It is always hard to predict the future, but here are my 10 Predictions for the SaaS market in 2011, and they might just happen:

Blockbuster Subscription Software IPO’s

A number of large consumer subscription software players including Facebook, Groupon, LinkedIn, Zynga and Skype could really open up the public markets with a major blockbuster IPO (or IPO’s) in 2011.  SaaS firms that look to get everyone’s attention with potential IPO’s next year include Cornerstone OnDemand, Workday, Marketo, Service-Now and possibly Plateau.

Major Players Merge to Form the Next Big SaaS Brand

So my prediction (which is a pure guess) is that SuccessFactors and Taleo finally get over their respective CEO ego issues and decide to merge.   Sounds a little crazy, but when you really consider their product portfolios, there might not be as much of an overlap as you might think.  SuccessFactors is basically a performance and analytics company and Taleo is a recruiting and learning (after acquiring Learn.com) company.  They both have some additional components that could be plugged into to create a more comprehensive suite of CPM and Talent Management offerings.

This would also create a combined company with a market cap approaching (SFSF + TLEO) $4B and annual revenues in excess of $400M, which would be the second largest SaaS firm in the market, and a clear leader in their space.  Another potential marriage might be Concur and Ultimate Software.

Oracle Finally Pulls the Trigger on NetSuite

It seems like most Oracle SaaS rumors involve the acquisition of Salesforce.com, and that may happen some day, but the more likely combination for 2011 is NetSuite.  Larry Ellison is a major investor in NetSuite (early investor) and own/controls more that 50% of the company’s shares.  He may come to the conclusion that he needs some real SaaS DNA inside of Oracle to help grow their Fusion business in 2011 and beyond.

SAP Throws in The Towel and Buys Leading SaaS Player

Similar to the realization that many other major traditional ISV’s will come to in 2011, that they are too far beyond in SaaS to catch up organically, SAP will buy their way into SaaS.  The Business ByDesign project for SAP, by some estimates, has cost more than $1 billion and there isn’t much to show for it.  I always thought that the Sybase acquisition was just a smoke screen to cover up how little progress has been made with BBD at their most recent Sapphire user meeting.   Like Oracle, I think SAP reaches out into the market and purchases a SaaS firm to jump start BBD.  RightNow would be an interesting choice since SAP wants to make a splash in the CRM market.

Master Brands Continue to March Towards SaaS

These big software companies are no longer just paying lip service to SaaS or the Cloud, they continue to catch up with the subscription software market transition that is happening everywhere.  All sizes of customers who were battered during the recession are no longer interested in spending a lot of capital and time that has been associated with traditional software projects and are becoming increasing comfortable with SaaS.  This shift in the Software market is massive and is going to take at least 10 years, and we are probably only in the second year (post-recession) of this shift.  Continue to look to see what SaaS moves firms like Oracle, SAP, HP, CA and Infor make in 2011.

Continued Explosion of PaaS offerings

Look at Salesforce.com’s recent moves to expand their Force.com Platform-as-a-Service portfolio with VMForce and then buying Ruby on Rails provider Heroku for over $200 million.  Beyond Force.com there are many other offerings here today and coming in 2011 including App Engine by Google, Apprenda, Azure by Microsoft, Corent, Engine Yard, Facebook, Flex by Adobe, Fusion by Oracle, Intalio, IPP by Intuit, LongJump, Nimbula, SuiteCloud by NetSuite, and Wolf Frameworks.

As long as traditional ISV’s continue to move towards SaaS, there will be a green field opportunity for all types of PaaS solutions. Look for several of these firms to be acquired in 2011 by larger ISV’s.

Salesforce.com Continues to Expand Beyond CRM

After attending Dreamforce this month, it was curious to see a number of Force.com firms offering ERP extensions starting to gain real market momentum. Companies like FinancialForce.com (they purchased Appirio’s PSE business) who are delivering a growing suite of financial and accounting applications, JobScience who continue to build out their Talent Relationship Management suite on Force.com, Less Software who is selling a targeted Supply Chain Management solution and even Remedy’s Service Desk offering, RemedyForce Cloud.   If Salesforce offers an attractive exit for any of these firms or their Force.com products, like they did with Heroku, then it might be possible to do a quick roll-up of key partners to create a competitive Cloud-based ERP solution.

Interestingly this type of move might be triggered by Oracle buying Netsuite or Workday going public.

