In a previous post, I wrote about traditional ISVs creating spinoffs to market and sell their Software-as-A-Service (SaaS) apps. Recently I was surprised to see Glassboard from Sepia Labs, a spinoff of NewsGator, come across my desk.  I’m familiar with NewsGator. Based in Denver, CO, they have 8 years experience in SaaS, and multiple Windows Azure apps under their belt.  Why would they go to the trouble of creating a spinoff for their latest Windows Azure app?  Almost a third of their revenue is already subscription based, and they are by no means new to the rigors of SLAs, uptime and support – issues that challenge many SaaS newcomers.  I called JB Holston, CEO of NewsGator and Walker Fenton, CEO of Sepia Labs to find out.  Turns out, they have lot in common with many traditional ISVs using Windows Azure and SaaS for the first time – they are trying to reach a new customer segment.  And which customers you’re going after can change everything.  Here’s their story…

According to Holston, Facebook is defining the way people interact online.  Consumers like what Facebook offers and want more of it in the corporate space.  Both NewsGator and Glassboard take their cues from that reality, operating in the social computing space.   NewsGator’s marquee offering, Social Sites 2010, is an enterprise social computing product that’s attached to SharePoint 2010.  By all accounts it’s doing pretty well… per a Jan 11, 2012 TechCrunch article NewsGator added one million new paid seats over the course of 2011, on top of its existing two million.  Forrester’s Q3 2011 report rates them among the leaders in enterprise social platforms.  Customers are global 2000 enterprises worldwide, reached through a direct sales force about 35 strong, augmented by 50+ channel partners.  It’s largely installed on premises, and sold most often through a perpetual license pricing strategy.  Most of that should sound pretty familiar to other traditional ISVs. 

The newer Glassboard offering, which launched in Aug 2011, still operates in the social computing arena.  Glassboard is about sharing privately with groups – essentially Facebook without the ads, with better privacy, and with very cool Bing maps integration for location. 

Watch this Channel 9 video for more on the technical reasons behind why they chose Windows Azure, including a demo of how different phone platforms process messages using notifications.

However, beyond the common social computing focus of the two products, most aspects of the Glassboard opportunity are completely different from Social Sites 2010.  Glassboard is completely cloud-based and integrates with SharePoint Online.  But the differences go deeper than that:

• WHO they target:  Glassboard targets small businesses (SMBs) looking for private social collaboration they can easily use internally and with partners, suppliers and customers.  Glassboard even extends into the consumer space, as the app is popular amongst teachers, families, and others who are uncomfortable with Facebook’s privacy policies.   To encourage trial among these price sensitive customers, they use a Freemium pricing model i.e. the app is free until you pass a certain threshold of use.
• WHAT they offer:  SMBs and consumers need turnkey, low touch, intuitive apps.  That dictates a different design and engineering ethic.  Fenton called it a “mobile first interface” that works on iPhones, Androids, and WP7.  In fact, Fenton’s goal for his design center was “an app my Mom can download from an app store and use without asking anyone.”  In other words, entirely self-provisioning.  That’s a growing trend in enterprise apps, but an imperative in lower-end small business and consumer apps.
• HOW they make it happen:  Glassboard reaches SMBs and consumers in four ways, all via marketing:
  • Online marketplaces – see their listings in Office 365 Marketplace, Windows Phone Marketplace, the iTunes Store, Android Market and Amazon’s Appstore for Android.
  • Digital marketing – online advertising, primarily Facebook ads
  • Social marketing – they are active on Facebook, Google+, Twitter, LinkedIn
  • Viral marketing – users get additional free product above the Freemium threshold for referring colleagues and friends.

Well when you put it that way, if the WHO, the WHAT and the HOW is different, a spinoff begins to make a ton of sense.  Though NewsGator is successful with Social Sites 2010, they’d probably struggle with Sepia Lab’s Glassboard.  Direct sales don’t work too well in reaching numerous and fragmented SMBs and consumers.  Neither does a freemium pricing model get a commission-based sales force very excited.  Glassboard called for a wholly new Go-To-Market strategy, namely a switch from sales-led to marketing-led demand generation.  When Holston realized he had a team of folks within NewsGator that were passionate about this new category, he created a spinoff to release those passions.  Walker Fenton had been responsible for the mobile group within NewsGator so Holston put him in charge of Sepia Labs.  He gave him some personnel, some office space as well as HR and accounting support from the parent company.  He also gave him NewsGator’s legacy online services.  Fenton continues to manage those under Sepia Labs and uses the revenue streams to partially fund new product development, like Glassboard.   He makes it look easy.  To learn more, follow the official Glassboard blog.