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I often hear the question, “What is the difference between Software-as-a-Service and Cloud Computing?” The answer is that the Cloud is a utility based resource that companies can use to deliver software and services. This can sometimes even be more confusing when Cloud Computing is referred to as Platform-as-a-Service. SaaS is really the business model associated with the delivery of that software and services.
Until recently, it was a difficult for both customers and SaaS providers to use the Cloud to deliver robust, enterprise-class solutions because the Public Cloud was not really industrial strength. There are real issues in using a Public Cloud solution for your SaaS offering today including security, integration, manageability, data location, auditing, reporting and overall compliance.
Computer Weekly - Top Five Cloud Computing Security Issues
ComputerWorld - Twitter Breach Revives Security Issues with Cloud Computing
One scary revelation that I heard recently is that the same billing system that is used in Amazon’s EC2 service is also the one that is used to buy that big screen TV at Amazon.com. That might turn out to be an issue if you were trying to maintain your SAS70 or Sarbanes-Oxley certification.
There have been a lot recent announcements regarding new Virtual Private Cloud offerings over the past few months by Amazon, OpSource, Savvis, GoGrid, Sun, IBM, Rackspace because the market is looking for a better alternatives to the Public Cloud. Some of these Private Cloud offerings are more advanced than others, but the Cloud Computing providers are now moving in the right direction by offering solutions that are hardened to be much more acceptable to enterprise customers. SaaS providers are also in need of truly reliable infrastructure solutions too, because they have to support their customers with robust SLA’s, especially for their enterprise customers.
Why SaaS providers are happy is because this type of enterprise Infrastructure-as-a-Service approach helps companies:
- Innovation. It should be possible to try out a new product ideas with a small beta communities and if their tests work, then they can very quickly ‘productize’ them. Because of the lower cost and rapid availability of resources it should make innovation process more productive. How often do I remember working with someone on a Friday afternoon and them spending their entire weekend building out their idea. Now with this type of utility computing approach you can take it from concept to rollout much faster.
- Faster time to value. Based on the Private Cloud product that I recently saw demonstrated, you can initially set up a secure, multi-tenant instance of your favorite infrastructure in less than 30 minutes and then create additional instances in just a couple of minutes.
- Security. Being able to leverage infrastructure that can pass muster when a customer’s Chief Security Officer is reviewing your offerings. Even some small and medium sized businesses are publicly traded and operate globally and even these smaller firms have the same types of compliance and regulatory constraints that large companies have. Private Clouds will make using a Cloud-based infrastructure more realistic for SaaS firms selling to these types of organizations (ie. most of them).
Then there are all the other benefits of pay-as-you-go and scalability that come with Cloud Computing, which are always of value to a SaaS company.
For software companies who haven’t already rewritten or moved over to a SaaS model already, a Private Cloud may offer other benefits. There are still many companies who are concerned about not being able to offer a multi-tenant, SaaS solution to their customers and prospects. Leveraging a Private Cloud type of infrastructure for these non-SaaS software firms, allows them to develop a migration path to SaaS that is much more affordable and realistic than in the past. The days of building out your own data center, or even your own cage in someone else’s data center, are coming to an end.
Face it, even the Obama administration is rolling out their own Cloud based initiative - Apps.gov. It is still quite early but Private Clouds will really speed the adoption of Cloud Computing by the majority of SaaS companies over the next five years.
Company: Enwisen
Started: 1999
Located: Novato, California
Geography: Global
Market: On-demand Workforce Communications
Products: AnswerSource
Key Customers: Fox Entertainment, Nissan, Hershey, State of Montana, Yahoo!
Website: Enwisen
Recent News:
I asked Walter Smith, Enwisen’s Chief Executive Officer a few questions about his business and his view of the SaaS market in 2009.
Did you start out as a Software-as-a-Service company?
Yes, when we started Enwisen in 1999 our vision was to leverage the power of the Internet to deploy robust, highly configured technology for HR using a Software-as-a-Service business model. At the time the term “SaaS” wasn’t commonly used to describe our model… ASP or Application Service Provider… was the more commonly used term for a hosted application. But truly our model from the beginning was to combine software and services in a multi-tenant environment. A key advantage we have had in the marketplace is delivering a suite of products that have all been built internally as a SaaS solution without the challenge of converting from an enterprise foundation or integrating acquired solutions.
Why do your customers buy from Enwisen?
Fundamentally it boils down to compelling economic value and great service. Our technology solves a critical issue for HR – how to deliver quality service to their internal customer (employees) at a lower cost per employee. In today’s economy HR is being challenged to be far more efficient, but without compromising quality. It’s a real conundrum – high touch HR delivery and internal systems are just too expensive and ineffective. Not only do we streamline HR operations, but we improve the service experience for employees. Our solutions are very reasonably priced for the robust capabilities and bottom-line impact we deliver. Customers have to provide services to employees, it’s mission critical, we just give them a better and more cost effective way to do it. Combine that with great, highly attentive service and that’s why customers buy from Enwisen. The validation is there… despite the down economy we grew profitably at 62% during our last quarter and over the last 10 years our retention rate has exceeded 98%.