Fake SaaS Firms That Use Private Clouds Will Loose Altitude

Although Private Clouds might be a viable alternative for enterprises who are looking to leverage the economics of the Cloud, for software companies this type of approach will only provide short term ‘Fake SaaS‘ types of solutions.  This type of business model of hosting single-tenant software was known as Application Service Providers (ASP’s) and none of these companies that emerged about 10 years ago were able to find a business model that really scaled profitably.   Private Clouds will offer a short term technology transition steps for software companies who are moving away from just offering traditional on-premise software but this trend will really start to fade by later next year.

New Revenue Streams for SaaS Firms That OEM

At Dreamforce ‘10 Salesforce.com announced that they are launching their new Database.com offering, a Database in the Cloud. What was interesting about this news is that Salesforce is really just reselling a private-label version of Oracle’s database technology.  For Salesforce this is a unique way to take proven Oracle software, designed for on-premise deployment, and create a true subscription-based version of this product.  No doubt that Salesforce will need to do some work to create a massive multi-tenant version of an ORACLE database and then deliver it as a service, but they are already doing this today through their Force.com platform.  This could be a significant new revenue stream for both companies and look for other SaaS firms to try OEM’ing their software as a way to improve their CAGRs in 2011.

This should be an interesting year as the economy improves and the SaaS market really begins to gain some serious momentum.  It should be a fun time to be in the Software business again.

Kevin Dobbs,  Montclair Advisors, LLC

By Kevin Dobbs

Montclair Advisors, LLC

Dreamforce 2010 was in San Francisco last week and there were a lot of announcements and it is only now that I am starting post my thoughts.   This post is going be around Force.com 2 and how Salesforce has rethought their approach, repackaged their platform and now have relaunced their PaaS.

This table provides a quick summary of how Salesforce has repackaged the Force.com 2 Platform.

What is interesting is that several of these offerings are just new packaging concepts and several are net-new products.  Let me walk you through the suite:

Appforce

This is basically the original Force platform using their proprietary 4GL, point-click-language APEX that has been repackaged as a departmental application platform.  What is interesting is that this environment is not just for departments, large enterprises like Japan Post and Thomson Reuters have done very large Cloud development projects using this platform.  I think that Salesforce realizes that due to its proprietary nature, most organizations will be attracted to Force.com but would prefer a more open and portable development environment.  Applications built with Appforce are also able to be easily integrated with Salesforce’s collaboration capability Chatter

.

Siteforce

This is a development environment specifically designed for building websites without having to write code. There was a great demonstration of how you can build and modify websites, even for mobile devices, using their drag-and-drop interface.  This will be popular with firms that do a lot of campaigns and need to design a lot of landing pages which can be tied back to Salesforce.  Like the Appforce products, Siteforce can be linked to Chatter to add social and mobile features to websites.  This was an existing capability inside of Force.com that has now been exposed as a new offering.  The marketing materials we were given state that there have been more than 20,000 website built using Siteforce.

VMforce

This platform is a result of a partnership with VMware, that opens up the Force.com platform to more than 6 million Java developers.  Using VMforce, developers can now run their Java-based applications on the Force.com platform, similar to what they would do it they were using Amazon EC2.  Developers can also use Java IDE’s like Spring or Eclipse as well as other open standards.  With my clients, this is a popular approach, it provides some leverage with existing Java-based apps as well as professional developers prefer to develop in this type of environment, rather than using a 4GL point-and-click product.   VMforce is currently in beta and will be ready for general availability in 2011.

Heroku

In a really interesting move, Salesforce went out an purchased a leading provider of Ruby-on-Rails for $212M in cash, $27M in stock and another $10M for un-vested employee shares.  Like VMforce, Heroku will offer developers a way to write applications using Ruby and then run them on Force.com.  The rumor was that VMware had made a run at the firm several months ago, but wanted to remain independent.  Marc Benioff in his keynote indicated that Heroku would remain independent from Salesforce, I am assuming in the way VMware has remained independent from EMC.  Several benifits for Heroku as part of Salesforce will be access to their 87,000 customers as well as their technology stack including Chatter.  Today, there are more than 100,000 websites and applications written using their platform including BestBuy and FlightCaster.

ISVforce

In another re-packaging move Salesforce has taken the Force.com platform and created a new program to help larger ISV’s to build their next generation applications on top of their PaaS.  This is a program that contains services and tools to help Independent Software Vendors to move their apps to the Cloud. Salesforce provides development services, trails and provisioning, connections to AppExchange and application monitoring along with their multi-tenant Infrastructure-as-a-Service.  Some early adopter ISV’s include Blackboard (who did a quick little demo), BMC (RemedyForce) and CA (Agile Vision).

AppExchange

Salesforce continues to promote their on-line application marketplace, which is similar to what Apple offers with their App Market, and how has over 1,000 applications available. Some interesting facts provided by Salesforce about the AppExchange include there have been more than 360,000 application test drives through the AppExchange, nearly 700,000 application installs and more than $1B invested in companies who are on the AppExchange.

