Company:             BrightIdea

Started:                 1999

Located:                San Francisco, California

Geography:           Global

Market:                  On-Demand Innovation Management

Products:              WebStorm, Switchboard, Pipeline and Platform

Key Customers:  Adobe, Bosch, Cisco, AMEX, Harley-Davidson, Experian, Thomson Corp, British Telecom, Bristol-Myers Squibb, and Honeywell

Website:               Brightidea

Blog:                    Innovation Work

Twitter:               @BrightideaHQ or @Brightidea

Recent News:

City of San Francisco Selects Brightidea to Power Open Innovation Campaign

Ireland Launches an Exciting Competition to Help Build Job Opportunities and Secure Prosperity for Ireland, Powered by Brightidea

Brightidea Releases Idea Management Apps for iPhone and Android Platforms

I asked, Brightidea’s Vincent Carbone, the company’s co-founder and COO a few questions about his business and his view of the SaaS market during 2010.

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

Yes, Brightidea was founded in 1999 and from day one our solution was designed on a multi-tenant database architecture that supports our SaaS application solutions.    The concept of SaaS was still in its infancy, but with the launch of Salesforce.com and their brilliant “No Software” tagline, we believed SaaS was the future. We really believe Brightidea is the Salesforce.com for Innovation.

Why do your customers buy from Brightidea?

Unlike 50 years ago, companies today must continuously innovate at an accelerating pace to stay competitive.   Companies buy from Brightidea because there is a fundamental organizational shift underway in medium and large companies who are moving their core business function from a “how to make” to “what to make” mindset. Most companies currently have no infrastructure or software to help them effectively manage their employee, partner or customer ideas that will lead to the development of future products and services.   Similar to how companies implemented Customer Relationship Management solutions 15 years ago to manage and optimize their sales pipelines, companies are now starting to implement Innovation Management Software to better manage and optimize their Innovation Pipeline.

Our customers choose Brightidea because we have over 10 years of experience implementing innovation systems in large, complex organizations. Unlike more generic SaaS social software, like Jive and Lithium, Brightidea’s Innovation Management Solutions are grounded in a core business need around innovation, which delivers a true return on our customer’s investment. These business returns are measured in how our customers can manage large-scale projects, encourage new ideas that can improve innovation around product development, cost cutting and even safety ideas.

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

One of the key trends we see is user-adoption of social networking components inside of SaaS software for collaboration.  It wasn’t until consumers started to get comfortable with sharing information on Facebook, that the workplace began to feel comfortable sharing information in a similar manner.  We believe most SaaS applications will continue to adopt more social and collaborative functionality.

What is your outlook for 2010?

We think the future is bright in 2010 for several reasons.

Acceptance of Cloud Computing is going to grow within most IT organizations, so companies will be looking to adopt more SaaS-based solutions.

As I mentioned, users of SaaS software are going to get more comfortable with social networking and collaboration capabilities and organizations will continue to add internal resources that are focused on driving business value through collaboration. We also believe that innovation is inherently a social activity, which means that all of these trends should be good news for Brightidea.

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

The costs of getting a SaaS start-up off the ground are substantial but only about half of the firms we tracked actually started out as a pure SaaS company.   These other Cross-Over firms started out as either Application Service Providers (ASP’s) or were traditional On-premise ISV’s that move to SaaS through a combination of organic migration or through a series of acquisitions.  Companies like Concur, Kenexa, Taleo and Ultimate Software have all transitioned to SaaS from an on-premise heritage.

Montclair Advisors - SaaS Start Up Costs - Pre IPO

The shortest time to go from start-up phase to an IPO was 4 years and the longest was 13 years.  Most of the firms we tracked were founded between 1997 to 1999, which was prior and during the Internet Bubble.

When these firms went public they raised a range between $30M (LivePerson and Ultimate Software) to over $150M (DealerTrack and NetSuite), but on average they raised about $75M.  All the firms then went on to do additional capital raises from $32M (LivePerson) up to $750M (DealerTrack) but on average each raised $243M!   The total capital raised, when considering both pre IPO, IPO and post IPO capital raised, these firms raised between $100M (LivePerson and Ultimate Software) to close to more than $500M (DealerTrack, Salesforce.com and SuccessFactors).

