SuccessFactors – SuccessConnect 2011

Montclair Advisors did a SaaS business profile in April 2009 and recently participated in the company’s SuccessConnect 2011 in San Francisco, where we were able to hear from key members of their management team about recent news and a business update.

New Branding

SuccessFactors had changed their focus about two years to be corporate performance management focused. Darryl Dickens their new chief marketing officer announced that although Business X is still the core positioning, they wanted to reach back out to the HR buyer. Their new tag line is now more HR friendly; ‘It’s time to love work again.’ (… and by the way, I like the new branding).

With the new branding SuccessFactors wanted to re-focus their messaging around being a proven, visionary Cloud-brand for HR and business performance solutions. This new branding means there is a new logo, website, and icon system.

Part of the strategy behind the re-branding has to do with the new products and capabilities now available across the SuccessFactors product portfolio including collaboration (CubeTree), learning (Plateau and Jambok), reporting and analytics (YouCalc and Infohrm) and HRMS like Employee Central. The new brand is a laminate designed to put a logical wrapper around the suite, which can help to rationalize product bundles, pricing and packaging.

Employee Central 2.0

As customers have grown more comfortable with the Cloud, those who have older versions of PeopleSoft are now looking for alternative options for their core HR systems, and that is where Employee Central fits in. The Employee Central solution has been built for the BizX suite to integrate talent management, analytics, collaboration as well as employee services. Employee Central 2.0 was made GA in March 2011.

Most talent management providers have shied away from offering a system of HR system of record. SuccessFactors sees a real opportunity to integrate their offerings as well as a potentially large market for new Cloud-based HRIS offerings. As Workday offers not only core HR solutions but also talent management applications, both of these firms are chasing a growing replacement market in the SMB and enterprise markets.

Employee Central offers a basic system of record but stops short of a full HR and payroll system. SuccessFactors has decided to partner for payroll with Patersons, Ceridian and Meta4.

Plateau

The biggest news was that SuccessFactors purchased SaaS-based talent management provider Plateau Systems in April 2011 for $290 million in cash and stock. This was the largest acquisition to-date for SuccessFactors and marked the first time that the company had purchased a talent management application instead of an add-on technology. Plateau has a large and satisfied customer-base of both commercial and federal accounts.

Doug Dennerline, SuccessFactors new president (ex-Salesforce.com) was very clear that they were planning on getting very close to Plateau’s customers and assure them that they will allow them to do what makes the most sense for their businesses. Unlike the other learning-related acquisition, Jambok, Plateau offered an enterprise-class Learning Management System with a world-class customer-base. Plateau not only adds revenues and customers but also provides an interesting SaaS architecture and platform that SuccessFactors may be able to leverage to service their their very largest customers.

With this business combination, SuccessFactors is now one of the largest HCM SaaS providers based on total revenues, customers and numbers of users.   After all of these acquisitions, it is clear that the company now has many different growth engines moving into 2012.   Based on our briefing with the very seasoned SuccessFactors management team, it will be interesting to see how they are able to integrate all of these offerings and manage all of these potential business opportunities.

Company:             ServiceSource International

Started:                 1999

Located:                San Francisco, California

Geography:           Global

Market:                  Service Revenue Management

Products:              Service Revenue Performance Suite: Analytics Cloud, Service Sales Cloud, Channel Sales Cloud, eCommerce Cloud, Dynamic Quoting Cloud, and Installed Base Management Cloud

Key Customers:     Affymetrix, Blue Coat, CA Technologies, Isilon Systems and NEC

Website:                ServiceSource

Twitter:                 @service_source

Recent News:

ServiceSource Releases Service Revenue Performance Suite to Bring End to End Service Revenue Management to the Cloud

ServiceSource Announces Partnership with Good Technology to Enhance Recurring Service Revenue and Customer Loyalty

Service Executive Industry Board Adds Three Industry Experts to Support the Standards Process and Thought Leadership

I asked Ganesh Bell, ServiceSource’s EVP of Products a few questions about his business and his latest product announcement.

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

The company launched in 1999 and really started out offering both SaaS and a managed service solution for customers who wanted to improve their end-to-end service revenue management process. When we refer to service management we include hardware, software, and SaaS companies that want to maximize their recurring, maintenance and service revenues related to their products.