What do you see as the key trend emerging in the SaaS industry?
Collaboration and integration of various enterprise applications through the “Cloud.” Almost every company today has multiple systems and multiple service providers. Here’s an example – one system for the Intranet, one for HR, outsourced payroll, outsourced benefits, performance and succession planning, learning (LMS), and dozens of benefits providers for health and retirement. Users are simply overwhelmed by the complexity of getting to all of these different sites – how many user IDs and passwords can you remember? If a system cannot be easily accessed, it won’t be used. Companies spend millions of dollars on systems, yet most acknowledge they are underutilized. Also, many companies lock their applications behind the firewall, making it harder if not impossible for many employees to use. One of the biggest trends is to leverage the “Cloud” in a way to seamlessly integrate data and applications to make it easier for user to access everything through a single location.
What is your outlook for 2009?
Now that the fear of financial Armageddon has subsided we see companies getting back to Business 101 as usual. Companies have to continue to innovate, deliver service, retain talent, and drive greater efficiencies to the bottom line. Budgets will remain tight, but companies will continue to invest in ways that make them more efficient in the near term but also prepare them to grow and be more competitive in the long term. We anticipate our current growth rate to continue since part of our success is because of, versus in spite of, the down economy. Companies no longer will buy status quo products due to brand. They will continue to seek best of breed solutions that will give superior performance at a much lower cost even if they are a new vendor to them.
Thank you to Walter Smith for contributing to this profile.
I was listening to an interesting panel discussion at a recent SIIA show in San Francisco that a very good panel:
Joe Talley, Partner at Deloitte who was the moderator; Ken Goldman CFO at Fortinet a large privately held firm and former CFO at Siebel; Sandip Gupta, President, NetMagic a profitable private company; Jeffery Kuhn, Managing Partner FLG Partners, a CFO advisory firm; and Bill Soward, CEO at Adaptive Planning.
Here were some of the interesting tidbits I picked up.
General perceptions on the panel of the economic outlook were cautiously optimistic for the SaaS market. Adaptive Planning just conducted a survey of financial executives in the last 60 days that stated that these buyers are more pessimistic about the future than they were at the end of December. A lot of that pessimism was due to the lack of marketplace visibility, challenges in hitting quarterly sales targets and future cost reductions.
Important Business Metrics
Others felt that SaaS companies are faring better during this recession because of the importance of taking a metrics-based approach to running their businesses. Key business indicators that need to be carefully monitored include:
MRR - Monthly Recurring Revenues. Are they predictable? Have they been consistent? Are they shrinking or growing? These are all important MRR trends to monitor on a monthly basis.
Churn - The percentage of customers who don’t renew your software service. This is a critical metric because no matter how effectively you sell, if you are losing more than you are selling it can be impossible to reach profitability. Another Churn component to keep an eye on are if your Churn or Renewals percentage is consistent but your overall number of seats or dollar amounts shrink.
Renewals - Percentage of customers who renew your service. See above. Another important indicator is if customers are renewing for multiple year terms, this can save your firm precious resources annually to renew your customers.
Cashflow - How much cash are you generating on a monthly/quarterly basis. This is vital in modeling a future path to profitability as well as effective expense control. Cash management is really important in this environment especially for smaller firms because VC funding is very difficult.
Another good point that was made, is that when times are tough, many smaller firms will take on debt when cash is tight. The panelists felt this was a very bad idea and that pursuing debt makes it harder to run a business in a downturn. It is a better idea to think about ways of selling more services, software or content to your existing customers
Communications
I agree with several of the panelists that one good way to improve renewals and reduce churn is to over-communicate with your customers. During the last recession, many software companies went out of business and your customers are nervous unless you are a large publicly traded firm. This type of communications strategy is especially important with large customers who might provide most of the MRR for your company.
In addition, this approach is also applicable for your employees and investors as well. Opening the lines of communication, good and bad, will calm everyone down and make it somewhat easier to manage these key relationships. Talk about corporate goals, KPI’s and several panelists said it is important to practice empathy.
Changing Sales Environment
The recession is definitely changing software buying habits. Customers are now more attuned to buying a subscription rather than an upfront software license. Part of the reason for this is that capital is really tight, and your customers are trying to manage their cash carefully. Some firms, like Adaptive Planning, claim to be able to collect up to 12 months of cash upfront at the time of their deals being signed. This is a good best practice because it provides much needed operating capital for the SaaS firm and it also can be a way for customers to get up to an additional 5% discount on their deal for a 1 year upfront payment.
