Company:                Magic Software Enterprises Americas

Started:                   1990

Located:                  Or Yehuda, Israel

Geography:             Global

Market:                   Multiple-mode application platform and business process integration solutions

Products:                uniPaaS and iBOLT

Key Customers:     Adecco, Adidas Canada, Allstate, BNP Paribas, CBIA, Clinical Financial Services, Club Med, DHL, Manpower, Praxair and Vodafone

Website:                 Magic Software Website

Blog:                      Magic Software Blog

Twitter:                  @MagicSoftware

Recent News:

Magic Software to Partner with Astadia

Magic Software Sells Company Office Building for about $5.2 million in Cash

Tecan integrates SAP R/3 and Salesforce.com using Magic Software’s iBOLT Business Integration Platform

Clinical Financial Services Uses Magic Software’s iBOLT to Manage and Integrate Critical Business Processes for Cloud Computing Infrastructure

I asked Regev Yativ, CEO and president of Magic Software Enterprises Americas a few questions about his business and his view of the SaaS market in 2010.

Did you start out as a Software-as-a-Service company?

No we are a mix of SaaS, Cloud and On-premise solutions. Our company is almost 25 years old, and has been public (NASDAQ: MGIC) since 1991, with millions of users, 2,500 partners, 12 physical offices worldwide in 50 countries and through our distributors and partners.

Magic Software is everywhere, our headquarters is in Israel but most of the company is outside of Israel. In the United States alone we have 400 active partners and a large customer community.

Why do your customers buy from Magic Software?

Magic Software’s products can help our technology customers, if their client starts with client/server technologies; Magic gives them multiple product options including solutions for the Cloud. Magic is not a Force.com-type of Platform-as-a-Service (PaaS) provider, but we offer various development and deployment environments because customers are looking for a single, integrated way to manage all of their environments.

We offer two main technology platforms uniPaaS (formerly eDeveloper), which is a business application platform that provides a multi-development language environment. Our customers like uniPaaS because it offers the power of choice by allowing them to re-use all different types of their software, no matter what language it was written in. This means that their software can always be relevant, because Magic offers complete backward compatibility.

Our second platform is iBOLT, and Enterprise Application Integration (EAI) Business Process Management System (BPMS) platform, which allows customers to connect everything to everything including popular systems from Salesforce.com, SAP, Oracle and Siebel, for instance. We are finding more integration projects are moving to the Cloud, so our iBOLT, allows for a simpler way of connecting systems. iBOLT is fully integrated with the Cloud. SAP uses Magic iBOLT with their Business One application, Quest and IBM uses the platform to connect to JD Edwards products, even those running on S/400 hardware.

Customers see the clear value of Magic Software’s products for re-using or modernizing old products that have been written in ancient languages like COBOL and being able to move it to the Cloud.

At recent Cloud Computing tradeshow in San Jose, Yahoo! released a new Cloud Computing protocol. Their customers were concerned about having to rewrite their applications but Magic was working on a transparent OEM deal including bundling a full Business Intelligence capability embedded into the platform. This way Yahoo’s customers could leverage the new protocol while harvesting customer information by using the included BI capability, that’s value.

One of our insurance customers told me that by using Magic Software, they no longer feel that their vendors can force them into technology dead ends. It will keep their software investments relevant for longer periods of time, which is key to their company’s success. We believe that co-existence is the right business model, which means that our customers can use either SaaS, the Cloud or On-premise, and it is still their choice.

What do you see as the key trend emerging in the SaaS industry?

I see three trends that everyone is talking about. The first one is Cloud Computing and there is a lot of hype around all the players, languages and environments. The second one we see is Software-as-a-Service and all of the new applications emerging. The third one is Co-existence, which allows customers to have the environment they need for their business and they can have a spectrum of solutions including SaaS.

What is your outlook for 2010?

2009 was a year that we are glad to get behind us, even through we were profitable, and we still had to be very cautious with expenses.

We are now starting to see customers and partners are waking up. Things are getting a little bit better and we are looking to the middle of 2010 for the real recovery.

Crisis and the eventual recovery are good for companies like Magic because we deliver robust technology for innovation and improved business efficiency. Customers are looking for products that help them innovate and we provide products that help to open up new business opportunities, like our new products for the mobile market.

At Magic Software, our company spirit and mentality puts our customers first and in tough times this re-enforces our commitment to our customers.