ServiceSource has a Cloud-based suite of offerings that are more performance management focused than a typical transaction type of application like billing or metering. Our service management platform consists of a data management engine, business intelligence and a set of applications and managed services designed business performance improvement.

We feel that this is an under-served market segment and that there are a lot of opportunities to improve a customer’s revenues just by managing the renewal and subscription process more efficiently. We estimate that there are approximately $150 to $160B worth of software and hardware renewals occurring on an annual basis and that there is at least $30B of additional revenue that is being left on the table.

As you may know already, ServiceSource just went public a few weeks ago on the NASDAQ and raised over $87M in proceeds. We also recently announced our first quarter results which included record revenues of $46.1M which was up over 40% from Q1 of last year.

Why do your customers buy from ServiceSource?

We offer a unique business model where we operate on a pay-for-performance basis with our customers where we only get paid when we can increase our customer’s service and maintenance revenues. Our partnerships with our customers need to be 100% self-funding, where the incremental revenue gains exceed our fees. On average, the return for our customers is around 15% and we are currently working with over 100 customers and have about $5B in service revenues under management. We offer a scalable Cloud application platform that manages over 700,000 transactions annually and have over 40,000 channel partners.

Another reason our customers use our service that many of them have also grown their businesses through acquisition and over time this has created a big problem for them because is really difficult to produce an accurate list of their customers and the all products that they own. ServiceSource uses a combination of our own applications, best-practices expertise that we have developed and our people to solve difficult problems like this one. Because once we have an accurate installed customer database it makes it much more efficient to manage renewals as well as provides for additional opportunities to deliver value to the our customers and generate incremental revenue for both of our firms.

Customers can also decide to just outsource their entire renewal processes to ServiceSource and we will take over their global renewal process. In this type of arrangement we can use a combination of direct and indirect teams to deliver value by managing renewals as well as cross-selling additional products.

Which new products are you launching?

We are launching a new end-to-end suite for service revenue performance management with our early customer and partner NetApp. Our suite contains these applications; Installed Base Management, Dynamic Quoting, eCommerce, Service Sales for renewals, Channel Sales which helps to facilitate sales team collaboration and performance management, and Analytics which provides visibility across the service revenue process using role-based dashboards.

New Applications

Installed base management helps our customers to cleanse business data and provide integrity to their installed base system of record. The product also leverages the installed base system of record to provide support for customer success management activities and act as a way to extend channel capacity.

We believe benefits of this application are to help reduce our customer’s time from quote-to-close, improve the accuracy of installed base data, which should aid in upselling and cross selling. By having more accurate data it will also help customer services to be more effective and provide better service.

Dynamic Quoting is an extension to our Installed Base Management application. This product provide a quoting engine for service sales professionals, which is a new area for these groups who are still using Microsoft Excel to manage renewals and recurring revenue sales. We have built-in our own best practices into quoting functionality that is built into suite, which can quickly help to automate this process for the service professional.

I was going to write this post earlier in the week but it seemed that everywhere I turned I saw more developments and wanted to include them.  The market is really starting to get frothy and there are many big SaaS/Cloud deals happening and companies going public with very large market caps.  Let’s take a look:

Recent Acquisitions

SuccessFactors (NASDAQ: SFSF) Acquires Plateau Systems for $290M, which was paid in half cash and half in stock.  This is an interesting move since it is the first acquisition that could be considered ‘core’ functionality when compared with other acquisitions like CubeTree (Collaboration), YouCalc (Analytics), Inform (Analytics) and Jambok (eLearning).  Plateau also has a fairly significant product portfolio overlap including compensation, performance management and succession planning, so it should be interesting to see how these offerings are consolidated.

Plateau has a very respectable customer-base with a large number of federal government customers as well as many large enterprise customers.  The company also was profitable and has some interesting Platform-as-a-Service capabilities that should be very useful for a larger SaaS portfolio.

Based on the market basket of publicly traded SaaS firms, this deal will make SuccessFactors the second largest firm in the group based on current revenues.  We estimate that at their current quarterly run-rate of $68M and Plateau’s estimated annual revenues, the combined company now is probably around $340M, which is only second to Salesforce.com.

CenturyLink (NASDAQ: CTL) Buys Savvis (NASDAQ: SVVS) for $2.5B, which is now third largest telecommunications company in the US with $18B in annual revenues.  The company had purchased Qwest earlier in the year and that deal was finalized on April 1st.   Now with the acquisition of Savvis, CenturyLink is moving into the Cloud Computing market with more than 48 data centers globally.

