LSQHA Blog Reviews

This week's poll is inspired our friends at CloudAve . Krishnan Subramanian wrote a post today about open-sourcing data center design . It's about time, isn't it? Subramanian best point comes down to what is happening right now in the cloud computing world. The enthusiasm for cloud computing is such that there is no time to waste. Sponsor Subramanian writes: "Compared to other fields of IT, the innovation on the data center front is relatively slow because the industry as a whole is slow to change. With cloud computing capturing the imagination of enterprises and public, It is important to innovate rapidly on the data center side." We know the role open-source is playing in cloud computing. Just look at the role that Hadoop and Eucalyptus are playing in cloud computing. But opening up the data center is a different story. It may be the last frontier and the key for opening up the enterprise to open-source initiatives. The Open Source Data Center Initiative seems like it sees that potential. The group is challenging the powers of the engineering world by collaborating and pooling information that goes into designing and ultimately constructing data centers. That's pretty interesting. So, here's our question this week: Is There A Place For Open-Source in the Data Center? trends Last Week's Poll: What is the top threat to cloud computing? Last week's poll had 244 people respond. Top response: API's and a poor interface. API's are causing headaches for at least one of the leading cloud service providers . We'll have more later about troublesome API's. In the meantime, what do you think? Is there a place for open-source in the data center? Discuss

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Weekly Poll: Is There A Place For Open-Source in the Data Center?