Company:                OpenAir, a NetSuite Company

Started:                    1999

Located:                   Boston, Massachusetts

Geography:              Global

Market:                    Cloud Computing PSA Solutions

Products:                OpenAir Business Development, Resource Management, Project Management,

Knowledge Management and Project Accounting

Key Customers:       American Federation of Teachers, Clickability, MetricStream, Model N,

PreVisor, Selectica, State of Oregon, and SupportSoft

Website:                    OpenAir

Twitter:                     @OpenAir

Recent News:

OpenAir Powers Strategic Consolidation of Business Systems at BearingPoint and Streamlines the Services Delivery Process

OpenAir CEO Joins SIIA Panel to Discuss Growting a SaaS Business Internationally

OpenAir Launches OpenAir Connect for SAP, Oracle and Salesforce.com

Professional Services Automation Leader OpenAir Expands Footprint in India with New Strategic Partner

I asked Morris Panner, OpenAir’s CEO a few questions about his business and his view of the SaaS market as we move into 2010.

Did you start out as a Software-as-a-Service company?

We started the company in 1999 and were one of the original Software-as-a-Service pioneers like Salesforce.com according to Phil Wainewright who was at ASP News at the time.

Professional Services Automation or PSA started out because the world economy was moving to more of a Human Capital intensive market. Companies where beginning to leverage talent wherever they could get it through outsourcing, consulting and all types of value added professional services. Product companies were also evolving into services companies that were trying to solve all types of complicated business challenges. Companies like PRTM, a global strategy firm, Lafarge Cement, Siemens, AstraZeneca, Software AG, Progress Software and BMC were all evolving into product and services companies.

All the OpenAir founders came out of a variety of professional services organizations and we realized at that time, there were no good ways to manage complex, global services projects, especially using spreadsheets and email. Then the Internet came along and OpenAir saw this market need, where existing companies were struggling, then we refined our strategy and began developing products to meet this opportunity. There were other PSA firms at the time, including Niku, who moved into IT management, but the overall PSA market space was and continues to consolidate around fewer, larger players.

About 18 months ago, Zach Nelson, the CEO at NetSuite approached me and we agreed that the market was moving towards not just SaaS-based Enterprise Resource Planning (ERP) market but to a Service Resource Planning market. At that point we agreed to merge the companies and since then we also acquired QuickArrow and now the OpenAir PSA segment of NetSuite comprises more than 1,000 customers and 85,000 users globally.

Why do your customers buy from OpenAir?

We think our customers are looking for a knowledgeable, long-term PSA partner. This type of partnership is very different than an infrastructure or transaction-type of software relationship, because professional services is it is really complex business process software. Our customers expect us to bring them our specific professional services domain expertise to help to make their businesses operate more efficiently.

For example, when we launched in Europe, we did a presentation to Siemens in Barcelona. They had SAP but didn’t like using their platform for managing complex services. Siemens wanted to select a services- oriented software platform that was referenceable with large enterprises like theirs. OpenAir’s difference wasn’t just the platform; it was our deployment approach for enterprise customers as well as our people.

Being a SaaS player is also an advantage because you don’t have to install anything, which saves our customers time and cost. This especially important for large global companies, because the types of services problems they face are distributed and complex, so SaaS just makes a lot of sense for them. Typically our customers are probably using Oracle, SAP platforms or even email and spreadsheets, to manage their services projects, but they aren’t easy-to-use  or efficient solutions.

Our partnership with NetSuite has definitely helped us step on the gas with regard to new customer acquisition. Zach really understands markets and how they evolve, which is why he choose to work with OpenAir.  Services and consulting executives are at the center of this market shift to a Service-based economy and OpenAir is helping them improve their businesses.

What do you see as the key trend emerging in the SaaS industry?

We see the major drivers as Cloud Computing and the shift from a manufacturing-based economy to a people and services-baed economy. OpenAir’s Cloud-based solutions are going to do for the service economy, what is what SAP did for the manufacturing economy.

NetSuite is making a big bet on Professional Services Automation and now have put the resources behind our Service Resources Planning approach to the market.

What is your outlook for 2010?

Even though last year was difficult for most software companies, 2009 was a great year for OpenAir.

As we look to 2010, growing our talent is the key to the success of our company and we will continue to build out our capabilities in Boston, Austin, London and the Philippines. We doubled our headcount in 2009 and we building a great team.

We’re very thankful for our good results in 2009 and 2010 looks to be on track for us.

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.

Company:        Clarizen

Started:            2005

Located:           San Mateo, California

Geography:      Global

Market:             Online work and project management software

Products:          Online work and project management software

Key Customers:     AutoDesk, Clara, Enlaso, Fortinet, Lenovo, NBC Universal, NEC, O₂ and UPS

Website:            Clarizen Website

Blog:                 Clarizen Blog

Twitter:             @Clarizen

Recent News:

Clarizen Secures $8M in Financing From Leading VCs

More than 100 Service Providers Enrolled in Clarizen’s Vendors Connect Initiative

Leading Analyst Firm Names Clarizen as One of the Innovative Applications Companies
Under $100M to Watch

Clarizen Reports More Than 100 New Customers in Q3 2009

I asked Guy Shani, Clarizen’s vice president of Sales a few questions about his business and his view of the SaaS market as we start 2010.