This is the second major deal in the Cloud Computing market of an emerging Infrastructure-as-a-Service provider, when Verizon purchased Terremark for $1.4B in January.  This should stimulate further consolidation of other providers and Rackspace may be the next target.

Salesforce.com (NASDAQ: CRM) Picks Up Radian6 for $326M for the Canadian social media monitoring company.  Radian6 helps their customers monitor ‘hundreds of millions’ of social media conversations. Salesforce believes that the acquisition will enable it to enhance all of its products, including Sales Cloud, Service Cloud, Chatter and Force.com.

Infor and Golden Gate Capital Buys Lawson Software for $2B.  Now this is technically not a SaaS or Cloud related deal but it just is another example of the pressure traditional providers are feeling from the up and coming SaaS and Cloud providers like Netsuite, Workday and even Oracle’s new Fusion offerings.

Recent SaaS IPO’s

Cornerstone OnDemand (NADSAQ: CSOD) went public on March 16th and quickly captured a market cap of $800M, even when the company lost more than $45M.  The company offers a suite of Talent Management solutions similar to what is offered by SuccessFactors and Taleo.

ServiceSource International (NASDAQ: SREV) completed their IPO on March 25th and were valued at more than $800M as well.  ServiceSource helps companies manage their revenue streams from renewals, maintenance and subscription agreements, which is especially important for SaaS firms.

Responsys (NASDAQ: MKTG) was able to launch into the public markets on April 21st and got a very respectable market value of $2.4B.  The company offers SaaS-based software and services that help retailers and eCommerce firms build and manage online campaigns.

With Cornerstone OnDemand’s recent IPO (NASDAQ: CSOD) and their high valuation based on a negative EBIDTA, many are starting to ask if we are headed for a second Internet or SaaS Bubble?

I do agree that some of the valuations at this point are a lot higher than a reasonable person would expect, but this is probably just pent up interest in the technology sector. It doesn’t help that Facebook and LinkedIn has seriously pumped up the valuations for Internet/Social Media firms, but today’s SaaS companies are very different from the Dot Bombs of 1999/2000.

Remember these companies?

Company	Business	Market Cap (000’s)
Web Van	On-line Groceries	$1,200
Pets.com	On-line Pet Supplies	$ 325
VerticalNet	Marketing	$5,400
Kozmo.com	Delivery Services	Private

All of these companies were built on bad business models, too much money and expectations that were out of control. And by the way are all out of business.

But not all of the Internet companies that were formed during this period were bombs; in fact there are a number of firms that are now pillars of the technology industry including these firms:

Company	Founded	Business	Ticker	Market Cap (000’s)
Amazon	1994	eCommerce	AMZN	$76,380
Ariba	1996	eProcurment	ARBA	$ 3,140
eBay	1995	eCommerce	EBAY	$39,370
j2 Global Comm.	1995	Communications	JCOM	$ 1,340
Priceline	1997	eCommerce	PCLN	$23,790
WebMD	1996	Health Content	WBMD	$ 3,150

It would be safe to say that each of these companies struggled during and after the Dot-Com collapse but they were able to modify their models to take advantage of the efficiencies that the Internet provided. Amazon has built a business that can effectively compete against the largest retailer in the world, Walmart, even though its sales are only 1/12^th their revenues.

All of these Internet Survivors had to develop a real business model that would deliver solid margins, profits and growth. They each had to assemble experienced management teams, learn how to deliver superior customer service and build trusted brands. Not easy to do, but they did it.

Fast-forward to today and we have a whole new set of Internet and Software-as-a-Service companies that have emerged and gone public including these firms:

Company	Founded	Business	Ticker	Market Cap (000’s)
Athena Health	1997	EMR	ATHN	$ 1,560
Blackboard	1997	Education	BBBB	$ 1,280
Concur	1993	Travel & Expense	CNQR	$ 2,960
Cornerstone OnDemand(1)	1999	Talent Mgmt	CSOD	$ 855
Constant Contact	1995	Marketing	CTCT	$ 1,000
Google	1998	Search, PaaS	GOOG	$187,000
Kenexa	1987	Talent Mgmt	KNXA	$ 622
NetSuite	1998	ERP	N	$ 1,880
RightNow	1997	CRM	RNOW	$ 1,030
Salesforce.com	1999	CRM, PaaS	CRM	$16,930
Servicesource (2)	1999	Service Mgmt	SREV	$ 774
SuccessFactors	2001	Talent Mgmt	SFSF	$ 2,990
Taleo	1996	Talent Mgmt	TLEO	$ 1,430
Ultimate Software	1990	Payroll	ULTI	$ 1,490
Vocus	1992	Marketing	VOCS	$ 478

