Why SaaS fragmentation is giving rise to new markets

Christian Staples runs spa installation business Arctic Spas Utah, and uses eight SaaS apps: accounting using Xero, CRM and support with Zoho, collections through Bill.com, ecommerce on Big Commerce, email marketing via Constant Contact, Service Pro, and a phone system from Ringio.

Like many businesses that have moved to some or all in cloud for their business IT, the difficulties now are in getting these apps to connect data and keep business processes flowing along.

“The frustration is to get everything to talk with each other and sync. Everything is manually entered. It is hours everyday for sure,” Staples said.

Patricia Vargas, marketing director at tour operator GoCar manages travel bookings for business groups. She arranges for customers to take a break from conference attendance to see their visiting city from one of Go Car’s GoKart-like vehicles. She regularly uses up to seven business apps across her operational tasks including CRM, accounting apps, cloud-based email and online marketing tools.

“It is very difficult to move data, and very easy to lose it,” Vargas said. “I spend at least an hour each month maintaining the data between just two of the cloud-based apps I use.”

Midsize companies are already feeling the pain. A Forrester survey this year found 64 percent of midsize companies are planning to focus on improving their workflows this year. They are looking for ways to smooth out the staccato rhythm of their business processes caused by multiple cloud apps.

Brick and mortar businesses not typically associated with cloud computing are becoming the major drivers behind the server-software diaspora. They are settling in to the new cloud environment with a tech savviness and a clear vision of what they need. Few are finding exactly the right solutions, mostly due to the fact that cloud apps are focusing on just one part of the business process, and are oblivious to the wider supply chain.

The costs of fragmentation are significant for both small and midsize businesses. First, there are the costs of double handling, perhaps an hour or two a week for a smaller business, but many more for a mid-size company. Then there are all the errors that this duplicate data entry causes.

But on top of that, for businesses that want to create their own “patches” to connect their business apps and streamline their workflow, complex coding is required. Each time a new app version is released, developers have to go back and check that their patch still automatically routes their data between their apps in the way they expect. It is the exact reverse of the benefits businesses were looking for when moving to the cloud.

This so-called ‘fragmentation frustration’ is causing some investment re-shuffling as players seek to take advantage of the disconnect within the cloud business ecosystem.

Jason Lemkin, serial entrepreneur and founder of EchoSign (which has since been sold to Adobe) believes that addressing theSaaS disconnect is where the next wave of innovation needs to take place: “We need SaaS startups that automate much of what is still manual data-entry in current generation SaaS products,” he lamented on Q&A site Quora. “Software is great. Web software is better. Data entry is horrible. Data entry by high-priced employees who aren’t paid to do data entry? Unconscionable.”

Startups in the app integration space are seeking to capitalize on the growing need for business solutions to manage SaaS as part of a supply chain. CloudWork are expanding their integration offerings on a weekly basis, and provide services to developers who need to stay in control of the quality of their integration tools. [Disclosure: I occassionally blog for CloudWork].

This week, IFTTT have released a new series of app integrators aimed at linking SaaS to sensors, extending the automated workflow even further into the physical workspace. And another app integration startup Zapier has released a status board service to let anyone monitor outages that may affect the movement of data between apps, quickly identifying another new market service that didn’t need to exist before the SaaS “growth-plosion.”

All of this hasn’t gone unnoticed by venture capitalists and investors. Integration company Mulesoft bought the developer community and website ProgrammableWeb in April for an ‘undisclosed amount’, obviously using some of the $37 million they had just raised. In the same month, app interface management platform 3scale raised $4 million.

“The open API market is developer-centric, because only developers are able to leverage all the possibilities of such a tool,” says Mehdi Medjaoui, co-founder of Webshell and one of the organizers of the API market conference series, APIdays. APIdays seeks to encourage more product development from startups and API developers, and will explore how this market is set to grow in the next few years.