Database.com

Another interesting announcement is that Salesforce has gone into the database business.  When I first heard this, I thought it wasn’t necessarily a good idea, but then I read that they were just repackaging a gigantic Cloud-based version of Oracle and selling the database by-the-slice.  Apparently Oracle thinks this is not a secure approach to selling databases, but let’s see how this all works out.  Amazon has something similar with their RDS offering.

The result is that Salesforce now has a suite of offerings that are designed to meet the needs to enterprise customers, software companies, professional and casual developers.  The strategic benefit of all of these offerings is to open up several new revenue streams for the company and continue their leadership momentum in the Cloud.

Last week’s Oracle OpenWorld show was quite an event with many different story lines including the tie-in to the Iron Man 2 movie.  In fact, in the main area outside the keynote hall there were three Iron Man suites along side their Exadata and Exalogic cousins.  So here is what we learned:

Cloud in a Box according to Marc Benioff and Larry Ellison.  There was quite a number of heated, yet humorous references to Marc Benioff’s (CEO at Salesforce) comments related to Oracle’s view of Cloud Computing that it has to reside in an Exadata box.  In fact in one session I attended, he even said that the Internet was not made of Cloud boxes that were even taller than Marc, and he is tall.  In the Sunday afternoon session, Larry was very dismissive of both Marc’s vision of the Internet and his book Behind the Cloud. If you have some time check out Marc Benioff’s OpenWorld keynote, very funny.

What is really interesting is that in many ways they are both right.  Larry is very famous about a his rant on Cloud Computing and that it is nothing more than a network, servers and software.  This is true, even the most Cloudy providers in the market like Amazon and Salesforce.com are dependent on a real infrastructure that can scale and is reliable and many of these firms are Oracle customers.

On the other hand, Marc is right that the Cloud is less about buying, building and maintaining this scalable architecture and more about leveraging a firm that provides their Infrastructure-as-a-Service.  This has been one of the main catalysts for the software industry’s move to a subscription business model or SaaS, just like Salesforce.com.

In some ways both companies are right, it just depends on your viewpoint.   I think that Oracle is thinking more like IBM and HP and Salesforce is more aligned to Facebook and Zynga. Even though Larry and Marc were both exchanging jabs last week, they are both customers of each other, and in the end that is good for all of their customers.

Mark Hurd looks like he fits in well with Oracle.  The keynote sessions where Mark presented, he was relaxed and really knew the material.   Given Oracle’s absorption of Sun, it is really helpful to have someone with Mark Hurd’s background helping Larry run the company.  The hardware business is quite different than running a software firm and Oracle was able to secure one of the best hardware executives in the industry from HP.

Oracle is really embracing the hardware world.  It was interesting to see the focus on the new Exadata and Exalogic products.  The company’s messaging revolved around performance, availability, security and management and not very much around applications or Cloud Computing.  A lot of discussion around hardware and software being engineered together to create these incredibly powerful database and middleware server platforms.  But does this approach raise concerns around ‘vendor lock-in‘?   This hardware-centric strategy makes sense because Oracle really views IBM as their biggest competitor and they need to monetize the Sun acquisition as well.

Fusion applications are coming at the end of the year, but not sure if anyone at Oracle cares. Larry told the crowd that the writing of the new Oracle Fusion applications for Financial Management, Procurement and Sourcing, Project and Portfolio Management, Human Capital Management, Customer Relationship Management, Supply Chain Management, and Governance Risk and Compliance.  These are the products that were promised last year at OpenWorld but they appear to be real at this point.  Although I didn’t attend the deep dive sessions for Fusion, others who did told me that they have done a good job.  At the Wednesday afternoon keynote, the demos of the products looked good and the user interface looks quite modern.

According to Larry the writing of the new Fusion applications was the biggest development project in Oracle’s history, it was interesting to see that there was little for no fanfare surrounding this major milestone.  As long as the Fusion applications sell more database and infrastructure software and more Exadata servers, I guess that’s what is important.   The successful roll out of the Fusion applications later in the year is going to be important for the overall software market but I doubt it will really impact the leading SaaS providers like Salesforce.com, Taleo, SuccessFactors or Workday.  It will be interesting to see how Oracle evolves its thinking about the applications market and it’s approach to the Cloud, because that is where all the growth will come over the next 5 years.