(1) CSOD IPO: March 17, 2011

(2) SREV IPO: March 25, 2011

As you can see most of these companies were founded before the Internet Bubble burst and were forced to create real business models that could deliver profits.

At Montclair Advisors, we specialize in SaaS business advisory services and we know many of these firms quite well and they all have strong management teams, growing businesses and staying power. Unlike the Internet firms that went IPO in 1999 or 2000, most of these firms have had to build up their businesses over ten or more years and are based on some form of recurring revenues.

Major differences between the companies on this list versus the early Dot Bomb firms include:

• Proven Over Time. As you can see most of these firms are at least ten years old and have weathered the economic changes through the last two recessions.

• Businesses at Scale. Most of these companies are over $100M in annual revenues, which means they have been successful in selling into multiple markets and geographies.

• Recurring Revenue Streams. Anyone who has been involved with a company that has developed a subscription business can tell you how hard it is to create a meaningful recurring revenue stream. The advantages of being a SaaS software company based on subscriptions means that revenues remain consistent so there is a high degree of transparency and visibility.

• High Degree of Customer Satisfaction. All of these companies are dependent on satisfied customers that want to renew their annual subscription agreements and purchase more services. This is quite different than the ‘drive-by’ relationships many of the early Internet companies developed with their customers.

• Strong Management Teams. After the Dot Com crash it became much harder to file for an IPO and manage a company in the post Sarbanes-Oxley world. These next generation of Internet companies have attracted leading management expertise that knows how to innovate and rapidly scale viable businesses.

So are the valuations of companies like Cornerstone OnDemand and Servicesource, Facebook and LinkedIn too high? Are we beginning to see a SaaS Bubble? Maybe, but all of these companies have been built for the long term and will be around long after any correction, unlike their early Internet cousins Web Van or Kozmo.com.

As part of Montclair Advisors‘ SaaS strategy work with several of our clients over the past couple of years, we have learned quite a bit about the specific requirements for large and small manufacturers who are evaluating SaaS-based ERP and MRP solutions.   For many reasons, the manufacturing community has been slow to respond to the SaaS and Cloud Computing revolution.  One of the main reasons we found was that because many small factories operate in low-cost regions of our country or the world, many don’t have reliable access to the Internet, which would render SaaS solutions useless.  But things are now changing and there are a whole new set of SaaS-based ERP solutions emerging on the market.

We were pleased to review a recent blog post by Derek Singleton at Software Advice, where he does a very good job of reviewing some of the latest ERP products that have made the move to the Cloud including Epicor, Infor, NetSuite, Plex and SAP Business ByDesign.

It is a great read.

Enjoy.

Kevin

Manufacturing software vendors are making aggressive moves to the cloud. In the past year alone, four vendors rolled out full suite Software-as-a-Service (SaaS) offerings for the industry. That brings the current tally of full-suite SaaS players in the manufacturing arena to five: Epicor Express, Infor SyteLine, NetSuite, Plex, and SAP Business ByDesign.

The buzz around the cloud has manufacturers asking if a cloud solution is right for them. To help answer that question, I’ll explore the features and functionality each vendor offers, and the ideal target market for each. Many more vendors are redesigning their software for the cloud, but I thought I would spotlight the five that are already there.

First, here’s a brief introduction to the vendors.

In May of 2010, Epicor released Epicor Manufacturing Express Edition (Epicor Express), the SaaS version of their Epicor 9 product. Their SaaS offering was designed specifically with smaller job shops and manufacturers in mind. Currently, 70 of Epicor’s 9,500 manufacturing clients are working in the cloud on Epicor Express. The product is currently targeting a 20 to 30 day period to go live. That should be attainable for small job shops without complex data migration needs.