Small cap hell is where you end up in about six months after your IPO, when all the high fives and champagne have receded into a distant memory. Unless your company is big enough. How big is big enough? According to Investopedia, small cap refers to companies with "a market capitalization of between $300 million and $2 billion." That's right, to escape small cap hell you need to have a market cap over $2 billion. Sponsor To put that in perspective, that describes one out of 14 publicly traded SaaS companies (Salesforce.com). So 13 out of 14 are in small cap hell. Actually, two out of the 14 are micro cap, i.e. below $300 million in market cap. This matters to all of us. A healthy public market for Web tech ventures ripples all the way down to seed level investing and drives the innovation economy. What Does It Feel Like To Be In Small Cap Hell? Lonely. Nobody cares about your little venture. To the team that endured blood, sweat, toil and tears to get to $50 million in revenues, and then go through all the SEC gyrations to become a public company, that is tough to accept. Here is what you can do. Hire a strong investors relations team and send out lots of press releases, be accessible to the press, go on road shows and speak at conferences for investors. Your IR team can take care of the mechanics, but this is also a big time-suck for the CEO and CFO. (And you cannot say, "Sorry we missed our numbers we were too busy schmoozing folks like you.") The result is a lot of work and you have to do it - but the payoff is small. Every other small cap is doing the same thing. Buy back your own shares. That tells even the most dimwitted investor that you think the stock is undervalued, and as you run the company you probably know. This is fine if you personally are vastly wealthy or you have massive amounts of cash laying idle on the company balance sheet. In other words it is not an option for most companies Social Media IR Rides To The Rescue? Agoracom is a modern IR firm. They use online methods to tell your story. That may not sound like a big deal, but IR is a pretty conservative business, so just using a few tools like Twitter intelligently is a big step forward. Agoracom's pitch is that they can "tell your story". For a while there will be an opportunity to use modern methods while your competitors are stuck with their buggy whips. But that advantage will erode really fast. So this is where the new Finance 2.0 sites like Seeking Alpha , Stocktwits , Kaching and Covestor may have the key. I decided to test this on the 14 publicly traded SaaS companies. Finance 2.0 For Small Cap: It is Too Early To Tell Select a classic small cap stock in the SaaS Index. For example: RightNow Technologies (RNOW). At time of writing, they have a market cap of $525 million. It is a cool company that is growing fast and delivering good results for customers. So how much coverage do they get on these new sites? In my test I looked at RNOW for the period Jan. 1 to March 1. StockTwits : There were nine tweets about RNOW, and many of them mentioned RNOW among a list of other stocks. Some are not very helpful, such as: "Does anyone know the future of $rnow ?" SeekingAlpha : This has two posts that were specific to RNOW and they seemed high quality. That is better than nine tweets that don't say much. Covestor : This is interesting to play around in. You can see the last 10 trades done by Covestor members in RNOW. But you cannot drill from that to any rationale into RNOW. The system is set up to do that, but there is just nothing there yet. Kaching : This gave good news aggregation on RNOW. It looked better than YahooFinance (still the starting point for lots of investors) but seemed to lack depth. Nor did it have any fundamental new information. So, from the limited perspective of one small cap, these sites are at this time not the answer. What about "ye olde stock forum" on Yahoo Finance? Their message board for RNOW for the same period of time has 28 posts, not including the threaded replies. That puts them way ahead of the newcomers.What about quality you ask? What is the use of a lot of noise from anonymous posters pushing the stocks they own (or panning the ones they short)? That seems to be the problem with all these sources. Wanted: Patient, Long-Term Investors Found: Momentum-chasing day traders. You want investors who will buy into the quality of your technology, understand your value proposition, like the market you are in and think you are doing a reasonable job managing the business. In other words, you want Warren Buffett. That is not what these new sites are delivering. They do not seem to be the key to escape from small cap hell. Let Your Story Surface The evolution seems to be: 1.0 Tell Your Story. This is standard investor relations. The updated version of IR is to be present where investors hang out, which today means online. But it is still the old broadcast model. 2.0 Let The Crowd Tell Your Story. This is classic social media - and it suffers from classic social media problems. You might trust a user-generated review on Yelp before going to a diner, but you are likely to be a bit more nervous before investing your kid's college fund in a company. What we need is something that reverses the flow, that lets investors discover you, that lets your story surface. This is where XBRL may help. (For a basic intro to XBRL read our earlier coverage .) The Current XBRL Disconnect For Small Cap Is Temporary XBRL was not any help when I was compiling the data for the 14 companies in the SaaS Index for the Saas Insights Report (a paid report for investors available from CapitalMarkets.com . Disclosure: The guest author wrote this report). The reason is simple. Only one out of 14 reported to the SEC in XBRL format. That company is Salesforce.com (CRM). The reason for that is also simple: The SEC currently mandates that companies with a market cap higher than $ billion report using XBRL. That is what creates the disconnect: 1. XBRL will enable the good investments from small cap companies to surface, but, 2. Only big cap companies report using XBRL (and they have no trouble reaching investors). The good news is that disconnect is temporary. The second wave of new XBRL filers in 2010 is estimated to include 1,500 - 2,000 reporting companies, and the final wave in 2011 is for about 10,000 additional companies. Imagine the Information Discovery Tools When I go to my local wine store, the owner asks me what I want and we have fun with my standard reply that I want something "incredibly delicious and ridiculously cheap". Investors want the same. Warren Buffett got to be one of the richest men in the world by finding a few of those. When all companies file in XBRL (and some geeks have created some neat tools to help sip more effectively from that firehose), ordinary investors will be able to create really powerful filters to find those "incredibly valuable and ridiculously cheap" companies. They won't find them among the big cap companies. They will find them among the thousands of small cap, micro cap (and yes, even nano cap) companies. When the value surfaces, they can reach out to IR who can them tell their story. Of course, when all this pans out, the opportunity to find the bargains will disappear. That is the price of an efficient market. But the value to all the companies trapped in small cap hell will be immense. They can focus on building value knowing that the value they create will surface. And that will have a great impact on the innovation economy. Photo credit: Chris Whiteside Discuss

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Is XBRL The Key To Escaping Small Cap Hell?