Did you start out as a Software-as-a-Service company?

The company was started four years ago by a group of executives who had come from a company called SmarTeam, that specialized in enterprise Product Lifecycle Management (PLM) solutions.

The idea for Clarizen came after SmarTeam was acquired by Dassault Systemes and IBM. During the 10 years we all worked at SmarTeam, we built very expensive, heavy, customized enterprise project management software solutions. But after talking to our clients over the years, we began to realize that they were looking for lighter weight enterprise solutions on a different platform, and this is when we started looking into Web 2.0 technologies.

At Clarizen we began to evolve project management into work management. This involved a more active way to manage both structured and unstructured work activities. Work management revolved around resource loading, document management, and all types of communications involving wiki’s, bug tracking, expense management and time sheets. The traditional way to do project management was more related to planning and less about activities and execution.

During our transition away from an on-premise company mentality to starting Clarizen we learned many lessons the hard way. One of the core beliefs of the company is that we have to measure everything, and in my area of sales, we track all campaigns, conversion rates and gates, average sales cycles, adoption and churn rates just to name a few of the metrics we monitor. We also track all of our costs – costs per lead, customer acquisition costs and many other metrics. The on-premise model of sales was all based on relationship selling, where as the SaaS model is much more about endless testing and monitoring what works and then doing it again and again.

We have been funded by very well-known venture capital firms including Benchmark Capital and Carmel Ventures who is based in Israel. In December 2009, we announced our ‘C’ Round of funding of $8M, which was led by our newest investor DAG Ventures, who is based in Silicon Valley.

Why do your customers buy from Clarizen?

Main reason was our new idea around a lightweight work management solution, that no provider was really focused on delivering. The market has been traditionally dominated by Microsoft Project, which is a very static way to view projects, with little or no collaboration capabilities. Clarizen was developed to be collaboration-oriented. This worked well with our customers who are working in a cross-organization frameworks, especially outside just their own organization, which is challenging for a standard on-premise software solutions.

Our competition breaks into three different market segments; High-end enterprise solutions, that are highly customized like Primavera and Computer Associates; Lower-end unstructured collaboration tools like WebEx, BaseCamp, Zoho, many which are free; and Mid-market products that embrace both on-premise and hosted deployments, solutions like Daptiv and @Task which are targeted toward the professional project manager.

Clarizen is a scaleable, mid-market SaaS solution that is easy to use, serving the needs all employees who are involved in projects inside the enterprise.

The SaaS lessons we learned included that in order to be successful we needed to have wide user adoption, so our solution needed to be easy to use. This was also important because we would have a hard time training everyone who might want to use the system, so it needed to be a product that could be learned in five minutes. The other reason adoption was critical is that you wanted users to update their project status and completion, so we developed techniques like our email notifications that look like Microsoft Outlook invitations that encourage users to update their status. This type of interactivity makes the systems not only easy to use but the reporting much more reflective of how work and projects are actually progressing.

What do you see as the key trend emerging in the SaaS industry?

Many companies have tried to run a thin client, Web-based project management application solution over the past 10 years, not many have been successful. 2010 enterprise software buyers are now really looking at SaaS – for a serious and scaleable work management solution.

As we learned over the years, work management is an entirely different market, with different buyers, than trying to sell high-end, customized engineering solutions. Customers would always complain how long it took to implement our software, which was painful and a big business challenge we were constantly dealing with at SmarTeam. Things needed to be simplified. Our realization was that it wasn’t the solution that we were delivering but how we were delivering it that needed to change.

Based on our experience with on-premise approaches to project management, we definitely liked the Web-based approach and that’s why Clarizen started out as a SaaS company, which is what the market is looking for in 2010.

What is your outlook for 2010?

Customers are looking for real business savings, for friction-less solutions and functionality that is broader than today’s current on-premise offerings. Clarizen can offer a more flexible work management solution that addresses this unique business opportunity in the market.

Now with our recent funding, we have proved that we not only know how to build a SaaS machine but also by running our business by KPI’s and performance indicators as I mentioned earlier, we can fine tune and logically expand our business. This is why we have experienced a 400% growth in our subscription sales, since last year,  even in this very difficult economy.

Happy New Year!

In February Montclair Advisors launched our SaaS Business Profile Series and have been focused on covering as many SaaS companies as possible during 2009. As it turns out we were able to profile more than 30 SaaS companies of all types including pure SaaS firms, Cross-Overs and Hybrids!

We would like to thank all of the executives and companies that participated during 2009 and we look forward to continuing to follow their progress during 2010.