Infor moved their flagship SyteLine product to the cloud in October of 2010. Of their 70,000 customers, mostly manufacturers, 800 have put some of their solutions in the cloud. Infor takes pride in the flexibility of their .NET architecture and their ability to serve mixed-mode manufacturers. In future releases, Infor plans to expand multi-site capabilities, and expand their mobile applications.

NetSuite began pursuing light assembly and less complex discrete manufacturing customers in 2007. In June of 2010, they launched their first full-suite manufacturing offering to target mid-market manufacturers. As a pure SaaS company, NetSuite’s manufacturing clients all operate in the cloud. NetSuite currently supports multiple sites, multiple languages and currencies. In future releases, they plan to expand upon this functionality and target more complex manufacturing industries.

Plex was the first SaaS player to target the manufacturing industry with their 2001 cloud-computing debut of Plex Online. At their start, Plex targeted the automotive industry. Since then, the company has expanded into several other verticals. As a pure SaaS vendor, all of Plex’s 589 manufacturing clients are in the cloud. Future releases will focus on expanding global capabilities, and developing functionality for more vertical manufacturing markets.

The July 2010 release of Business ByDesign 2.5 marked the on-premise ERP powerhouse’s first SaaS move into the manufacturing market. The product hosts 250 customers, but we don’t have a detailed count for how many customers are manufacturers. Regardless, SAP has tremendous manufacturing domain expertise to incorporate into the product over time. In future releases, SAP will focus on expanding their functionality to cover mixed-mode manufacturing and engineer-to-order.

Read the rest of the post… click here.

Company:            Hewlett-Packard

Started:               1939

Located:              Palo Alto, California

Geography:         Global

Products:             Offers a portfolio that spans printing, personal computing, software, services and IT infrastructure solutions

Website:              HP Website, HP SaaS Website

Blog:                   Grounded in the Cloud

Twitter:              @HPSoftware

Recent News:

HP’s Bill Veghte to Deliver Keynote Address at RSA 2011 Security Conference

HP Joins the White House in Fueling Innovation and Entrepreneurship

HP Drives New Era for Cloud Computing

I asked Kevin Bury, general manager of HP Software-as-a-Service solutions a few questions about his SaaS business and his view on the market as we start into 2011.

Why did you launch a Software-as-a-Service business?

We are saw a lot of interest in SaaS and the Cloud as our customers were looking for ways to get the most out of their IT budgets.  When we looked at what companies were doing with SaaS, it gave them the ability to outsource non-core applications, operate more efficiently, all while taking advantage of Cloud-based technologies.  Our customers kept asking us what HP was offering as-a-service?  That was a big driver.

Actually HP has a lot of experience with SaaS as result of purchasing several subscription-based software companies including Mercury Interactive, Peregrine Software and Opsware.  HP is the sixth largest software company and our percentage of pure SaaS software revenues is large. Our goals over the next few years is to increase our SaaS revenues by 4x and our subscription bookings by 100%.

Everyone from the CEO down believes in the importance of SaaS and Cloud Computing on the future of HP’s business.  Our movement to SaaS and our organizational transformation is starting inside of HP’s Software division but we don’t want to leave SaaS out on an organizational island.  We experimented with a couple of concepts but ultimately we decided on a broader approach that has us transforming our entire software business.  We plan to make significant headway with our SaaS transformation over the next three years.

What lessons have you learned in building your SaaS business?

Our approach to SaaS is transformational and we want to move from our current Business Technological Optimization (BTO) structure and offerings, which are mostly on-premise to more of an as-a-Service set of solutions.  We will take our existing license and services and build them into more a consumption-based model for our customers. This is really a result of trying to look at IT challenges from the customer’s perspective.  So we are now designing solutions that allow our customers to consume our software in a way that makes the most sense to them.

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Company:            Cloud9 Analytics

Started:                2007

Located:               Redwood City, California

Geography:          Global

Market:                 On-Demand Performance Management Solutions for Sales

Products:              Cloud9 Pipeline Accelerator Suite and Cloud9 Analyst Suite.

Key Customers: Aspect, Avaya, Beckman Coulter, Inc., Carestream Health, Inc., D&B, Jigsaw, MySpace, Rolls-Royce, Schneider Electric, Siemens Enterprise Communications, Splunk, Thermo Fisher Scientific, Thomson Reuters Healthcare

Website:               Cloud9 Analytics

Community:         Cloud9 User Community

Twitter:                @Cloud9Analytics

Recent News:

Cloud9 Achieves Breakout Performance in 2009

Karen M. Steele Joins Cloud9 Analytics as Vice President, Marketing

Cloud9 Analytics Integrates Goals, Bookings and Sales Data For salesforce.com Customers

Cloud9 Announces Major Business Expansion - Large organizations accelerating adoption of Cloud9 solutions

I asked Swayne Hill, Cloud9 Analytics CEO 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?