Montclair Advisors - SaaS Start Up Costs - Post IPO

After going public, this SaaS market basket of companies have done well as a group.  The majority of the firms are profitable, which makes for solid cash flow performance, revenue visibility and overall stability of the company’s stock, for the real SaaS firms.

The most valuable company, based on their Market Cap is Salesforce.com at more than $8B and there are at least 4 other SaaS firms with valuations over $1B (Blackboard, Concur, NetSuite and SuccessFactors).  When comparing the amount of capital raised to the market valuation, the 5 best performing firms are Salesforce.com (.09), Ultimate Software (.13) , Concur (.19), RightNow (.22) and LivePerson (.31).

Montclair Advisors - SaaS Start Up Costs - Market Caps

This year, as the economy improves, promises to launch a few new SaaS IPOs and we will continue to track this core group as well as a larger group of Hybrids and Cross Overs and will periodically report back with our findings.

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

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

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

Most Influential SaaS Company:     Salesforce.com

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

Most Influential SaaS Individual:     Marc Benioff

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

Best Transition to SaaS:                  Concur (Steve Singh)

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

Biggest SaaS Acquisition:                 Omniture (Josh James)

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

Largest SaaS IPO:                              NetSuite (Zach Nelson)

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

Largest SaaS Deployment:              SuccessFactors (Siemens)

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

Biggest SaaS Comeback:                     Dave Duffield (Workday)

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

Most SaaS Customers:                       Salesforce.com

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

Most Influential SaaS Analyst:         Bill McNee (Saugatuck Technologies)

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

Most Influential SaaS Journalist:          Phil Wainewright

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

Most Influential SaaS Pundit:              Jeff Kaplan (THINKstrategies)

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

Most Influential Investment Firm:          Bessemer Venture Partners

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

Company: Marketbright
Started: March 2005
Located: San Bruno, California
Geography: Global
Market: On-Demand Marketing Automation Solution

Products:
Marketing Automation

Enterprise Website Management

B2B Sales Portal using Social Networking

Key Customers: Varonis, Serena Software, SAP Business Objects and Genesys

Website:    Marketbright

Recent News:

Marketbright Grows Customer Base by 43% in Q1 2009

Marketbright Expands Capabilities for Salesforce CRM Customers

Raab Guide Ranks Marketbright Among Top Demand Generation Systems

Marketbright and Rackspace Hosting Announce Solution Partnership

I asked Dom Lindars, Marketbright 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?

When we started out in 2005 our vision was to create a better way to automate and integrate SaaS functionality using tools and systems to streamline large scale marketing efforts, and improve marketing ROI. I have more than 18 years experience as a veteran of online marketing and website management and Marketbright’s senior team has its roots in large enterprise marketing operations, web content management, business and enterprise software sales.

Why do your customers buy from Marketbright?
Our customers turn to us for sophisticated lead nurturing and management programs, which emphasize listening closely to customer feedback, communicating proactively and building relationships. Lead nurturing is a new business practice for many companies, where the typical mode of operation usually has marketing throwing all leads over the wall to pre-sales or sales –who often cherry-pick leads and leave the others to grow cold. Nurture marketing involves building multistage campaigns that interact with customers across multiple touch points. These nurture programs can create complex customer interactions that are difficult to manage and run the risk of causing customer fatigue if not handled properly or efficiently. Our customers choose the Marketbright approach because it automates the difficult task of managing multi-touch campaigns and the resulting, often complex flows. The platform provides an easy way to deploy and manage multi-touch campaigns across all marketing channels:

Our customers rely on us to deliver marketing automation solutions that check all the boxes, are easy to use for all team members, make complex tasks simple, and are integrated, secure, scalable and reliable.