The panel agreed that customers were buying fewer seats, training less people and looking at longer roll outs. The deals tend to be a little smaller but deals are still getting done. Because SaaS deals are usually handled as an operating expense, it may be possible to get deals done without the intervention of the CFO. But there are still many deals that require not only the CFO to sign-off but also require the CEO and even sometimes the Board to approve the deal.
Customer Acquisition Costs
CAC or Customer Acquisition Costs, is another metric that is important for SaaS companies to monitor. These costs during the recession have also risen. Even though growth is not viewed as important during the recession as cash conservation, it is an ideal time to take share from competitors. This is why many firms are looking at extended trials and even giving their software away to seed their pipeline with future deals that can be harvested as the recession ends and companies start buying again.
Other Marketing and Sales Ideas
Think seriously about shifting your model from an enterprise, field sales orientation to more of a tele-sales approach. Continue to do lead generation and automate your processes, because your sales teams still need leads. Cutting out your lead generation activities to save some near term money can cripple your company later on.
Know who your real sales performers are and upgrade those who are not performing. There are a lot of talented people available in the market, now is the time to improve your team. Re-organize your sales team to be leaner, more focused and effective.
Regional seminars can be very effective. Partially because there are too many webinars but also because people can travel anymore but might want to get out the office to see you in person. It is also a way for the potential customer to see if you and your company are for real.
What I took away from the panel is that if you manage your SaaS firm by monitoring these important Key Performance Indicators and are decisive about making decisions, today’s SaaS firms will emerge from this recession as not only survivors but winners.
Company: Sonoa Systems
Started: 2005
Located: Santa Clara, California
Geography: North America, APAC
Market: Cloud Computing : Enabling technology / API Infrastructure
Products: Analytics, Management and Governance solutions for APIs, feeds and services - available as software, hardware or as a Cloud-based service
Key Customers: MTV Networks, SelectMinds, Innotas, TrueCredit, InfoNGen, ING, Warner Music Group and others.
Website: Sonoa Systems
Recent News:
Sonoa Builds the Enterprise-Class Content Policy Cloud
Cloud Management Provider Sonoa Systems Lands Deal With MTVN
I asked Chet Kapoor, Sonoa Systems Chief Executive Officer a few questions about his business and his view of the SaaS market in 2009.
Did you start out as a Software-as-a-Service company?
We started out shipping our technology on hardware appliances. Fundamentally, our software is architected like a networking device for deployment on the edge in high-scale environments. Last year we began shipping this same technology on a software virtual appliance to meet some OEM opportunities and also because more customers are in a virtualized environment. We soon saw demand for ServiceNet as an on-demand service because some customers wanted ServiceNet as a subscription-based cloud offering.
Why do your customers buy from Sonoa Systems?
We have very deep technology for very high-scale, very configurable policy enforcement. The design center for our technology is around meeting the unique challenges that enterprises, SaaS providers, or media companies find in managing APIs, feeds, and cloud services.
What do you see as the key trend emerging in the SaaS industry?
While a recession isn’t a good thing –it’s actually accelerated adoption of Cloud Computing technologies in the enterprise. We see a definite pickup in adoption of SaaS, APIs, Mashups, and mobile apps in the enterprise. It’s a ‘survival of the fittest’ environment and business managers are under the gun to either rework costs or come up with new ways to build revenue and share. Cloud Computing is a powerful weapon to do both , and the challenge is, how do you do this and still maintain the enterprise security, compliance, and service levels? You would never use a utility service without metering and circuit breakers – enterprises are very aware that they need this function when using cloud services, feeds, and APIs.
What is your outlook for 2009?
Our outlook is very excited and we are pumped! We’ve got some great partners that embed our technology in enterprise products and we’re very excited that customers are deploying ServiceNet in the Cloud. We’ve just passed 50 customers selecting our technology, and the bottom line is that we’ll continue to work towards making it very easy to get started using our technology.
Thank you to Chet Kapoor and Raksha Varma for contributing to this profile.
In Charles Darwin’s landmark work on the Theory of Evolution, he stated that “…Natural selection acts only by taking advantage of slight successive variations; it can never take a great and sudden leap, but must advance by short and sure, though slow steps.” Based on what has been happening with our economy over the past six months, the Human Capital Management software world is going to be forced to do a quick evolution.
Times are tough; just consider the global economic slowdown over the past three years. In 2007 it was the sub-prime mortgage crisis, in 2008 it was the Banking crisis and in 2009 we are beginning to see the Human Resources crisis.
