If you have been active in the SaaS world, you have most probably heard of Bessemer’s Top 10 Laws of Cloud Computing and SaaS. These top 10 laws are defined to help to navigate in the world of SaaS, specifically for the ISVs that want to transition to the SaaS world and the ones that have a dream of starting a SaaS-based company. Let’s drill into the top 10 rules of Bessemer. These “laws” are built on hundreds of conversations with cloud executives around the world and Bessemer Venture Partners is one of the best known investors in cloud companies. The latest, Winter 2010 release of the Top 10 Cloud Computing Laws are:

1. Less is more! Leverage the cloud everywhere you practically can.
2. Get instrument rated, and trust the 6C’s of Cloud Finance.
3. Study the Sales Learning Curve and Only Invest behind Success.
4. Forget everything you learned about software channels. The internet is your new channel and Technology enabled Service providers are among the few partners that actually care if you succeed.
5. Build Employee Software. Employees are now powerful customers, not just their managers.
6. By definition, your sales prospects are online – Savvy online marketing is a core competence of every successful cloud business.
7. The most important part of Software-as-a-Service isn’t “Software”, its “Service”.
8. Leverage and monetize the data asset.
9. Mind the GAAP. Cloud accounting is all about matching revenue and costs to consumption… besides the professional services.
10. Cloudonomics requires that you plan your fuel stops very carefully.

Each of these laws had lots of detail information and logic behind it and I would recommend you to read the whitepaper that describes all of this in greater detail.

What I would like to accomplish is to portray these 10 Laws in respect to the Business Model Canvas (from Dr. Alexander Osterwalder et al.)  that I described in a prior blog entry ISVs are re-learning Business Models from multiple different perspectives using Business Model Canvas. The business model canvas portrays the dimensions in an overall business model. This Business Model Canvas is an excellent tool/framework to analyze any business, including a SaaS or traditional enterprise software business. I will break this analysis into multiple blog entries and will start by analyzing the first law (Bessemer Cloud Computing Law 1 #1: Less is more!)

Law #1: Less is more!

This law suggests that the software company (SaaS vendor) leverages the cloud wherever it can, both internal systems as well as own product offerings. This enables the software vendor to “eat its own dog food” with the experiences that a real customer would have of the solution use. This law also suggests that the vendor focuses on its own core competence and leaves everything else outside to be managed by others. This relates to at least three business model canvas building blocks: Key Resources (KR), Key Activities (KA) and Key Partnerships (KP) but can also have an impact on Cost Structure (C$). Let’s analyze why I am referring to these canvas building blocks.

Key Resources (KR) in the Business Model Canvas is needed to create the solution that is defined in the Value Proposition (VP) and delivered to the Target Customer Segments (CS). These resources can be physical, intellectual, human or financial. Bessemer Law #1 emphasizes to focus on SaaS vendor’s own core competencies and leave the rest to other vendors to deal with.

Key resources (KR) should not be used to install software, but to focus on key delivery using a PaaS (Platform-as-a-Service) or IaaS (Infrastructure-as-a-Service) platform that others will maintain for the SaaS vendor. Software development of today should be to focus on building value over a software product platform where the value is built using the platform and where the developer can assume to have basic functionality built into it as infrastructure services and these services can be consumed using well-defined application programming interfaces (APIs) and standards.

The Bessemer #1 Law suggests building single instance, multi-tenant software solutions with a single version of code in production. Having been in the software business for 20+ years, this objective is truly something that I would highly recommend if possible. The whole idea behind my 2004 doctoral dissertation was to review how Analytical Application Software could be applied in a product platform setting and using software product line engineering with the idea to create an optimized core platform that developers could utilize in derivative software development.

Key Resources also define how well the SaaS company knows its domain, how well investors think that the SaaS company is going to be able to deliver the Value Proposition that has been defined for the company. The areas where the company does not have skills or are competitive should be left to Key Partners (KP) that can take care of providing the service. This could be outsourced product development of non-key software components and this is where a cloud provider such as Microsoft comes to play as well.  The SaaS vendor should evaluate its key competencies in a realistic way and focus on the areas where they know they can survive and leave the rest to Key Partners.

This type of building value-add is part of a SaaS vendor’s  Key Activities (KA)  and infrastructure development such as building scalable data centers is left for companies like Microsoft that is investing billions in huge data centers around the world and taking the pain off ISVs and software development organizations of having to worry about hardware, scalability and Service Level Agreements (SLA). An example of this is Microsoft Windows Azure  that represents an operating system in the cloud and provides a foundation for ISVs to build value-added solutions.  With this model, the SaaS vendor will save money in infrastructure costs and therefore it has a direct impact on Cost Structure (CS).

The Bessemer’s top 10 cloud computing laws can be viewed through the lenses of Business Model Canvas as was described in this blog entry.  I will continue on this series until all Bessemer’s top 10 cloud computing laws is covered using the Business Model Canvas.