Low Cost Innovation Confuses Buyers With Excess Choices As a Web Strategist, you seek to balance the three spheres of business, technology and community .  Perhaps a challenging one is the ‘technology’ sphere as you’re faced with the decision of build vs buy, specialized vs broad, cheap vs expensive.  The choices are staggering –there are over 100 community platform vendors, thousands of Facebook developers, iPhone apps, and Twitter apps being created each year.  Despite the proliferation of innovation, one thing remains constant: the economics and strategy of buying doesn’t change.  As a result, the web strategist must first understand their strategy, develop the right parameters for buying and recognize the strengths –and weakness of each type of partner. First, Buyers Must Understand Their Level of Sophistication Companies that purchase technology and services must first recognize where they are in the sophistication curve.   Those who are new to social technologies should seek out strategy and education first, and rely on external experience and expertise to deter risk.  Those that are in mid level should focus in on specific needs –forgoing unneeded services and features.  Expert level companies are thinking of a holistic experience for customers and are focused on scalability, interoperability, and integration.  In many cases, these expert level companies may be focused on building their own tools and resources –rather than relying completely on third parties. For Growth, Focused Vendors Go Broad Interestingly enough, some companies with rich histories in a particular vertical are also expanding to larger markets by rebranding efforts.  Take for example 10 year old Neighborhood America, a community platform with strong background in government, local, and federal agencies as a vertical as recently rebranded as INgage networks –giving them a broader reach to the enterprise space and international space - -read their FAQ and watch their video to learn more . As Market Matures, Vendors Become Specialized Radian 6, Visible Technologies, Nielsen Buzzmetrics, and TNS Cymfony have all broad reach across multiple industries by being fairly agnostic to any particular vertical. Of course, they each have experiences in particular verticals and likely have a majority of clients in one industry over another, but that’s a contrary position to Revinate , a company I recently met with that focuses in on deep integration with the hospitality industry.  Their listening platform, while it doesn’t go as wide to cover the ‘brand scope’ comes pre-rigged with connections to travel rating sites like Tripadvisor, Yelp, and other consumer rating sites. Note that no vendor is perfect, and if they can do it all, you won’t need all their offerings, and their price point will be high, as a result, understand the strengths –and weaknesses of all. Social Technology Buyers Matrix: Broad vs Specialized vs Do It Yourself What it is Examples Benefits Downsides Broad Technology or service vendors that serve a variety of industries without a specific focus, Buzzmetrics, Radian 6, Visible Technologies, Cymfony offer a range of services that can be use with any variety of industries. On the community platform side, Jive, Telligent, Mzinga, Awareness, Liveworld* can meet the needs of many enterprises. Wide deployment ensures that the scope can spread to a large set of sites to crawl. In most cases, these companies can scale, and have a broad base of clients to learn from. Configuration and specialization for your particular market may require setup costs and configuration efforts. While features may go wide –not all will be needed for your specific customer socialgraphic behaviors and industry usage. Specialized Technology or service vendors that offer vertical (or industry) specific skills, honed in on a unique market need. In the brand monitoring space, Revinate offers specific brand monitoring for the hospitality industry, and Kickapps*, Pluck, and Cisco EOS*, offer solutions for the media vertical and recently rebranded INgage networks has long history of serving Government –although they are moving to the broad category. Faster deployment and features and deployments are pre-customized for deployment.  Experienced teams that truly get the nuances of your particular industry. Vendors may not be able to go broader, feature set may become limited when it comes to scaling. Sometimes specialization increases costs of goods and services. Do It Yourself (DIY) Rather than rely on vendors, many companies prefer to build their own social media tools and processes and integrate with legacy CMS and WMS systems. A variety of brands have bolted on social features to their corporate website using BBS systems, WordPress, or Drupal like platforms with extensive customization.  Or, developers that build custom installations on .net, jsp, php, and other software languages and frameworks. Reduced up front cost and custom tailored integration with existing systems. A controlled environment not dependent on the product roadmaps of other SaaS companies and increased security measures. Constant rejiggering of features as the outside technology space innovates quickly. Often the soft costs and internal maintaince isn’t always accounted for up front, and innovating new features are often not native to corporations. * The Altimeter Group takes pride in transparency and openness in research and analysis, as a result, the starred companies are currently clients, read our disclosure page . Web Strategists Must Plan For the Long Term Regardless of which path you choose from Broad, Specialized or DIY, there are a few baseline considerations the web strategist must factor into their long term planning, they include: Deploy systems that are designed to scale. Buyers must demand access to the product roadmap and understand where the company is headed at least in their 2 year plan.  The benefits of a SaaS technology vendor is that you can quickly scale your deployment on a turn key basis, while on premise has it’s upsides for conservative industries –scaling can quickly become an issue and out-the-door fast deployment. Deploy systems that can integrate . Only buy systems that have protocols that can allow data to be accessed by other parties, and put into terms of service your data can be accessed at any given time, no questions asked. Analyze their partnership and alliance relationships. Selecting a company that has a healthy set of partnerships and alliances will ensure that they your company will fit within the heterogenous ecosystem of the social web.  Yet, probe deeper, during initial sales calls, vendors will flash ‘Nascar slides’ with dozens of logos of partnerships, find out how many relationships are truly deep integration and aligned product roadmaps –not just former one-off projects. Although this post is buyer focused, technology vendors with a broad focus should start kindling relationships with channel partners that can resell and focus in on specific marketers.  For example, Radian 6 is known for offering its service to PR and digital agencies who can then focus in on specific markets.

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Social Technology Buyers Matrix: Broad vs Specialized vs Do It Yourself