This is very different environment for HR professionals than the old War for Talent era that was discussed by industry experts over the past five years; this current crisis is more related to a dramatic reduction in jobs in the economy and unemployment approaching 10%. Human Resources related budgets and headcount have been cut way back in an effort to stem the financial tide. Unfortunately most companies were not ready to eliminate anywhere from 5-30% of their workforces overnight. Not only were they not prepared for this change but they probably don’t completely understand what the future impact of their actions will be for their workforces. These dramatic changes have left HR in a precarious position looking forward because they have little in the way of staff or resources but their charter remains the same.
HR’s Rapid Evolution
As someone who sold HCM software for the last 12 years, it was always part of the sales pitch that the HR organization is always expected to do more with less. Now that the environment has really changed, when senior executives now say to HR, ‘do more with less,’ they really mean it.
Just like in natural selection, the HR survivors need to evolve. So in this brave new world, you no longer have the level of resources that that you have taken for granted for years. Resources like IT support, capital dollars in your annual budget, a team of people to work on projects and time. You may ask, how do I evolve? With dramatically less people, budget and basically the same responsibilities, you need to automate as much of your workload as well as your personal interactions. In this new world, the human touch is going to be at a real premium when it comes to HR.
Well - now that you are completely depressed, let’s review some ideas on how you can be an HR survivor. Did you know that most companies have up to 200 different HR suppliers, depending on the size of your company? Do you really need all of them? Since you are now in a zero sum budget exercise, start looking at your operating expenses as one big pot of money and start determining what is essential and what is optional. As you start your process, you need to free up budget to fund critical automation projects that can enable HR to continue to push along its strategic objectives. This may actually be a process that your IT business partners might actually be willing to help you with, since they are feeling HR’s pain like never before.
Natural Selection
So as you start thinking about your natural selection budget project, you should start to build out your game plan by trading out your old software for new software. My general conclusion about software is simple, old software is bad and new software is good.
Let me explain…
Many of the current Human Capital Management software providers evolved from PeopleSoft. PeopleSoft was the leading HR software provider in the market for nearly twenty years and spawned a complete suite of Enterprise Resource Planning applications including benefits administration, payroll and other HR applications. When PeopleSoft was purchased by Oracle in 2005, Oracle became the dominant provider but they appear to have no clear future plans for their HR software. So you need to continue to pay maintenance for old software, which keeps getting older.
When thinking about natural selection for HR software, think about the clear disadvantages in the current environment for your old school software provider:
- Software requires a large capital investment. This might be really difficult to get funded in our current environment, no matter how critical the software is to your company’s objectives.
- Implementation projects are both long and complex. Lots of investment to support customization and an expensive team of consultants who will live on-site for months or years. The consultants have to install your software in your data center, which will require a significant investment in hardware and infrastructure.
- Massive software upgrades. Whether it is moving from PeopleSoft 8 to PeopleSoft ? or to the latest version of SAP, these upgrades are expensive and require a lot of internal support resources and a big hardware investment.
- Lack of flexibility. The older software providers typically have rigid products, which make it tough to make even basic changes to features, reports or anything else. This is also a big disadvantage of buying all your HR software from a single vendor, like Oracle or SAP.
- Don’t play well with others. Ideally all of the software works together to make it easier to configure workflows, data elements, reports, and analytics because your data is sitting in a lot of different systems. If your software isn’t open to working with other systems, it can get really expensive, and you don’t have any budget to glue everything together.
Now you can see why old software is bad… and why they may be going the way of the dinosaur in the next 5-10 years. That’s right, even Oracle and SAP. Remember MSA and McCormick & Dodge!
What attributes should you be looking for in your future surviving HCM software suppliers?
These survivors have these clear market advantages:
- Software-as-a-Service. You have probably heard this term but it is simply when the software company rents you the software and you subscribe to their service the next 3-5 years. Because of this approach to delivering software as a service, SaaS firms are forced to be more cost-efficient because they get paid over time. SaaS software is delivered to your users through the Internet, which means your IT department doesn’t have to have to buy or support any software or hardware – this can save your company a lot of money.
- Long-term relationships. Because you rent the software, your SaaS provider has a vested interest in keeping you happy because you will want to continue to renew your subscription to the their software. Unlike old software firms who would sell you their software and disappear, SaaS firms are encouraged to stay close their clients and listen to your input.
- Incremental changes. It was not only the expense but also the tremendous organizational disruption associated with large software upgrades that customers really dislike about the old software model. SaaS clients enjoy a ongoing stream of transparent upgrades, that fix bugs, add features and their software literally evolves over time.
- Less extra costs. Since SaaS providers host their software in their own data centers, your company doesn’t need any IT staff to support their software or infrastructure (servers, firewalls and security) typically required to run HR applications.
- Configuration. SaaS firms offer more flexibility in the way they set up your software. Unlike the older software firms that bring a cast of thousands to customize and install your software, SaaS companies can set up an initial version of your software in minutes or hours rather than in months. Then once they understand your business needs, the software can be configured without custom programming. This approach saves you both time and money.
