Milestone Group Quarterly: October 2005
Articles
Face to Face:
K.B. Chandrasekhar, CEO of Jamcracker
Milestone: Tell us about the genesis of Jamcracker and what the big idea is.
Chandrasekhar: My background is that I started Exodus Communications. It was then that I first saw the ability to deliver software as a hosted service and we started building some small internal applications at that time. At the same time you also saw that disparate applications were coming together and you saw that the future of SOA would need a new kind of platform, one that could bring it all together for business customers in a seamless manner. It was in a very short time that we had over 35 applications on our platform through a single point of contact and single way to connect to all these applications.
Milestone: Many predict the traditional model of delivering software is dead. Do you agree and who will continue buying software on a perpetual basis?
Chandrasekhar: The reason is that there are all these companies that have their sight on becoming the critical mass service provider. Everybody will become a service provider whether you deliver it internally as a service or externally as a service provider. What it means is that you have to have the skill and the ability to run it on a mission critical basis and be available all of the time; that is more important. The second part of the question you asked me was who will continue buying software on a perpetual basis; in fact I think that perpetual as a notion will go away very quickly. The reason is very simple, I think customers are going to rely on a combination of exporting some development offshore combined with some critical on demand elements. In the end, the winner will be who is able to provide the superior technical support for the software so they can continue running on an uninterrupted basis.
Milestone: Is on demand software an IT infrastructure, IT architecture play or is it really just a new software pricing model?
Chandrasekhar: It is both. If you look at IT software as a service, traditionally what happened is that you could buy and load applications for you own use and run it for your own usage. That is not bad, there is economy of scale now, the collaboration that we have. This is where the market tenancy of software as architecture comes in there. The market tenancy can be run either within the set up or be consumed after service externally. So in short, it is an IT architecture that also blends subscription based pricing model because it lends itself economically to be able to do that.
Milestone: What types of applications are best suited for on demand delivery?
Chandrasekhar: Those that are externally consumed or those that are going to be used by people more mobile and those that would need connectivity on a variety of devices. External collaboration, because on demand is not only about choosing a single application but how does that establish itself as part of a larger ecosystem. You see those things are becoming very, very crucial. As a result ERPs are probably not the best, even those who have done a phenomenal job on that, you will find that 90% of the market is doing education, retail, those things that are externally consumable.
Milestone: What challenges do ISVs face when pricing their software offering as a service and what are the biggest lessons learned?
Chandrasekhar: The challenge is almost like choosing which telephone company to use. It’s about how do I put the CapEx today and I know that I have my customer for a long time? I know I have them for a long time and I can collect a toll on them, but I have to have the capital to be able to pay up front. That is one of the two challenges I have seen. Second is by using an on demand pricing model it is significantly eroding the old standard model. The challenges are more business related not technology related, transitioning to software as a service.
Milestone: So what is the true ROI of migrating to an on demand model if a large ISV really implemented full scale? What’s the order of magnitude of cost savings and what are Jamcracker customers seeing?
Chandrasekhar: We are seeing some very significant savings by moving to software as a service model. First of all you are able to now have multiple customers. The cost of the savings comes in the cost of customer service at the end of the day and in subscription management. Usually, about 40% of the cost during a lifecycle is spent between subscription management and user management. Now you are able to have a multi-connected model that takes care of that. You would have a limited ability to monetize many of those things. Second part of it is what you call production management, the ability to get access to the latest versions of the software. Customers don’t have to wait for five years to get another major version and again plan around three years for another huge migration. So when you really look at it on a lifecycle basis, the savings are really staggering.
Milestone: Chandra, you are known for the phenomenal growth of Exodus Communications. Does lightning strike twice?
Chandrasekhar: I am expecting it to strike 10 times because I am also running another company called Aztec Software, which has grown about five times in the past 18 months. I got another solid lead with business process outsourcing services on applications company and it’s expected to hit a $100 million run rate in a very short time.
Milestone: If you had to start a company in another technology space, what plays do you like right now?
Chandrasekhar: Google. It’s all about Google today.
K.B. Chandrasekhar ("Chandra") is co-founder, CEO, and Chairman of the Board of Jamcracker. He is also the co-founder and Chairman of the Board of e4e Inc., a global technology holding company and Chairman of the Board of Aztec Software and Technology Services Limited, a publicly traded company on the Bombay Stock Exchange.
In 1994, Chandra identified the potential of the Internet and founded Exodus Communications. Exodus went public in March of 1998 in one of the most successful IPO's of 1998. In 1999, Chandra was honored as the Ernst & Young Northern California Entrepreneur of the Year.
Chandra was born and raised in Chennai, India and holds a bachelor's degree in Electrical and Electronic Engineering from Anna University
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