There were a number of keynotes at last week’s All About the Cloud conference that focused on Public and Private Clouds and the market. What was interesting is that the typical hype associated with Cloud Computing appears to be calming down. It seems like it is no longer necessary to justify or explain the Cloud, or at least for the audience at that conference. According to Gartner the Cloud Computing market will be $150B in IT spend by 2013 as compared to $56B in 2009 and is the #1 Strategic Technology for CIO’s in 2010

The new Cloud attitude appears to be more about ‘when’ and ‘how’ enterprises will be utilizing Cloud solutions rather than ‘if’.

Coexistence is ‘In’

The other interesting change, which I first noticed at the end of last year at both OracleWorld and Dreamforce, was that everyone seemed to be talking about co-existence or hybrid uses of the Cloud with on-premise assets. This more reasoned approach is going to make more sense to CIO’s and business executives to who have spend millions building out their infrastructure over the past 10 years. Cloud can be complimentary. Starting with fringe or edge applications and then over time becoming more useful for mission critical functions.

The Consumer Cloud

Tuesday’s press panel with [insert names] focused mostly on the use of the Cloud for consumer applications like Facebook, Google, Amazon, eBay and future offerings like iTunes LIVE and Microsoft Office 2010 (launched on May 12^th). Cloud is everywhere but the average consumer doesn’t even know they are in the Cloud. With the advent of ubiquitous broadband access, smart devices and massive data centers, there are all sorts of Cloud based consumer services emerging. But the market is still evolving because the Generation X’ers are plugged into the Cloud but as Kevin O’Brien from Oracle said in his session, ‘My mom still doesn’t know what the Cloud is’, and she is probably isn’t alone.

Private Clouds

There were many sessions that discussed how there is money to be made in the Private Cloud market. You can have many of the advantages of the Public Cloud without the security and control issues. IDC projects that by 2014, $11.8B will be spend on servers to create Private Clouds, considering overall IT spend in the US is approximately $1T, that’s not big percentage today, but it will be in the future.

Scared of the Cloud

Are CIO’s scared of the Cloud because of their potential for loss of control, security issues and resource impacts? Several sessions touched on this aspect of the Cloud Computing market including CIO’s creating hurdles to adoption.

Given the cost and scalability advantages why wouldn’t organizations like the State of California quickly adopt Cloud based solutions? What about the switching costs like decommissioning your own data centers, software and restructuring personnel. If you already own PeopleSoft and it is working, will you really be open to a Workday ‘rip and replace’ scenario? Enterprise organizations are warming up to the idea, just ask Flextronics.

One panelist cited a recent Google Docs deal that went sideways at UC Davis where they scrapped their trial for several thousand users. Maybe there were other considerations than the Cloud but most of the sessions agreed that the benefits of the Cloud outweigh the risks and CIO’s are starting to think in terms of intelligent trade-offs instead of just being against the Cloud. This is probably smart, given the recent economic conditions and every CEO is looking to optimize their IT spend.

Cloud 2010 and Beyond

Cloud is just the new thing. According to Bill McNee at Saugatuck Technologies, their most recent Cloud Computing survey indicated that 86% of the respondents thought that the Cloud would be part of mainstream IT by 2014.

There appears to be reasonable optimism that Cloud Computing is not a fad and its going to happen, it’s just going to be the way people are operating today in the future. The Google Docs business is adding 3,000 new companies a day, that doesn’t seem like a fad. According to Gartner, their Hype Curve for Cloud Computing showed that July 2009 was the peak and it really appears that the market is maturing about the Cloud.

Venture Capital firms are only funding Cloud-based start-ups and large technology companies like Cisco, CA and IBM are buying SaaS and Cloud based companies (like CastIron Systems) because they realize they need to overcome the ‘Innovators Dilemma’ around the Cloud. There will be an increase in successful SaaS and Cloud companies as the market continues to mature, as well as a lot more M&A activity.

As one speaker so aptly described the current market situation for many companies when evaluating Cloud Computing, ‘When a piano falling from the sky, you should be worried more about will it hit you not where it is while it is falling.’

On a recent client engagement I was asked to provide a simple set of definitions for basic terms and concepts around Software-as-a-Service and Cloud Computing (which I often use inter-changeably).   What was interesting is that there is a lot of buzz out there but I can see why people get confused because there isn’t a standard set of definitions.

So my Friday contribution to the SaaS industry I am publishing the Montclair Advisors’ SaaS Glossary of Terms.  I would be interested in your feedback on the definitions and if I miss any key ones.

When speaking with entrepreneurs and investors about the investment required to start up a new Software-as-a-Service company, I often refer back to this list.   At Montclair Advisors thought this would be a handy reference for those looking to start a SaaS company during 2010.

Looks like you might need a money tree to start a SaaS company, but for those that reach critical mass and go public, there is a tremendous payback.  This is information has been gathered from various sources including Wachovia, CrunchBase and Google Finance.

