ARCast.net - SaaS @ Work - Flatburger Overview

It's tough to talk with a CEO without it sounding like a commercial.  I found that this conversation helped me to understanding the world of the SaaS hoster - what we are witnessing is the birth of a new industry and its fascinating to see what the business and technical challenges of it are.

If you haven't heard the recording with Shaun Walker from DotNetNuke you might want to hear that one as well - they are trying to do a similar thing.

ARCast.net - SaaS @ Work - Flatburger Overview

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Ron Jacobs: Hey, this is Ron Jacobs and I'm here at the ModSoftCon 2006 conference in Las Vegas, where I'm joined by Bill Phelan who is the CEO of Flatburger.


Bill, that's the weirdest thing I've ever heard. Flatburger. What's that about?

Bill Phelan: Flatburger is a name that we created after we read Tom Friedman's book 'The World Is Flat'

Ron: Yeah.

Bill: Tom focused in on the fact that broadband is really a way to distribute opportunity on the worldwide basis. There was a chapter in a book called "Would You Like Some Fries with That Flatburger?"


So a quick little trip out to GoDaddy and for $6 we had a unique name. And the rest is history.

Ron: There you go. OK. So you are all about enabling the marketplace for people who are doing the whole 'software as a service' thing. There is a lot of buzz right now about this. People are wondering how this is all going to shake out.


But let's back up a minute and just talk about this concept of modular software. What is that?

Bill: Modular software is a concept that has evolved over the last four or five years. There was a project and today the heart of this modular concept resides in an Open Source project that runs on the Microsoft technologies referred to as DotNetNuke. DotNetNuke was created by Shaun Walker. Sean has done an incredible job and he and his core team have built a community of 335,000 registered users.


They have created a host application that sits upon ASP.net technologies and essentially is a very large application into which modular pieces of functionality plug and play. Those individual modules are designed to work together and to interoperate. The marketplace for these has evolved a great deal over the last couple of years. This is a very large, vibrant and growing community. And the amount of opportunity that we see for developers to make a very serious living in it is growing exponentially.

Ron: So if I was building a website and I say, "Hey, I'm going use DotNetNuke."


That's free. Right? It's an Open Source thing. I can go and use it. But you are saying already, even before you guys came around, there were people selling little modules that I could buy and that sort of thing, right?

Bill: That's right. Exactly.

Ron: But now you've come along and you are changing the game a little bit for these guys were trying to make a living selling modules. How are you changing the game?

Bill: We're changing the game by helping them and providing them with an infrastructure that they can actually count on to support their families, to build a livelihood and to build a much larger business. The exciting part of DotNetNuke and modular software is it really creates a world of opportunity that smaller development shops can actually access without having an enormous amount of overhead and the daunting task of building an infrastructure around a product.


So they have a very low cost of entry, to build a product and to reach the marketplace. As we give them the infrastructure we are solving problems that this whole world of 'software as a service' is creating. These are effectively brand-new opportunities to create new solutions to solve. And that is what we are doing.


So for these developers we enable them to have access to QA resources. We enable them to do performance testing, security testing, really bring quality products to market. But fundamentally we help developers build their brands. Individual brands are all that count to us and for each firm to be able to have access to these resources and to get into a commerce grid.


Here they will be able to access as many distribution points as possible, collaborate with other community members, take advantage of the fact that there is an enormous depth of resource in the modules that are available in the marketplace from new developers. They will perhaps find 50%, 60%, 70% of the solution they are looking for by turning to their brethren and their colleagues within this environment.


Then they can build their own secret sauce which is the glue and their value, providing economic solutions to end users but at the same time by publishing the promise of Web 2.0, which requires a two way discussion and it requires databases. It requires sophisticated solutions and this is the perfect platform to do that at a really economical cost.

Ron: So, speaking of Web 2.0, of course one of the big buzzwords about Web 2.0 was this long tail phenomenon. So how do the things that you are doing support the long tail?

Bill: The entire DotNetNuke platform is literally the land of opportunity in the long tail market. If we think of modular software as a series of Legos for a moment and just use that metaphor, the Legos if you will, can constantly be reassembled to emphasize or de-emphasize different pieces of it, along with some secret sauce to literally provide not just a vertical solution but a solution that is rifle targeted like a barrel of a.22. It's aimed right at a very specific market.


Yet is able to do that with an economical solution that does not cost millions of dollars to solve that particular vertical's end needs. We've got some fine examples of this conference. We've got a firm with whom you will probably have a chance to speak that developed a solution for not just nonprofit organizations, not just fundraising organizations. Instead his long tail focus was, "I want to develop a solution for the local offices of American Red Crosses"

Ron: Wow.

Bill: It's highly targeted and aimed right at a very specific market, a specific customer. The end solution is highly tailored for that particular customer's needs. The customer is ready to pay more for it. It's not a horizontal approach that they have to find their way how to fit with. This nails their needs and they are excited about it.