- Open for business. In this new world it will be difficult for any company to purchase every type of HR software from a single provider, so it is important for software to communicate and share information with many different software packages. This sharing will enable you to automate as many HR tasks as possible, allowing you to do more with fewer resources over time.
Slow Evolution of HCM Software
A little known fact is that the original Software-as-a-Service provider is Automatic Data Processing. They have been delivering payroll and HR services as a service, for nearly fifty years. Their offerings started out as a basic payroll service and their internal software just helped them to deliver their service more efficiently to their clients.
In the 1990’s, the next generation of on-line solutions appeared - where on-premise software was transitioned to being hosted in providers’ data centers (commonly referred to as Application Service Providers). A number of HR ASP software providers emerged including: Employease, PeopleSoft eCenter, and Workscape.
Then about ten years later, the conversation evolved from just hosting traditional software and a new model emerged - on-demand software, that provided a pay-as-you-go pricing model along with streamlined upgrades and new support processes. Some of these on-demand providers included: Authoria, Kenexa, SumTotal, Stepstone and Ultimate Software.
Then just a few years ago SaaS providers started to gain momentum. These firms really looked at delivering their software truly as a service and never delivered it on premise, sold in the traditional way. The HR SaaS providers always delivered their software over the Internet, with a modest amount of services, no upgrades, per-employee-month pricing and self-service support. Many better known HR SaaS providers include SuccessFactors, Taleo and Workday.
The next generation of HCM software might be based on Cloud Computing, where the SaaS providers no longer own their data centers and use providers like Google or Amazon.com to deliver world-class infrastructure support at on a pay-per-transaction fee. This approach could drive down costs, complexity and make a wide range of traditionally expensive HCM software much more affordable for small and medium-sized businesses.
Darwin Speaks
The HCM software market has undergone a number of wide ranging transformations over the last thirty years. We come back to the premise of old software is bad and new software is good. Old software is bad because it is expensive to maintain, modify and upgrade. Software teams that have the experience of working on traditional software but now working at new companies where they are using modern techniques might find it difficult to make their software better, faster and cheaper.
As you think of your portfolio of HCM software providers, maybe Darwin could help. And if Darwin were alive today, and knew about Human Capital Management software, I think he could put many of your company’s providers into these categories:
- Endangered – they are doing some of the right things to turn themselves into survivors but haven’t turned the corner just yet. These are the providers you need to keep a close eye on, just in case they become extinct.
- Extinct – those providers who are on the downside of innovation, living off of your precious maintenance, old architectures, delivered on premise and probably won’t be around for the long term.
- Survivors – those software firms who are worthy of your investment and will be in the market for the long term.
To read the rest of the post go to our website and download the white paper.
Company: RightNow
Started: 1997
Located: Bozeman, Montana
Geography: Global
Market: On-Demand Customer Relationship Management
Products: RightNow CRM Suite RightNow Service RightNow Marketing RightNow Sales
Key Customers: Drugstore.com, TomTom and Electronic Arts
Website: RightNow
Blog: Voice of the Customer
Recent News:
- RightNow Ups the Ante on SaaS with Service Level Credits
- New Product Registration Capabilities in RightNow February ’09 Drives Top Notch Customer Care
- drugstore.com Customizes Online Shopping Experience with Beauty Chat
- Good Customer Care, Not Prices, Wins Loyalty of Credit Crunched Holidaymakers
I asked Greg Gianforte, RightNow Chief Executive Officer a few questions about his business and his view of the SaaS market in 2009.
Did you start out as a Software-as-a-Service company?
RightNow has been a pioneer of SaaS / On-Demand technology since our company inception in 1997. Our underlying services are built to dynamically scale our client’s customer service and support up or down as they need. Unlike other providers, our solution is built to deliver exceptional experiences to our customers across service, marketing and sales interactions.
Why do your customers buy from RightNow?
RightNow’s on demand hosted CRM business model delivers quick time-to-benefit and helps our clients reduce operating costs, improve customer experience, retention and advocacy, and maintain a competitive edge.
What do you see as the key trend emerging in the SaaS industry?
As Cloud Computing gains momentum, it will become even more vital for a SaaS company to stand behind its service commitments since they are responsible for system reliability and performance. Customers are expecting a high level of availability and providers are using their ability to deliver as a competitive advantage.
RightNow recently announced an ‘up-time’ commitment to our customers of 99.9%, forcing our team to take uptime seriously, and making sure the right level of attention is being paid to the issue.
No amount of “money back” will take the place of performance, but a company’s willingness to put real dollars at stake underscores the confidence they have and that their customers should have in their solution.
What is your outlook for 2009?
