and should be a huge consideration for the acquirer for one simple reason - margins.

The margins for a SaaS company is very heavily dependent on how scalable their SaaS platform is. By scalability I don't mean only technical scalability. It is also the cost of scaling. If the cost of scaling is high then the business is not scalable. I can easily imagine a cost-of-scaling metric that will eventually be used to value a SaaS business just as customer acquistion cost and customer churn numbers are key metrics used to measure a business like Netflix.

Integration becomes a challenge with highly custom platforms and without integration the benefits of economies of scale become a dream. I don't think there is a realization of this fact in the industry. So I think major M&A activity in the SaaS space is nowhere near. And the ones that do get acquired by bigger players like PayCycle by Intuit, will forever remain independent operations without ever achieving the benefits of economies of scale.

Transfer files from Mac to PC

Problem: Mac formats hard disks using HFS+. Windows uses NTFS as the default format. Apparently, you can use FAT or FAT32 formatted disks on both Mac and PC - there are some limitations on files sizes and number of files. But in Windows Vista Microsoft has introduced a new format called exFAT replacing/enhancing the FAT file formats. What a nightmare! I couldn't use my USB external hard drives (NTFS) with the Mac - it could read the contents but could not write anything from the Mac.

Simple solution: If you are having a Windows and a Mac on the same home network, there is a simple way to share files between the two - via FTP. Just go to your Mac system preferences and enable file sharing for the concerned user using ftp. You can then use a program like FileZilla on your PC to access files on your Mac. It will ask you for the Mac user name password of the person who shared the files. Once you get in, you can just drag and drop files from the Mac to the PC.

Insecure Leadership - A Source of Organizational Politics

Insecure leadership in an organization is a key source of organizational politics. Insecurity makes business leaders act in very funny ways regardless of their role and the size of their organization. There are many signs that can tell you that your management has insecurity about their ability to add value to the organization. Some common signs:

• Hunger for credit: Leaders becoming stingy in giving credit where its due and worse still, trying to take credit for their team's effort
• Promoting incompetence: Leaders surround themselves with people who don't threaten them
• Denial about circle of competence: Leaders unwilling to accept their circle of competence - just because you are someone's manager doesn't make you an expert on everything
• Desparate contributors: Leaders unwilling to accept that at times they will have no value to add to the team's work - it is ok to say "I have nothing to add" (like the great Charlie Munger)

Insecure managers directly limit your organization's growth because they are often so focused on protecting their fiefdom that they compromise the best interest of your business.

Future of cloud computing and SaaS

Cloud computing is the next BIG thing with all the major platform players aggressively going for the land grab. Each player has a different approach and are trying to provide their offering at different levels - from raw computing and storage to application fabrics and SaaS platforms. Amazon, Google, Microsoft, Salesforce.com, IBM are some key players betting big on this trend.

There is a lot of confusion and debate about which platform will prevail and what is the best approach on cloud computing. My take is that it is going to follow the path that the internet economy has taken. Broadly 3 layers are likely to emerge. These layers of clouds with current day analogies are mentioned below:

• Infrastructure clouds - Provide raw infrastructure. Current day Amazon EC2 similar to an older day Savvis. There could be any number of providers in this category primarily differentiating on cost.

• Development framework clouds - Provides application development framework. Current day Microsoft Azure similar to an older day Windows + .Net combination. Infrastructure cloud will be included and could be outsourced to a strategic partner. There will be a less than 5 cloud providers this category with limited portability amongst each other.

• Application clouds - Provides higher level abstraction to build applications. Current day Salesforce.com similar to an older day SAP. There could be any number of providers here. But the likely scenario would be a 2 tier system where large application companies like SAP and Oracle have their own cloud and other smaller application vendors sharing clouds or are part of other eco-systems. The platform with a better eco-system will emerge as an eventual leader - similar to Google in search-ads and eBay in auctions. The ability to reach a wide number of target users or customers will eventually be the key driver for application cloud adoption rather than ability to build applications. The ability to build applications will eventually be similar on most major platforms.

Another trend likely to emerge is the creation of special purpose clouds. This would be similar to special purpose social networking sites or radio channels. There will be aspects around data security, workflow, availability, SLAs and eco-system that will be better suited for market segments like legal, government, finance, insurance etc. These will be built as value-added-clouds using the infratructure and application clouds.

My new Macbook

I have been a DOS and Windows user for over 15 years. Not just an end user but have been a developer/user for that long. Including programming on Windows 3.1.

Over the past 2 years I have had to spend significant amounts of time "fixing" my home and work computer for seemingly trivial reasons. Fixing always involved going to see what are the unwanted softwares installed, looking at the process list to see what is consuming 100% CPU or memory, installing 3 or 4 software from various places to get 1 simple thing done.

That is when I started walking into the apple store at the local mall. Started looking at all their products and the hype around them. It took me a very very long time but I still couldn't spend the few extra $$ premium to buy a Mac.  Eventually, I bought an iPod touch. Just a few months after using the iPod touch, I realized that it is not about how much memory or CPU power the Mac had. It is not about the number of features that a computer has. I felt that in a small device like a music player the right design can significantly enhance the user experience. I officially became an Apple convert when my 3.5 year old daughter started using the iPod touch with no training.

So finally I made the leap and bought my first Macbook a month ago. So far it has lived up to my expectations and has been an amazing experience. I use the macbook as a home computer to browse the internet, photos, music, video, video chatting with family...

I have one advice for people on the fence - BUY A MAC.

I found a very useful blog by David Alison that gives tips on some of the quirks around keyboard shortcuts and other aspects of making the witch easier. I found it very useful.