We will literally open the Yellow Pages, flip the pages and go from page to page. Every single line item in that page is another long tail vertical opportunity for the developer that wants to say, "What is the secret sauce that makes the hobbyist or let's say a hobby shop, what makes that vertical click? And what services can I provide there?"


What about a dry cleaner? What do they need? Those markets are really underserved today. They are easily served with large applications that don't hit the nail on the head. DotNetNuke is really designed to hit the nail right on the head with that customer.

Ron: Yeah, it seems like in the past a lot of us were like, "Well look, we'll give you some kind of a generic platform and then you are going to have to go and spend a bunch of money on some custom code to get the thing that is exactly what you want", which pretty much rules out the small guys. They can't afford that.


So they had to make do with things that were not exactly right. But now it seems to me one of the crucial elements in supporting this long tail is delivering on the Web at a low initial cost. Right? So something like I could pay $20 a month to get this extra thing on my website. That's exactly what you are shooting for.

Bill: Exactly. Exactly. And we enable modular developers to provide an ingredient. There are a number of different players or actors if you will within this ecosystem. We've got modular developers, who are building the ingredients and a specific piece of that ingredient, if you will, their modular piece may go to work or may be employed in 40, 50, 60, 70 different vertical applications in a slightly different way.


Enabling that to happen and to have interoperability means that they have got a chance to share a revenue stream and build a business out of 60 or 70 verticals as long as they continue to rev and upgrade that particular piece of functionality and continue to proliferate it.

Ron: That's an interesting thought. Lets say that I was the guy that developed this cool little module that all these other people wanted to use them as theirs. You guys as Flatburger, do you help me work out the partnerships between my thing and the others and how I share in the revenue stream. Is that part of what you do for me?

Bill: Correct, correct, because the underlying systems that we are providing enable the developer to connect a license that otherwise would be to expensive to create because they'd have to hire an attorney. We give them a templatized licensing solution that they can select from, that is good for the developer and is also creating confidence with the buyer, because the buyer knows that there is consistency throughout the process.


We enable that developer to bundle their solutions, work with other developers that help them operate and tie their economics very closely. We enable them to have many different kinds of economic models. We enable them to do a single sale if they want to. We enable them to go to a software's service approach which many of the folks here are really excited about because they can get their economics in line with their customers' needs, they can evolve their customers' needs, and the economics are far better.


We're helping the developer create annuity streams. Annuity streams are reliable sources of income. They don't have to- as long as they take that approach and really believe in themselves and believe in their product, they can use this system to continue to improve the service to their end user and continue to clip the coupons.

Ron: So, there is another party that is really crucial to the success of this whole thing, and that is the hosters. So, I have my website hosted up in this place and they have a bunch of options. I can ask for this thing, that thing on my site and, bam, it just shows up. Now if I ask for something that they didn't know about, maybe some piece of code like this Red Cross thing you were talking about, and say, "Well I really love that about my site," it will probably very questionable that weather or not they'd let me to do that or if they did they'd probably make me pay for a whole server just for my own thing, you know, so its a difficult thing to do. How are you working with hosters, and what's in it for them to support this?

Bill: Hosters are clearly in a business today that's rapidly changing and evolving. Large hosting firms like GoDaddy and One2One have understood the value of going to commodity pricing and have captured a large share of the commodity market, and hosting firms understand very clearly that they have got to differentiate what their products and services are, and that's opening up a whole range of opportunities for the companies to come into the market and understand how to differentiate.


We give them the tools to differentiate and to serve different markets, give them unique solutions, and to really improve the value proposition because now that hoster becomes a very tight business partner with the in-customer rather than simply the place where they are parking your applications.


So the hoster really has that opportunity. What we are also seeing is that the whole landscape is changing in terms of partnerships, ISP's, solution providers, module developers, they're certainly creating new partnerships with hosters. Now suddenly, rather than hoster simply running horizontal product, he has a whole opportunity of micro-product providers and product solution specialist that he gets to work with, which otherwise he would never think of as a source of product. They may host solutions within his hosting space. Now they can actually provide products. So that hoster's got an infinite way to...

Ron: wait, so let me put on my hoster hat for a minute.

Bill: Yes.


I've been burned by some open source cheapo freeware PHP things and other very poor quality.NET things that people wanted to put on my servers. And the profit margin on each site that I'm hosting is so narrow that just one problem blows the profit for the whole month.

Bill: Right.

Ron: So I've got to keep the problems down very, very minimal. How is this service that you're providing to these module developers help me deal with that concern?

Bill: You've got a huge advantage in looking at a solution that comes through Flatburger Labs. We specifically focus on modular software.