Times are tough, but projects are still getting done and forcing some tough decisions. The best companies are continuing to adopt CRM technologies because they have identified that CRM and superior customer experiences are the best ways to keep and expand a customer base in a weakened economic state. Customers don’t grow on trees and in tough economic times it is even harder to attract new ones.
Thank you to Greg Gianforte, Jason Mittelstaedt, Joseph Brown and Katie O’Connell for contributing to this profile.
Company: SuccessFactors
Started: 2001
Located: San Mateo, California
Geography: Global
Market: On-Demand Performance and Talent Management
Products: Goal Management
Business Performance Accelerators
Key Customers: Advo, Allianz SE, Cadbury Schweppes, Hilton, Kimberly-Clark, Gen-Probe, PETCO, and Rexel
Website: SuccessFactors
Blog: Performance and Talent Management Blog
Podcast: People Performance Radio – US Edition
Recent News:
Orange Deploys SuccessFactors to 13,000 Employees in the UK
I asked Lars Dalgaard, SuccessFactors’ Chief Executive Officer a few questions about his business and his view of the SaaS market in 2009.
Did you start out as a Software-as-a-Service company?
Absolutely. Since the beginning, we built SuccessFactors as an on-demand platform in the cloud from the ground up. The underlying technology platform is called the SuccessFactors Web Component Engine, and it’s the basis for all SuccessFactors’ applications. The Web Component Engine was built on a multi-tenant architecture with a single-code base incorporating expertise gained from working with more than 2,600 customers worldwide. The platform includes a set of reusable technology components such as a business process template designer, workflow engine and data permission model. It’s the foundation of SuccessFactors’ Performance and Talent Management Suite and enables us to quickly innovate and create new applications to drive business performance for our customers.
Why do your customers buy from SuccessFactors?
By using the latest research, the smartest technology, and the most secure systems on the planet, SuccessFactors works every day to help companies achieve tangible and measurable results, lower costs, and align their organizations.
Since day one, SuccessFactors has been focused on customer success and our on-demand platform helps us do this quickly – getting customer-driven product evolution and frequent enhancements up-and-running when they need it. We also deliver innovative, customer-driven new features on an iterative monthly basis, allowing customers to continuously increase the value they receive from us.
By listening to what our customers want and then taking action immediately to deliver what they need, we’re providing the ultimate level of customer service while providing fun, easy-to-use, user-centric software that creates real business value for our customers and encourages better adoption companywide.
What do you see as the key trend emerging in the SaaS industry?
• It’s going to accelerate. Hard economic times force innovation and companies are keeping a close eye on the bottom line, so this is going to speed up the pace that companies adopt lower cost of deployment SaaS offerings, delivered via Cloud Computing
• SaaS and Cloud Computing will continue to innovate and be easier to use. We are going to see more companies making SaaS as easy to use as Google, Amazon and a slew of other consumer applications and Web sites. Driving adoption and everyday usage will continue to be very important.
• Customer service is HUGE. Today companies care most about doing more with less and keeping their existing customers DELIGHTED. They had to do this before but now it’s critical – they can’t afford to lose customers. We interact and work closely with our customers on a daily basis – a paradigm shift from the legacy, on premise software sales model of selling multi-million dollar license deals and then reengaging the customer five years later. Companies with lots of customers and smart strategies are pouring everything into keeping customers DELIGHTED and the SaaS model makes the product more relevant, flexible, and scalable to the customers’ needs.
What is your outlook for 2009?
Our customers are putting increased focus on their top talent and high performers to make sure these people are motivated and engaged – a critical strategy during today’s economic downturn. SuccessFactors is giving them the tools to really hone in on who’s doing great work, while also providing the clarity to help them make tough business decisions. The War for talent has not ended. A company’s top performers are still being targeted by competition.
There has been a lot of discussion about the strength and resilience of the SaaS model during uncertain economic times. We get that. But what is more crucial is that companies really need to focus on energizing, retaining and keeping their best people motivated. It’s not a ”nice to have,” it’s a must have. Currently, companies are spending about 70 percent of operating expenses on their people. Companies need to be ahead of the curve, and SuccessFactors helps provide ways to make better business decisions in today’s tough economy.
Thank you to Lars Dalgaard and Jennifer Gazin for contributing to this profile.
Company: Mint.com
Started: October 2006
Located: Mountain View, California
Geography: North America
Market: Online Personal Finance Management
Products: Money Management
Customers: Over 1 million users
Website: Mint.com
Blog: Mint Blog
Recent News:
Mint.com Adds 1 Millionth User
Mint.com Finds Savings for More Americans with Enhanced – and Now Public – “Ways to Save” Feature
Mint.com Partners with TaxACT to Simplify Online Tax Filing and Maximize Deductions
I asked Aaron Patzer, Mint.com’s Chief Executive Officer a few questions about his business and his view of the SaaS market in 2009.