Given we are starting a new decade and many could argue that SaaS started in during the last ten years, I thought it would be appropriate to recognize leaders of the SaaS movement. Here are the winners of the Montclair Advisors 2010 SaaS Hall of Fame:

Most Influential SaaS Company:     Salesforce.com

Salesforce has have been the most vocal proponents of the SaaS business model for the last 10 years. They are also the largest SaaS Company based on revenues ($990M) and market value ($8.5B).

Most Influential SaaS Individual:     Marc Benioff

As the CEO of Salesforce, Marc has been the major evangelist for the past ten years. His recent book Behind the Cloud is a great primer for entrepreneurs who are considering starting their own SaaS Company.

Best Transition to SaaS:                  Concur (Steve Singh)

Concur was the most visible company to move their business model to Software-as-a-Service from a traditional on-premise model. He moved his company from a low of .90 a share to creating a company with revenues of $250M and a market cap of over $2B.

Biggest SaaS Acquisition:                 Omniture (Josh James)

Adobe purchased Omniture firm for $1.8B in October 2009.

Largest SaaS IPO:                              NetSuite (Zach Nelson)

The largest SaaS IPO so far is Netsuite’s public offering in December 2007 for $185M. This event made Larry Ellison quite happy since he owned more than half of the company.

Largest SaaS Deployment:              SuccessFactors (Siemens)

In 2009 SuccessFactors announced the largest SaaS applications deployment to date with Siemens where they will deploy their performance management software for more than 400,000 managers and employees.

Biggest SaaS Comeback:                     Dave Duffield (Workday)

After his company PeopleSoft was acquired by Oracle, Dave Duffield formed one of the most successful pure SaaS companies, Workday, designed to create the next generation of ERP solutions.

Most SaaS Customers:                       Salesforce.com

Since they are one of the original SaaS companies it is not hard to believe they would have the largest customer base but they are clearly much larger than any other SaaS company with more than 65,000 customers.

Most Influential SaaS Analyst:         Bill McNee (Saugatuck Technologies)

Bill, a Gartner Group alumni, has built his firm, Saugatuck Technologies to be exclusively focused on Software-as-a-Service and Cloud Computing for the past ten years.

Most Influential SaaS Journalist:          Phil Wainewright

Phil has been a blogger and journalist with many different publications including ZDNet doing a comprehensive job of covering SaaS industry events, companies and trends.

Most Influential SaaS Pundit:              Jeff Kaplan (THINKstrategies)

Jeff has been a very visible figure at industry events, associations, publications where he has promoted and commented on SaaS trends and players for the past ten years.

Most Influential Investment Firm:          Bessemer Venture Partners

Byron Deeter and his colleague Philippe Botteri published a very popular Top 10 Laws for Being ‘SaaS-y’ as well as having invested in many leading SaaS companies.

While walking through the exhibit area of Salesforce.com’s recent Dreamforce event in San Francisco, I was struck by large number of enterprise customers present and the low number of enterprise applications being marketed. I started to think about my experience earlier in the year helping my prior company successfully secure their Series B funding and why the word “enterprise” generates an immediate negative reaction with many venture capital firms when it comes to investing in SaaS providers offering enterprise solutions? When making the venture capital rounds earlier in the year to secure this additional funding, I was surprised by the polarity of views on enterprise applications for SaaS. One group of VC’s defined SaaS applications from a commercial market perspective … high transaction volume, low sales touch and low cost per transaction. To this group, SaaS and enterprise software were mutually exclusive. The other group of VC’s understood the higher costs associated with selling SaaS for complex enterprise requirements and saw the potential rewards. We successfully completed the funding with a group of VC firms in the later group. Their message to us was clear, we believe in the value of your business model but you must lower the cost of acquiring new customers.

The commoditization of SaaS is clearly happening in the small to medium size business market and for some enterprise market companies with relatively simple solution requirements. SaaS solution examples like Intuit’s Quicken Online and their new website building service are examples of the high volume, low sales touch, low customer acquisition cost business model. Some SaaS services offer free trials like Salesforce.com or open source downloads of their applications like Adaptive Planning to help move the prospective buyer cost effectively through the sales cycle. The sales “touch” of this style of selling is typically sending additional information via email, using web seminars and using telesales representatives to close the deal and complete the transaction. For prospective customers who need a straight-forward application that requires little or no professional services assistance for implementation, the cost of customer acquisition can be lowered significantly. It’s very understandable why some VCs only want to invest in the commoditization of SaaS with its high-volume and low-cost of sales. Can the lessons learned in this process of commoditization be applied to SaaS based enterprise solutions targeting companies with complex application needs or implementation requirements?