We take it through a QA process, and not only QA from a functional testing standpoint--we do security testing, we run 5,000 individual tests on this software. And the developer has the opportunity to go back and to continue to improve their module and their piece of software, to make that entire piece of software really work well in a hosted environment and cut down the risks.


Each developer has the opportunity to do it. The hoster has the opportunity to look at the results of the QA and security work that we're doing, and they can pick and choose, based upon their own criteria on which modules they want to use. What's important for us is to make the information transparently available to them.

Ron: OK, but when there's a problem--see, I think this is the thing that would concern me as a hoster. There's a problem with module X. What am I going to do, post a message on a message board somewhere and hope that the guy gets back to me, or do you guys help me out in making sure the word gets to the guy who wrote the thing? How does that work?

Bill: We're doing that on a daily basis now. We're creating a feedback system that enables individual customers to communicate back to the developer. And that rating system will include response times and really create a transparent environment where individual hosters can also look at the reputations that are evolving and developing for that individual developer and develop a sense of trust around them, before just jumping into the pool.

Ron: Oh. So this kind of reminds me like eBay with their Power Sellers, right?

Bill: Exactly.

Ron: In that I buy from a lot of people I never met before, but they have good reputation. eBay, they're sort of in the middle, and they're not entirely in the middle--they're in the middle enough to tell me about this person and tell me what the community thinks about them.

Bill: Exactly.

Ron: But they facilitate the relationship.

Bill: Exactly. And I think the analogies are very, very similar. We've always looked at successful business models, and there's usually a reason why they're successful. Pierre Omidyar understood long ago and helped train the entire eBay community about the transparency of feedback and just how hard it is to earn the trust of a buyer. Every single eBay transaction has seven steps, so that person with an eBay feedback rating has earned their reputation.


We're enabling a system that a hoster can go to and look at the earned reputation, based upon the quality of the software that's going through tests, looking at the feedback of customers who have used the software of that developer and have commented back. That transparent system will be wide open to the individual hoster making a decision about whose software they want to run and whether they believe in the kind of product that they're being delivered.

Ron: Yeah. And, OK, from the customer's point of view, the end customer--typically, I go to a hoster, they give me a menu of things I can do. So really, it's like the hoster had to make the call about whether or not they trusted these module developers.


But is this kind of information available to me as the end customer? If I want to go and look it up and say, "Hey, I'm thinking about using this module on this hoster," I can go see what you're saying about them?

Bill: Absolutely. And what's important is, you'll find out the results of any Flatburger testing that runs through its lab environment, but any comments on the system are coming directly from buyers...

Ron: Hmm.

Bill: That deal with that individual module and have comments about it, so that's critical. It's all going to be, it's all available today in the individual seller's environment, it's on their bounty page -- as much information as that developer can list about themselves -- plus the result of that feedback is the only way to build a transparent system of trust that somebody can actually believe in.

Ron: And so you also can get involved as sort of optional I guess, if I was a developer, a module developer, I can have you actually collect the money and all that sort of stuff -- handle the billing for me as well?

Bill: Correct, correct. Built into our entire system and offering is the ability to not only protect your intellectual property and your licensing and the like, but then attach a license to it, make the decisions about a package, if you will, a package of software how you want to distribute it, and then it's got to be friction free.

Ron: Yeah.

Bill: And offered to the consumer, based upon the terms that the individual developer is looking for, so if it's a one time sale as software as a service, is it software with source code, is it a software product without source code? We enable all those to happen. We then bring the money back, basically, to the developer and make it available directly to them.

Ron: Now, I'm curious, do you see a lot more people going though with software as a service route, like a monthly fee or, even like metered-like per-transaction fees, do you see that sort of thing happening?

Bill: We're see it happening and what is exciting to us is that the group we are dealing with in this environment has already, because they came from a hobbyist place, if you will, their software, we believe, was under-priced. So, our first conversion, is simply enabling this marketplace to go from a single sale at a price of X, maybe it's a forum module at $49, to go to an annuity stream model where they charge $49 year one and $49 year two and $49 year three. It's a very easy conversion for this community to make.


It's all found money and as the, at the same time, the developer's understand that they are upping responsibility and fundamentally, software as service for us simply means you've got to connect with your customer. If you connect with your customer, if you provide them update assistance, they like the feature-set, they believe their needs are being handled, they're more than ready to renew that subscription year two.


Fundamentally the revenue stream is a higher quality revenue stream for the developer because they continue to invest in that customer. The churn rate goes down. The satisfaction rate goes up. It's a heck of a business model and one that a developer can build a reliable stream of income from.

Ron: Yeah and it's not just.NET new as a modular platform, I mean you're talking about later supporting SharePoint as well?

Bill: Correct, correct. Absolutely. SharePoint I think the dynamics will be the same way. SharePoint is an emerging platform. Great adoption already. 75,000,000 registered users. Opportunities for the developer to do the same thing. Many of the modules we're talking about today might be thought of more as end-user, small, medium business or intranet sorts of applications.