Did you start out as a Software-as-a-Service company?
No, Mint.com started out as - and primarily is - a consumer facing website. Simply because of the way it is built - to scale to millions of users, open source platform, and web services backend - it is quite easy and natural to do SaaS.
Why do your customers use Mint?
Mint.com lets users see all their bank accounts, credit cards, investments, and loans together in one place. Without any data entry (or cost… because Mint.com is free), users can see how much money they have, how much they owe, where their money is going, get bill reminders and alerts, track their investment performance versus the market, find lower interest rates on their financial products and better prices on the things they buy most.
What do you see as the key trend emerging in the SaaS industry?
Almost all software will eventually move to the Cloud. Personal finance has been no different.
What is your outlook for 2009?
Good. Because of a bad economy, more people need to track and manage their finances. That means our sign up at Mint.com rate has tripled since the financial crisis hit.
I listened to an interesting panel discussion at the Opsource, SaaS Summit a few days ago and I thought I would share what I heard.
Venture capital panelists were from Intel Capital, Emergence Capital Partners, CrossLink Capital and Hummer Winblad Venture Partners and Merrill Lynch.
New Investments
Seems like there was no agreement from the panel about what stage of investment was the most popular given the downturn. There were several Series A and Seed investments that were mentioned including Crowd Factory and Zuberance. One bright spot for investors was the fact that OpenTable has filed for an IPO, which would be a good step in the right direction given 2008’s anemic IPO performance.
Zombie Venture Capitalists
Most of the panelists had done some investments in the past six months but it is clear that SaaS entrepreneurs need to be on the look out for Zombie VC’s, who are still operating but are no longer making investments. These walking dead have their lights on, they have websites, and cash to support existing investments but no longer have enough cash to add new portfolio companies. In writing this post I even discovered that peHUB publishes a list of these Zombie VC’s. If they haven’t made any new investments during 2008, then I would be careful about wasting any time with these firms.
Flat is the New Up
One phrase that was uttered more than once is that ‘Flat is the New Up’. Although when it comes to Software as a Service… it appears that ‘Up is still Up’. Even in 2008, most publicly traded SaaS companies have bounced back from their lows by an aggregate of 20%, which is much better than the S&P 500. Apparently Wall Street likes SaaS companies and now are valuing them at 3 to 3.5 times their recurring revenues, unfortunately at the beginning of 2008 that number was closer to 8x. Keep in mind that this is better than a lot of public firms that are currently trading at their cash values. Other Wall Street analysts are valuing SaaS firms at 12x their cash flow but it is difficult to understand if there is a consistent valuation metric that firms or investors should be using.
Another interesting development is that Venture firms are now forced to value their private portfolio the same way they would value a portfolio of publicly traded stocks due to new accounting regulations (FASB 157). Based on the discussion this new regulation, it will only create more company valuation compression on top an already tough market for portfolio companies.
What Does a Good Investment Look Like?
So what are the VC’s looking for in an attractive investment in this market? Apparently the same things they were looking for in the past; a game changing idea, the team, the product and a big market. If you are a software company you better be offering a real SaaS solution or be leveraging the Cloud Computing to even be considered.
They are also looking for new portfolio companies to be more conservative about spending their precious cash. There is now an overt trade-off between the rapid growth rates of the last five years and capital efficiency to provide a longer runway for portfolio companies. The panelists indicated that they would like to see their new Series A companies, for example those who might raise $4 million, to survive at least for 18-24 months before going out for their next round! With the difficult market dynamics it is important for SaaS firms to form a strong syndicate when raising capital because your next round will be an insider round.
The panel indicated that they are looking for operating executives who know how to manage cash and scrub expenses. Another observation was that many of the early stage companies that they are seeing now are much more mature and well run than they were just a few years ago.
There also won’t be any more Salary.com (NASDAQ: SLRY) IPO’s of $15 million companies. IPO candidates will need to be $50 to $70 million in revenues and ideally profitable before filing their S-1.
For public SaaS companies you are going to see a slow down in the rapid growth rates we were seeing from companies like Salesforce.com (NYSE: CRM) and SuccessFactors (NASDAQ: SFSF). Public markets want to see profitability first and growth now comes second. Momentum stocks, those with high growth rates were trading at 8-9 times revenues, like Salesforce and SuccessFactors, are giving way to slower growth companies that are profitable and are given a multiple on cash flows.
Customer Acquisition Costs
When building your SaaS business model, it is important to assume that for every dollar of recurring revenue you will probably need to invest $.50 to $1.00 in your Customer Acquisition Costs (CAC). It is important than ever to have an active program of testing various CAC channels and tactics to maximize your investments. Then you need to have a smart statistical framework that you can explain to your investors.
