A scorecard for evaluating developer-focused SaaS companies.
Modern web and mobile applications are now sufficiently complex that code reuse is imperative. Just as software libraries once offered quicker time to market and efficient code reuse, today developer-oriented services accelerate development in SaaS applications. The proliferation of well-defined API's and the shift to true services-oriented architectures have created a tremendous opportunity for companies targeting developers. Below, we outline some of the characteristics for developer-oriented service companies to thrive:
1. Broad, horizontal functionality
Companies that target functionality required by every SaaS application have a head start. Content delivery networks are the purest example of broad horizontal functionality that every devops team makes use of. Akamai sports a $10B market cap because no web application can afford to be slow. Second, whether large or small, all applications are designed with the presumption of a global reach that only a content delivery network can provide.
2. No strategic differentiation
Companies are rightly reluctant to outsource functionality which could be a point of strategic differentiation in the future. Entrepreneurs starting a developer-oriented service should be careful to tackle only that part of the product which is clearly common to all applications. Email marketing provides a good case study: companies like ExactTarget started by solving the email delivery problem (which offered no strategic differentiation for enterprises) and expanded their offering on the strength of that beachhead.
Services that are mission critical to customers enjoy higher ACV's and lower churn. Billing and checkout services (such as Stripe and Recurly, for instance) are required to work flawlessly all the time. Developers love services that mask complexity in mission-critical components of their applications. No developer should have to write code to interface with a payments gateway.
4. Simple abstraction with a clean API
5. Instant global scale
Today's startups face significantly lower barriers to entry. In many cases these barriers were destroyed by a slew of services targeting developers. Amazon Web Services used its 'compute cannon' to completely level the infrastructure playing field. The Open Source Software movement forded the moats and tore down the walls of the proprietary software castles. Developer services companies that invest in building a global-scale platform offer genuine value. PubNub has built a global real-time network that delivers 3 million messages every second with 1/4 second latency. Their customers leverage the scale of PubNub's network when they connect to the service. Global scale can also come in other forms: Twilio has signed peering agreements with telecom companies around the world that enable the service to route voice and message traffic to any device.
6. "Unsexy" from a developer's point of view
Companies that seem boring often have less competition and are highly profitable in the long run. Splunk started by helping developers make sense of log files. In the software world, this is the equivalent of opening up the septic tank to look for problems. Developers would rather be working on a big data meets artificial intelligence project. Few want to work on the mundane plumbing, making it perfect to be outsourced "as a service" provided it meets most of the criteria above. These six criteria form part of the scorecard that we use at ScaleVP to evaluate companies offering SaaS services to both developers and operations teams. Our investments seldom meet all of the above criteria, but they are usually strong in many.