Yes, from its inception, Cloud9 has been a 100% multi-tenant platform for performance management applications like sales pipeline management and forecasting. The company is also SAS-70 certified.

Why do your customers buy from Cloud9?

Cloud9 Analytics provides SaaS performance management applications designed for customer-facing front office functions including sales, operations, marketing, services and support. Cloud9 solutions help companies optimize revenue by providing real-time visibility into what’s changed in key management processes such as managing the sales pipeline or managing the forecast.  Cloud9 solutions deliver sales leaders and executives with actionable insight into the state of their business with a single, consistent and flexible view.  Unlike other business intelligence tools designed for the IT department to build Ad Hoc reports, Cloud9 provides domain-specific analytic applications delivered through a software subscription, that are immediately relevant and consumable for line-of-business users. Using Cloud9 solutions, customers report increased win rates and forecast accuracy leading directly to increased revenue.

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

As Cloud Computing platforms such as Salesforce’s Force.com, Amazon AWS, Google’s App Engine, Intuit’s IPP and others emerge for Cloud Computing development, there will be greater opportunity for ISVs to provide solutions and broaden their reach.

What is your outlook for 2010?

Cloud9 sees continued rapid expansion of SaaS business analytics, driven by trends like:

Technology: Smarter automation support for key management processes that are currently bogged down by today’s disconnected manual approaches.

Data Transparency: Businesses need to stem the flow of disappearing data from transactional systems like CRM and put that data to work on the front lines.

Economic Turnaround: The economy will expand again and business will invest in technology that creates competitive advantage - SaaS will become the model of choice with minimal upfront costs and quick time-to-value.

After our post on January 26th we got several great comments about the cost of starting a SaaS company.  It definitely takes a commitment to build a true SaaS company, especially when you consider some the following facts about the 15 public companies that I tracked in my high level analysis:

• Average Start-up Capital Required:                                   $44M
• Average Time Required from Start-up till IPO:                 7 years
• Average Capital Required per Year till IPO (Burn):             $6.8M
• Average IPO Proceeds:                                                    $76M
• Additional Capital Raised After the IPO:                           $243M
• Average Total Capital Raised:                                          $363M
• Average Market Capitalization:                                      $1,262M
• Companies Who are Profitable:                                            8

Company:              Cornerstone OnDemand

Started:                  1999

Located:                 Santa Monica, California

Geography:            Global

Market:                  Integrated Talent Management

Products:              Onboarding, Learning Management, Social Networking, Compliance, Performance Management, Compensation, Succession Planning and Extended Enterprise

Key Customers:   Barclays, Barnes & Noble, Kelly Services, MasterCard, Turner Broadcasting, Starwood Hotels & Resorts, Flextronics, Ticketmaster, Sanford Health, Save the Children

Website:               Cornerstone OnDemand

Blog:                    Talent Management Blog

Twitter:                @Cornerstoneinc

Recent News:

Cornerstone OnDemand Spotlights Key Learning and Talent Management Trends at Learning Technologies 2010

Cornerstone OnDemand EMEA General Manager to Give Keynote Presentations at iLearning Forum 2010

NRF Foundation Chooses Cornerstone OnDemand’s Industry-Leading LMS for Global Training Initiatives

Cornerstone OnDemand Rated as a Leader in Bersin & Associates’ “Talent Management Systems Customer Satisfaction” Report

New Features Put Cornerstone OnDemand’s Enterprise Social Networking Platform on Par with Stand-Alone Solutions

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I asked Adam Miller, Cornerstone OnDemand’s President and 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 as CyberU, which was an on-demand Internet content company, focused on e-Learning. We were on-demand before there was Software-as-a-Service.

The original idea for the company was to provide access to education on-line for individuals and small businesses, which was more of a consumer business model than what we are doing today. CyberU was a distributor of on-line training content as opposed to delivering the courses through a traditional classroom.