Smart firms like EchoSign and YouSendIt are creating leads virally by infecting their customers and they are finding that they are finding 1/3 to 1/2 of all of their leads are generated organically. It is also important to leverage distribution channels, especially companies that have access to large customer bases like Salesforce.com, Google, and Intuit. Take more of a focused approach to your customer acquisition efforts by targeting a vertical market and use the power of your customer referrals because ‘word of mouth’ is the least expensive and most effective lead generation engine. Keep in mind that your sales process needs to be as easy as possible, in other words it needs to be ‘friction-less’. When your prospects sign up for a trial, it only takes a few minutes and weeks and they can do it without any involvement from your company. Give them a free trial, a sandbox a free version.
So I came away from this panel discussion with the following advice for companies looking for funding in this environment:
- You need to still need to have a great idea, product and team but you might need to have reduced risk for your potential investors.
- Demonstrate your company knows how to stretch a dollar as far as possible. Fewer employees is better… think Craigslist.
- Show traction. Number of transactions, members, customers, revenues, profits.
- Shop carefully for your potential investors and don’t waste time with Zombies.
Good Luck!
SMB Financial Productivity Software
There is an increasing number of Software-as-a-Service (or SaaS) firms jumping into the smallest end of the Small and Medium-size Business (SMB) market, and they are offering a variety of office productivity solutions. This is the fastest growing segment of the economy according to the Bureau of Labor Statistics there are up to 21 million self-employed consultants and small firms in the US.
This has traditionally been the sweet spot in the market for companies like Microsoft. Although most customers are somewhat happy with their offerings, Microsoft offerings tend to be cumbersome, packed with way too many features, hard to use and upgrade.
A new set of SaaS providers has emerged with products designed specifically for the small business owner. These packages are all delivered through the Internet as a service, so no more visits to Best Buy were required. Many of these new software services are very low cost and some were even free, and because of this, the adoption of these products has been rapid.
This Sector Report is only covers the incumbent software provider and the promising new SaaS suppliers.
Office Productivity Suite Profiles
Word, Excel, Outlook, PowerPoint and many other productivity products.
Microsoft has owned the SMB office-based software market for at least the last ten years. Their suite is large and includes all the main office productivity software modules.
Microsoft Office has been delivered as shrink-wrapped software. Microsoft is now experimenting with delivering their products through the Cloud along with using their Azure operating system. Most alternative office solutions are SaaS-based.
There are millions of Microsoft Office customers.
Public company (NASDAQ: MSFT)
New Alternatives
On-demand documents, spreadsheets, calendar, presentations, email and more.
Some applications are very similar to the depth of functionality you would find in the Microsoft Office suite of products. Other Google Apps offer very lightweight functionally and don’t appear to be very useful. All Google Apps are delivered through the Cloud as a subscription offering. Google provides for free usage for up to three users and then offer the applications for $50/user per month.
Approximately 10 million users and 1 million customer companies.
Estimated 3,000 companies are signing up for Google Apps per day.
Public company (NASDAQ: GOOG)
Zoho Productivity and Collaboration Free and $
On-demand documents, spreadsheets, calendar, presentations, email and more.
Most of the Zoho applications have similar functionality to Microsoft’s products and provide many other capabilities beyond their Office suite. The Zoho application suite has better functional depth than Google Documents. All products are delivered through a SaaS subscription model.
Estimate 1.2 million users/customers.
Private company based in California and India. 250 employees.
Zimbra Collaboration Suite Free and $
Hosted documents, calendar and email.
Hosted, open source applications that are less functionally rich than Microsoft, Google or Zoho offerings. One concern with using Zimbra is that if Microsoft finally purchases Yahoo! they might shut Zimba down and force their users to use Microsoft Office.
Estimate hundreds of thousands of users/customers.
Public company (NASDAQ: YHOO)
Other players in the SMB Office software market include Sun Microsystems StarOffice, Apple’s iWork, and Corel’s WordPerfect suite. Small businesses have many choices when considering an Office productivity suite and many of the best options are for free.
Small businesses are actively looking for ways to save money and using any of the SaaS-based office productivity tools will very quickly pay dividends. For example the City of Washington D.C. decided to switch from using Microsoft Office and related software to Google Apps and is now saving nearly $3.5 million annually.
Given the current state of the economy, many individuals are now setting up their own businesses. Using these new subscription-based Office Productivity tools can not only be very affordable for start-up your businesses but also give the consultant or SMB many of the same capabilities they had at their larger firms.
The good news is that there is no shortage of SaaS-based Office products out there to choose from and this is just a top line summary of what is available. Many of these products are available at very attractive price points, including many who are free. Given the experience that the City of Washington D.C., using these solutions not only can save a lot of money but also make SMB’s more competitive in this tough economic environment.
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