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

The advent of social media has had an enormous impact across industry. In light of the economic instability (and at the risk of discussing the economy ad nauseam), most organizations are making efforts to save money and tighten their belts. Often the first way to do this is to cut spending on marketing for one, but the problem is, this is the time when money spent on marketing is probably more critical than ever. Companies just have to spend their money in the right place, and social media is emerging as a pretty safe bet. Even better, a SaaS solution combined with social media efforts will give you more bang for your buck. SaaS does well in a downturn economy, especially when big organizations are looking to cut back and outsource. It’s also a good alternative when organizations have no or small IT groups, or their IT teams simply don’t have the bandwidth to contribute to social media efforts.

Over the next few years we’ll see social media as a baked-in element of all multi-channel marketing solutions. At Marketbright, we’re already bringing in 17% of our leads through social media, such as LinkedIn, Twitter, Facebook, and staff blogs. Most importantly, no one objects to spending on marketing when it directly results in delivering qualified leads to sales.

What is your outlook for 2009?

In this year of pocket change, trying to find a way to sell more with less, stretching less of last year’s marketing dollars to meet more of this year’s is a top priority. The challenge for many businesses today is they seek a silver bullet, one solution that will solve everything, which of course is non-existent.

For the remainder of 2009, B2B companies should focus on the lead generation activity delivered in the past that directly produced the greatest return. Spend on those programs that generated the majority of business last year. (Seems obvious? Do any of your budgets show trimming of activities you should really be stopped altogether?) Work with sales to identify those accounts that have the greatest propensity to move through the pipeline. Get proactive. Find out what is the minimum amount of information you need to give to a prospect to make them a customer and give it to them proactively.

There is no point in pretending 2009 hasn’t been a challenging year for business thus far, but we may as well make the best of it. Apply your best judgment in becoming more agile, more creative, and above all pay attention to the data that is sitting in your businesses. Find out what worked, do more of it. Accept what didn’t. Don’t do so much of that.

Thank you to Dom Lindars, Erik Bower and Lilly Hanscom for contributing to this profile.

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:          Host Analytics
Started:              2000
Located:             Redwood City, California
Geography:        North America
Market(s):          Financial Budgeting and Planning
Products:           Performance Management Suite

                           Budgeting and Planning

                           Revenue Planning

                           Financial Consolidations

                           Scorecard and Dashboarding

Key Customers:  P&G, JPMorgan Chase, Thule and Pitney Bowes

Website:             Host Analytics

Blog:                  Host Analytics Blog

Recent News:

Host Analytics Soars Into 2009 With Record Fourth Quarter Result

Host Analytics Partners With Boomi to Revolutionize Delivery of Corporate Performance Management Solutions

Host Analytics Continues Market Leadership in Manufacturing Companies

I asked Jon Kondo, Host Analytics 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 as a founder and angel investor funded, on-demand service in 2000, that enabled our customers to run our innovative budgeting and planning solutions a hosted application. We launched our SaaS based service in 2005 and expanded our solution to include a comprehensive and integrated Corporate Performance Management suite. In 2008, we secured our first round of venture capital funding and introduced editions of our SaaS solution targeted to the needs of small to medium sized businesses, departmental enterprise users, public sector and non-profit organizations.

Why do your customers buy from Host Analytics?

Host Analytics helps organizations streamline the performance management process, align the planning process with business strategy and effectively measure performance and manage change.  As a SaaS delivered solution, Host Analytics customers realize fast time to value through quick implementation of solutions, the highest levels of user adoption, effective empowerment of business users and a continuous flow of Host Analytics provided solution innovations and improvements. Businesses relying on error prone, complex and inefficient spreadsheets for budgeting and planning experience improved productivity and effectiveness by converting to Host Analytics’ integrated suite of corporate performance management solutions. Host Analytics’ “Excel in a Browser”, user interface style, minimizes the learning curve for finance, accounting and managerial professionals and helps to deliver fast time to value.  Businesses with complex performance management requirements find Host Analytics solutions to be cost effective, easy to learn and fast to implement while delivering the required corporate performance management functionality when compared to legacy in-house and on-premise license based software solutions.  Host Analytics is the only SaaS-based integrated Corporate Performance Management solution suite available for businesses of all sizes and industries.