What we started to realize is that large companies were interested in educating their employees, so we then begin selling to large Fortune 100 type companies. Many of these companies had a strong resistance to using any type of on-line business solutions, because they felt that it should be inside their own data center behind a secure firewall. There were a lot of concerns around security, scalability and control of business applications. This was about the same time that Amazon.com was launching their on-line retail operations and consumers had similar issues putting their credit card information on-line. From about 2000 through 2006 we were just a small software company that sold training and content over the Internet.

We held to our belief in on-line solutions and even as recently as 2004 we lost many of our deals because we wouldn’t deliver our product as an on-premise offering, but we knew if we did that for even one client we would undo our economic model.

Then over time we were still managing training on-line but our customers wanted to tie the courses back to leadership and succession plans and then led us to rollout an integrated Talent Management suite of solutions. Well, as it turns out the SaaS model has caught on and has grown form less than 300,000 to now over 3.3 million eLearning and Talent Management users, who are happy we decided to deliver our products over the Internet.

Why do your customers buy from Cornerstone OnDemand?

Our customers buy from us because our solutions are better, faster and cheaper than traditional Talent Management solutions.

We are better because we offer a fully integrated talent management platform that covers all of the different aspects of managing people all the way from ‘hire-to-retire’.

Cornerstone OnDemand is faster because our entire system is configurable with 11 discrete modules and over 9,000 individual features, that all can be personalized to address our customer’s business requirements. Our customers can also start with a single model and then turn on incremental modules over time as they are ready for more functionality. Our system can scale to serve the needs of the largest organizations and down to very small companies. In fact, our largest customer is Kelly Services with over 750,000 users and we have eight customers who have more than 150,000 users each. Our average customer has about 14,000 users.

The reason we are cheaper is because we are a pure-play SaaS provider. Our customers have found that it is cheaper to only have to buy from a single supplier, not have to buy hardware and have a lot of staff having to manage multiple systems and relationships.

Our customers also like that we only build products based on their enhancement requests because we don’t build software they don’t want. We currently offer five integrated products including Learning, Performance, Succession, Connect or what some are calling Social Networking and Extended Enterprise which services the needs of non-employees using both our Learning and Connect products. Cornerstone offers global capabilities and has users in 141 countries and supports 16 languages. We think we are doing a good job because we have 95% customer retention rates and that is very important to us.

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

The biggest trends we see are Cloud Computing and Mashups. Mashups can be Platform-as-a-Service (PaaS) methods to combine application functionality and even integrations between different company’s systems. It is like delivering third party content to customer and they don’t know where it comes from but it is valuable. We anticipate that customers in the near future will be able to do basic integrations between content and systems themselves without needed the assistance of any third party or system integrators and that will be very popular.

We are also starting to see more, large-scale deployments as SaaS becomes more mainstream. As I mentioned earlier we have eight customers with over 150,000 users including some very large banks, insurance and two of the largest healthcare companies who are now deploying Cornerstone OnDemand solutions, which is exciting.

What is your outlook for 2010?

2009 was the best year we have ever had and broke all of our records. We think that 2010 is even going to be better and we are very bullish.

Last year we were able to gain some significant marketshare and we will continue our expansion this year. For instance our partnership with ADP is just getting off the ground and this year we will anticipate more deals from a growing partner pipeline. ADP is proving to be a great partner and has brought a lot of resources to the table and we are optimistic about 2010.

But we are still not out of the woods with the broader economy and there are still has some weak spots, so we will continue to monitor things carefully.

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

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

Company	Investment	Current Market Cap	Ticker Symbol
	(in 000’s)	(in 000’s)
Blackboard	$100.7M	$1,300M	BBBB
Concur	$30.2M	$2,100M	CNQR
Constant Contact	$37.3M	$527M	CTCT
DealerTrack	$48.0M	$774M	TRAK
Kenexa	$54.5M	$256M	KNXA
LivePerson	$41.6M	$335M	LPSN
LogMeIn	$20.0M	$448M	LOGM
NetSuite	$84.9M	$1,000M	N
RightNow	$32.2M	$553M	RNOW
Salary.com	$5.7M	$40M	SLRY
Salesforce.com	$64.5M	$8,500M	CRM
SuccessFactors	$54.5M	$1,100M	SFSF
Taleo	$36.9M	$891M	TLEO
Ultimate Software	$25.1M	$755M	ULTI
Vocus	$26.4M	$345M	VOCS