What we learned from these thirty-four profiles:

• SaaS is an evolving business model - It is still a new concept and few firms are running a pure subscription software models. Beware that there is still a lot of “Fake SaaS” out in the market overall.
• There are many variations of SaaS - these variations are based on the company’s starting point, the market they serve and the types of products they sell. Interestingly, Salesforce.com is actually not a very representative SaaS business model for the broader market.
• It takes time to build a real SaaS company - For many SaaS firms it takes up to 7 years to reach breakeven and nearly 10 years to ultimately gain scale with their business model.
• Cross-over providers will still need to hold onto their on-premise legacy for the foreseeable future, because it is hard to switch customers to SaaS all at once.  It is also difficult to upset your maintenance revenue streams, especially during tough economic times.
• The Great Recession has permanently changed the Software buyer’s behavior towards SaaS due to the lack of available capital. When you see SAP and Oracle and many of these profiled ISV’s moving their businesses to SaaS, you know it isn’t a fad.
• Penetrate and Radiate. The successful SaaS firms have started small, with easy to sell, easy to consume solutions.  They then develop additional software, services and content solutions to sell back into their installed base.

Here is an overview of the thirty-four companies Montclair Advisors covered in 2009:

Profiles by SaaS Category

Pure SaaS:        15     Started out and only offer SaaS subscription services

Cross-Overs:    11      Started out as on-premise, but have fully transitioned to SaaS

Hybrids:             8      Continue to offer SaaS services AND on-premise software

Public vs. Private

Public:               6

Private:             28

Profiles by Age of Company

0-5 Years:         9

5-8 Years:        10

8+ Years:         15

M&A by Companies

Sell-side:            2    Mint.com by Intuit for $170M and QuickArrow by NetSuite for $20M

Buy-side:           4    Lithium Technologies (Keibi Technologies), RightNow (HiveLive), Taleo

(Worldwide Comp), Xactly (Centive)

Fundraising Public & Private

What was also interesting to see is that even in the toughest economic climate since the Dot Com meltdown, that many firms that were profiled were able to raise capital in both the private and public market places.   The big winners were SuccessFactors who raised more than $200M in a public offering and Workday, raised an impressive $75M private round that was led by New Enterprise Associates.  As the economy begins to turn in 2010, expect to see more SaaS firms going back out to raise growth capital.

We hope these profiles have been helpful to our readers and we will continue to profile interesting SaaS firms in 2010, because we learn a lot about our emerging industry and we will continue to build back into the Montclair Advisors advisory services that help our clients become successful SaaS companies.

Please let us know what you think, because we would welcome any ideas on how to improve the Saas Business Profile Series for 2010.  Just drop me an email at kevin@montclairadvisors.com.

Company:        Boomi

Started:            2000

Located:           Berwyn, Pennsylvania

Geography:      Global

Market:             Integration Platform-as-a-Service

Products:          Boomi Widgets and Boomi AtomSphere

Key Customers:   Puma, Kodak, Ingres, OpenTable, Global Forex Trading, Siemens, Electronic Arts

Website:            Boomi

Blog:                 Boomi Blog

Twitter:             @Boomi

Video:                Bob Moul, CEO Boomi at SIIA \’09

Recent News:

Taleo Business Edition to Embed Boomi’s Cloud Integration Technology

Salesforce.com Community Chooses WebEx Integration as Next Boomi Widget

Boomi AtomSphere to Power Integration Services for OpSource Cloud

Boomi Announces Integration Widget Challenge for Dreamforce ‘09, Salesforce.com’s User and Developer Conference

I asked Bob Moul, Boomi’s CEO a few questions at Dreamforce ’09, about his business and his view of the SaaS market as we move into 2010.

Did you start out as a Software-as-a-Service company?

We originally started out as an on-premise software company but completely rebuilt the company and our products as a Software-as-a-Service offering beginning in 2006.

Why do your customers buy from Boomi?

For direct customers, it’s the ease of use, no maintenance costs, affordable pay-per-connection pricing and rapid time-to-value. For our ISV partners, we remove a huge sales barrier, increase their win rate and sales velocity as well as speeding up their implementations. For our Systems Integration partners, they get one centralized platform to implement and manage all of their customers and the ability to generate a recurring revenue stream.

What do you see as the key trend emerging in the SaaS industry?

Adoption of SaaS and Cloud software solutions by the enterprise - and for more than just storage and spare processing capacity. Enterprises are begging to move business applications to the Cloud, which of course requires orchestration of processes and integration of data among disparate applications and networks. Major enterprise software companies are moving to the Cloud in a big way including Microsoft, IBM, and SAP. The industry is picking up steam post economic melt-down.

What is your outlook for 2010?

With the economic recovery, the rate of SaaS and Cloud adoption will accelerate rapidly. This is the year the enterprise steps into the cloud in a major way. We are excited to be leading the way in cloud integration which we see as a key enabling technology for the rapid adoption and expansion of the cloud computing industry. At Boomi, we are very bullish on 2010.

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.