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

The biggest story in SaaS is the impending impact of Cloud computing. The combination of SaaS based corporate performance management and Cloud computing will make “Plug and Plan” a reality. “Plug and Plan” budgeting and planning is an integrated approach to business planning.  Data from multiple sources like ERP, HCM and CRM systems is quickly and transparently integrated into a Corporate Performance Management solution to extend and optimize budgeting, revenue planning, financial consolidation and score carding processes. This allows businesses to convert their planning from an annual or semi-annual event to a continuous process of timely and current adjustments.

What is your outlook for 2009?

We have a very positive outlook for Host Analytics in 2009.  Today’s challenging economic conditions have created an environment where corporate performance management is more important than ever before. The current environment of non-stop significant economic news and events is driving businesses to reinvent their budgeting and planning processes by adopting new processes, methodologies and technology enabled solutions.  We are seeing a significant increase in interest in SaaS based CPM and believe that 2009 will be an inflection point for SaaS, cloud computing and business planning solutions like CPM.  Clearly, adoption of SaaS based CPM is increasing across a broad spectrum of businesses and industries.

When most companies think about moving towards a Software-as-a-Service business model they often just change their pricing model.  You know the drill, instead of charging a big perpetual license fee upfront with some services and then an annual maintenance fee, you switch over to a SaaS agreement that is structured quite differently; with the subscription being spread over the term of the agreement and some upfront services to get started.

Don’t get me wrong, changing your pricing is a big deal if you are a traditional software company.  By changing your pricing dynamic you are moving from a Capital Expense (CapEx)  to an Operating Expense (OpEx) orientation, this is a dramatic change!  It’s even a bigger deal if you are a publicly traded software company.  But the overall SaaS business model is really all about monitoring and measuring metrics, ratios and statistics.

I ran into a very interesting company recently, OpEx Engine,  that has done extensive benchmarking of SaaS and technology companies, and has complied a library of operational metrics for over 50 public and privately held software firms. Lauren Kelley, OpEx’s CEO is an ex- Art Technology Group (ARTG) executive who realized that smart technology  people were looking for these types of real-world benchmarks and operating metrics. Lauren’s team has spent the last two years accumulating a lot of really value information.  I can’t tell you how many times I have looked for good comparative metrics on how much companies typically invested in sales and marketing, research and development and G&A when building out a business model.  For instance, did you know that of all of the publicly-traded SaaS companies that DealerTracker (TRAK) has the lowest R&D investment as a percentage of their revenue? (4.9%)  Did you also know that Salesforce.com (CRM), Omniture (OMTR), NetSuite (N), and SuccessFactors (SFSF) all spend more than 50% of their revenues on sales and marketing? That’s an easy one but you should definately check out the free information that Lauren provides on her site.

There are many other metrics that are needed to successfully run a SaaS company but one of the most important is your overall cost of sales and marketing.  Understanding what your true Customer Acquisition Costs is a critical SaaS business performance indicator.  I was recently at the SIIA On Demand Conference in San Jose where I heard Josh James, the CEO at Omniture present his sales and marketing modeling methodology, that he has dubbed the ‘Magic Number’ for SaaS companies.   Since it would probably justify a completely separate post, all I can say that this is a really innovative way to determine if your % of sales and marketing spend is either too much or too little.  Phil Wainewright wrote a great piece on the Magic Number - When to spend cash in a SaaS business - which is definitely worth reading.  What Omniture has done really well is to figure out the overall profitability of their clients, market saturation, marketing effectiveness and the number of Quota Bearing Sales Reps (QBSR’s) that are required to grab market share. It’s cool.

Other sources of good SaaS market information and metrics are:

TripleTree, a boutique investment bank which conducts some solid SaaS research, Cutter Consortium, Saugatuck Technologies, and Jeff Kaplan’s firm Think Strategies.

If you hear of any other good ones, let me know.