The answer is yes… and no. Certainly, the days of high touch enterprise style selling in the SaaS marketplace are not over yet but change needs to happen. Enterprise companies with sophisticated business requirements want to evaluate SaaS solutions but need a “high touch” approach to working with the software vendor. This typically involves lengthy requests for proposals, face-to-face meetings with executives, users and IT, customized demos, pilot programs and site visits to the vendor’s data center or reference accounts. I am sure that selling Salesforce.com to Dell or Successfactors to Siemens was not accomplished with just a free trial, web seminar and telesales rep. The challenge is in how to effectively start moving these more complex sales towards a lower customer acquisition cost business model. Here are ten ideas to reduce customer acquisition cost for a SaaS vendor to consider when selling into the enterprise market …

1) Develop, document and articulate a high impact solution methodology that can provide a prospective enterprise market customer with a clear roadmap on how the SaaS application integrates into their business requirements. A solution methodology typically involves documenting how real world business processes map to the SaaS solution and how the SaaS solution can be successfully implemented without the need for extensive consulting.

2) Use web marketing effectively to improve the quality, quantity and impact of information for the enterprise company buyer. Answer the prospect’s questions before they ask them using Flash based graphical displays, testimonials, videos, structured demos, FAQs and case studies. Web based training materials can be very instrumental in helping a company though the evaluation process.

3) Leverage social networking techniques and processes to allow prospective customers to tap into the collective knowledge of your customer base to help them through the purchase process. Of course, this implies that you are maintaining very high levels of customer satisfaction and you can filter information as needed. Suffice to say, there’s an inverse relationship between customer acquisition costs and customer satisfaction.

4) Use web conferencing technology as an alternative to on-site visits. The quality of web conferencing for both audio and video has improved dramatically over the past few years while dropping in cost. Using web conferencing to stage demos for more than one prospect also helps to reduce selling costs.

5) Organize group visits to data centers or training facilities. A large enterprise company that I worked for a few years ago would stage CIO conferences that included a visit to their data center so they could reduce the number of one-off site visits. This also allowed prospective buyers to meet and network with key vendor staff and existing customers.

6) Focus on cutting the cost of lead and opportunity generation. It’s all about conversion rates…. lead to qualified sales opportunity, sales opportunity-to-close. For SaaS-based applications designed for defined markets, target marketing to specific market segments can be much more effective than broad-based marketing to diverse market segments. The velocity of conversions from responses to leads or leads to opportunities has definitely slowed through the course of this recession. Improving the conversion rate from leads to opportunities by using lead scoring and lead nurturing techniques can significantly improve the ROI of marketing programs.

7) If you can’t measure it, you can’t manage it. Taking a disciplined approach to using CRM, analytics and marketing automation to measure, monitor and manage sales and marketing results is key to cutting customer acquisition costs. If you don’t know what your pipeline metrics or your customer acquisition costs are, I doubt if you will be able to manage them effectively.

8) Know a duck when you see one, particularly when it comes to enterprise sales. Actively manage the sales cycle and accurately access the reality of each sales situation. Chasing enterprise deals that are not properly qualified will most likely not close and will dramatically increase your customer acquisition cost.

9) Drive your order processing costs down. Make your pricing and contractual models easy to access and understand. Complex pricing and contracts beg for long and costly negotiation cycles. Utilize SaaS focused billing solutions from companies like Dreamforce exhibitor Zuora to help simplify the process and reduce costs. One company that I spoke to at Dreamforce told me that their internal cost to process an individual order exceeded a thousand dollars.

10) Automate as much of the implementation and data integration process as possible, articulate an implementation methodology and make configuration an end user process. This is a significant challenge for SaaS based enterprise solutions because implementations are typically complex and there is a large quantity of data that most be extracted from an in-house system, transformed and loaded into the SaaS solution. Without an efficient process or tool set to simplify implementations, the cost of sales goes up because the sales cycle is extended to explain and build confidence that the prospect’s requirements can be successfully met.

Implementing any number of these ideas will help to lower customer acquisition cost. Years ago, Salesforce.com successfully competed against Siebel Systems in large enterprise accounts by following a number of the ideas mentioned above. They showed that a complex enterprise application could be sold and delivered more cost effectively using SaaS than its licensed based counterpart. Companies like Salesforce.com and Successfactors did not turn their back on enterprise sales with its implicit high customer acquisition costs but instead adapted their sales model to lower customer acquisition costs by leveraging a balanced approach to telesales and field sales, web marketing, social networking and their most important asset… satisfied and successful customers. I doubt that selling a SaaS based application to an enterprise company with complex requirements will ever become a true commodity sale but customer acquisition costs must continue to managed and reduced. As customer acquisition costs are reduced, I am confident that VC community interest in SaaS-based enterprise solutions will soon increase.

