Happy New Year!

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

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

What we learned from these thirty-four profiles:

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

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

Profiles by SaaS Category

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

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

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

Public vs. Private

Public:               6

Private:             28

Profiles by Age of Company

0-5 Years:         9

5-8 Years:        10

8+ Years:         15

M&A by Companies

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

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

(Worldwide Comp), Xactly (Centive)

Fundraising Public & Private

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

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

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

Company: eQuest
Started: 1998
Located: San Ramon, California
Geography: Global
Market: Human Capital Management – Recruiting and Job Boards
Products: eQuest Job Posting Distribution

eQuest OFCCP Compliance Job Posting Package

eQuest FreeBUG

eQuest P2 (Prophesy2)

eQuest P3 (Prophecy3)

eQuest Interactive Media

Key Customers: Hewlett Packard, Johnson Controls, Starbuck’s, Liberty Mutual, Home Depot, AT&T

Website: eQuest

Recent News:

eQuest to Release 2008 Job Board Candidate Traffic Patterns and Statistics in Official Report Slated for February, 2009

eQuest Extends Agreement with Taleo Business Edition to Provide Ongoing Global Job Posting Support

MrTed and eQuest Release Job Posting Delivery Services through SmartRecruiters

I asked John Malone, eQuest’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 – actually, prior to it being called SaaS. eQuest’s technology and business models required this type of functionality to best integrate with the Applicant Tracking System (ATS) and ERP markets and to give customers increased flexibility.

Supporting daily job board data formatting changes is like shooting at hundreds of moving targets at once. SaaS was the only option for this type of business.

Why do your customers buy from eQuest?

We have a proven service that our ATS and ERP customers trust. With the present recession, budgets for hiring are naturally being reduced and companies want to make sure that their recruiting dollars are being spent at the most effective career sites. Our metrics and analytical software tools, like Prophesy 2 and 3 can make on-the-fly evaluations of the site’s effectiveness prior to posting a position.

Clearly companies find this a unique capability and an invaluable tool as part of their reason for using our services. In fact, we recently won the 2008 HR Executive’s Product of the Year award for Prophesy 3, our innovative job board evaluation tool, which is the first solution that allows a recruiter to follow a candidate all the way through the hiring process from posting the job, to their first view on a job board to the final hiring.

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

Simplicity as a Service (SaaS)

Most corporations are becoming increasingly frustrated with the long deployment cycles, high costs and complicated upgrade processes demanded by traditional software applications. These are common complaints about the large traditional software providers.

Software as a Service (SaaS) has become one of the fastest growing segments of the IT sector, because it provides customers with software solutions that can be implemented quickly, while avoiding the incremental infrastructure costs traditional with on-premise applications.

What is your outlook for 2009?

New opportunities in 2009 include global expansion - opening offices in Europe and Asia; continued feature enhancements to our existing technologies; and plans for introducing some exciting new products. We are expanding in new sub-sectors of the market and expanding customer base through new partnerships around the globe.

Thank you to John Malone for contributing to this profile.