We're seeing great opportunities within the SharePoint environment where individual work processes are being identified and built for very specific applications even in the enterprise space. We've been hearing from really great workflow tools that can be licensed out this way where the individual buyer has a very, very specific need and it might be behind the corporate intranet that that particular application is being used. That's all virgin turf.

Ron: You know, it is, it seems like this amazing great transition point that is going on. I can remember the first time I bought something on eBay. I was a little nervous, OK. I was like, "Will this thing even show up?" You send off this money to somebody you don't know, you're thinking "I don't know if this is going to work or not." But now I do it without even thinking about it, like a lot of people.

Bill: Right.

Ron: I think the market is definitely shifting.

Bill: Yes.

Ron: And you guys are going to play a crucial role, and others like you--I'm sure there are going to be others who pop up. But I didn't really think about the necessity. This kind of market wouldn't have existed without eBay.

Bill: Correct.

Ron: It was just too hard to pull off these little one-off relationships that need to happen. And the fact that, in Software as a Service, that you have this other third party who has a really strong interest--the webhoster--in some ways, they're really the customer.

Bill: Mm-hmm. Exactly.

Ron: And if they're not happy, [laughing] your thing isn't getting on their site, right?

Bill: Exactly. Exactly. It's really critical. And for us, what's critical is enabling a relationship to exist between hosters, between developers--transparency in between, in terms of data flow--and the ability for the hoster to have access to, really, the bazaar, if you will: lots of different applications, lots of different types of solutions. And then to be creative and really to test.


And I think the nature of the business is such that individual hosters, to the extent that they can be marketing-focused, that they can be creative, that they can solve many, many solutions, whether it's across the town, if they're local, or across the globe, when they really want to be specific. And they're going to make much more money doing it this way.

Ron: Well, in fact, it almost seems to me that you might see--and maybe it's already happening--sort of a vertically oriented hoster.

Bill: Correct.

Ron: So, using your example for the Red Cross, maybe there's a hoster who specializes in Red Cross hosting...

Bill: Exactly.

Ron: And they've got it all worked out.

Bill: Exactly. And I think that's what's really exciting. Just, if a person, a developer, were to sit down and literally open up the phone book almost to any page, since the phone book is a category structure of the economy...

Ron: Yeah.

Bill: And all they have to do is open that up, put their finger on almost any one of them, and they just learn a little more about what's on that line.

Ron: Plumbers! We can do the plumber vertical hosting. [laughs] Absolutely.

Bill: Plumber vertical hosting is incredibly valuable.

Ron: There's tons of them.

Bill: Yeah. There's tons of plumbers, they work like crazy all day, they need a mechanism for people to stay in touch with them...

Ron: Yeah.

Bill: And four or five modules together can nail that vertical.

Ron: If I could go to the plumber's website, schedule my appointment, change it if necessary, or cancel it or find out his rates, and all that kind of stuff, I would use a plumber like that. [laughs]

Bill: That's right. That's right. And not only that, Ron, I think what's important about that is, we've heard that theoretically for years...

Ron: Sure.

Bill: Folks have talked about it--well, it's here. It's here.

Ron: Yeah, and for the first time really, it's doable for the plumber.

Bill: Exactly.

Ron: They don't need to be a technical expert. They don't need to put out $10,000 up-front to get it. They can just, for a monthly fee probably, arrange it.

Bill: Exactly, they can do it. And back during early 2000 and during that boom period, there might have been an Internet company that came along and said, "I'm going to spend a million dollars, or $2 million or $3 million, and I'm going to go after all the plumbers on the planet."

Ron: Yeah.

Bill: Well, that game never worked...

Ron: Right.

Bill: But the plumber's still sitting there saying, "Somebody's got to help me run my business better, because all my customers are spending their days on their Blackberries..."

Ron: Yeah.

Bill: "They're spending their days on their cell phones, and I can't communicate with them."

Ron: Yeah.

Bill: "How do you help me get to those customers?" Because all the different technologies that the customer is dealing with has raised the bar, raised the expectation, and the plumber's left out of the game.

Ron: Yeah.

Bill: Now, they can be in the game, and it's a great business for developers to build at a local basis, whether it's a developer, whether it's an integrator, but they can come up with a great solution at a low cost and make money at low volumes.

Ron: Interesting! Wow. So that's a look at the world of SaaS and what's happening with Flatburger, and we're going to have a lot more here from the ModSoft DevCon thingie... [laughs]

Bill: [laughs]

Ron: Here in Las Vegas. We're going to be talking to some of the module developers and see what they're thinking about, and some more about the technical underpinnings of how Flatburger works on the technical side, because I know you want to hear about that. So stay tuned, we'll be back.


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