This week’s Smart SaaS blogger is Gary Damiano.
He can be reached on LinkedIn or at gedamiano@gmail.com.

Last week at Salesforce.com’s Dreamforce conference, it was interesting to see how their Platform-as-a-Service offering, Force.com is starting to gain momentum among the Independent Software Vendor community including Computer Associates and BMC Software.

What is clear for traditional software providers who are starting think seriously about getting into the SaaS and Computing arena, it might be cheaper and faster to use a partner platform than trying to re-invent the wheel.  Both CA and BMC have resources to rewrite their older applications but it isn’t the cost that seems to drive them it is the time to market.  Force.com can provide a real advantage to software firms who have the domain expertise but lack the infrastructure and skills required to write Cloud and SaaS-based products quickly.

Other interesting aspects are that traditional ISV’s are not rewriting the old applications they have, they are re-inventing these applications leveraging newer development techniques.  CA’s Agile Planner is actually filling a hole in the company’s product portfolio and could be a logical cross-sell or up-sell product for them. BMC’s Service Desk offering is designed to dove tail with Salesforce’s Service Cloud 2 offering, and provide something else ISV’s are looking for, leverage.

I am sure that many traditional software firms will have the internal discussion about build, buy or partner their way into SaaS.  Up until recently there hasn’t been a good partner alternative for ISV’s who wanted to build their own solutions but were looking for a partner with SaaS and Cloud Computing expertise.   Even though rumors abound about Oracle looking to buy Salesforce, firms competitive to Oracle like CA and BMC are dipping their toes in the water.

For these firms leverage doesn’t just stop at the platform, Salesforce delivers a very effective go-to-market capability that few other partners can offer.  Witness the 19,000 participants at Dreamforce.  This type of reach and ability to get IT and business buyers attention might make a bet on Force.com worth the risk.  More importantly, these firms are also looking to bridge their older brands to the Cloud by bridging the Salesforce brand power.  CA and BMC aren’t the only firms interested in upgrading their image how about Dell, Callidus, Fujitsui (Glovia) and the momentum is growing.  According to the AppExchange, there are currently more than 200 native Force.com applications currently available.

While at Dreamforce I spent some time with the FinancialForce.com team at the booth and this is a really interesting story.  FinancialForce.com is a wholly owned subsidiary of a European software firm, Agresso and their CODA division.

FinancialForce.com was started about three years ago at the time that Salesforce.com initially launched the Force.com platform. Jeremy Roche the CEO at FinancialForce.com, reached out to Marc Benioff to just learn on how to build a net-new SaaS product and learned about their platform. They had a number of discussions and then finally decided to build their new accounts receivable product on Force.com in 2006.

The CODA team started out by building an integration connector Saleforce.com and the CODA2Go (On-demand version) of their Accounts Receivable module. They wanted to understand how the products worked together and that required workflow between products. It took them about a year to get comfortable with the Force.com platform, there were issues that were specific to complex ERP-like applications but Salesforce was responsive and did update the platform to support these deficiencies.

Once the new company was formed, FinancialForce.com, CODA then built out an Enterprise Service BUS (ESB) to connect their SaaS solutions with their on-premise solutions. One of FinancialForce.com’s early customers, a UK-based newspaper, were using Salesforce for their CRM requirements and CODA for their back office financials but were custom developing an invoicing/AR solution. When approached about the FinancialForce.com AR module as a possible solution, what was appealing to the customer that this solution was able to integrate to both Salesforce.com and CODA. About 6 months ago FinancialForce.com also launched their General Ledger and Accounts Payable modules and now they have a solid SMB mini-financial suite.

As more partners begin building and launching applications and businesses on top of Force.com, it is clear that the momentum is building.

Last week at Salesforce.com’s Dreamforce conference, the big news was around the launch of the new business collaboration set of platform capabilities called “Chatter”.

After updating the audience on Service and Sales Cloud 2, which both had some really cool new capabilities, Marc Benioff announced the latest Cloud offering – Chatter or the Collaboration Cloud.

This new business collaboration offering, which was never to be confused with Social CRM, consists of a wide range of Chatter platform capabilities. Many of which look very similar to Twitter, but don’t get confused, this is NOT Twitter. Although Chatter will be integrated with popular social networking sitesl like Twitter and Facebook, these integrations are only feeds into Chatter.

The key line that kept getting repeated was “Why do I know more about strangers on Facebook than I do about my own employees?” This apparently was a major driver in the development of Chatter by Salesforce.

On a funny note, during the analyst meeting, someone asked Marc if he was going provide Chatter on-premise? (Remember Salesforce is in the Cloud!) In a sarcastic reply said that he was actually packaging up the Exodata Chatter servers and that they were being shipped out to clients at the time of the launch. That got a big laugh from the audience. This was also humorous because Chatter won’t be Generally Available in the Cloud until sometime in 2010.

Key capabilities include employee profiles, status updates that are familiar with LinkedIn and Facebook, Groups, external and internal feeds, ability to share content with groups and events, alerts and notifications that allow for your apps to speak to you, an extensible API for the Force.com platform, integration with Google Docs, Twitter and Facebook. To learn more watch this Chatter demo by Parker Harris, Salesforce.com’s EVP of products of the opening day keynote.

Unlike other emerging business-related Social CRM players like Jive Software (SAP partner), Lithium, RightNow or even Oracle, Salesforce seems to be focusing much of it competitive energies against Microsoft SharePoint. I think this is probably a red herring.

Another major benefit to the Chatter strategy is the addition of a new Salesforce mascot family. Saasy now has Chatty. People were lining up to get their photo with both of these mascots… wow.

Here’s what I think the real Chatter strategy is based on…

• Stickiness. This is a ‘fun’ business application and if it is widely adopted as a business collaboration tool, it will be hard to replace. This process may take awhile for this adoption to take place but it will have lasting impact on their clients. The flip side to stickiness is that customers will be much less likely to cancel their service if they are hooked on it. With industry attrition averages between 10-20%, this could have a real hidden benefit. This is especially interesting in that they are giving the basic Chatter capability away with the basic and enterprise subscription licensing. Wonder if they have modeled out this impact?

• Barrier to entry. I think that it is interesting that Salesforce is thinking that this capability might actually upset Oracle Fusion and SAP’s next generation of SaaS offerings because it would require a rewrite of their core platforms. Actually this might make it more likely that SAP might do more than expand their partnership with Jive Software, and force them into a situation where they might have to buy them to keep up with the Benioff’s. With Fusion targeted for GA some time in 2010 (probably December), if they were to add in a robust collaboration capability, it would most certainly delay the GA, which would push Fusion into 2011. So Chatter becomes a key differentiator for Salesforce, even if it experiences low user adoption.

• Facebook and Twitter. By aligning themselves with these leading social networking platforms, Salesforce will be able to differentiate their solutions as hip compared to the older generation. With all types of younger workers continuing to move into the market, this makes Salesforce solutions possibly more interesting to the Generation Y workforce.

• Productivity. By putting collaboration (email, chat, document and knowledge management) in context to various business processes, the hidden strategic benefit might actually be a more productive workforce – closing more deals, resolving more issues, and engaging more employees. Because this is a solution that doesn’t need any training, it could be rolled out broadly without a lot of costly change management activities. Difficult to quantify this benefit but as more use cases become exposed over the next 6-12 months, this will be a really interesting benefit to solutions like Chatter.

So what are the issues with Chatter?

• Security. Kept emphasizing that Chatter has been built on a common security architecture that is the same one being used by Salesforce, which meets stringent bank-level security requirements. This actually might be a CIO selling point because it might be a way to reel in employees who are social networking with corporate information on unsecure sites like Facebook and Twitter. By integrating with them but controlling the internal networking, and not allowing export of data to these sites, the security teams can at least protect data access and distribution.

• Adoption. Salesforce has never really launched a enterprise-wide application before and Chatter is even a different animal than a traditional employee-oriented application. This is uncharted territory for Salesforce and it is unclear how rapid or widespread the adoption of their technology will be. What is good is that Marc Benioff did mention that they are not making any projections on what is going to happen with Chatter, they figure it will be popular but were reluctant to make predictions based on wide-scale adoption. It is in Salesforce’s best interest to make sure Chatter is successful because even modest adoption would ensure a level stickiness that their current applications may not even enjoy.

Just try and take away someone’s Facebook and you will understand stickiness!

If employees only want to use Twitter, they probably won’t like Chatter.

So how much does it cost? For existing Salesforce customers who have already purchased seat of Sales or Service Cloud, those seats will get Chatter at no cost, which is good deal. For those employees who don’t have Salesforce seats but want to have limited access to Chatter, the pricing is $50/seat/month. After talking to a product manager on the Dreamforce show floor about this, it seems like a lot of money for almost no functionality. My guess is that when they roll out Chatter later in 2010, they will have a better thought out plan around pricing

In the end, the Chatter strategy makes a lot of sense. The customers I spoke to about it really like it and I will anxiously await the official launch in 2010.