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It is always hard to predict the future, but here are my 10 Predictions for the SaaS market in 2011, and they might just happen:
Blockbuster Subscription Software IPO’s
A number of large consumer subscription software players including Facebook, Groupon, LinkedIn, Zynga and Skype could really open up the public markets with a major blockbuster IPO (or IPO’s) in 2011. SaaS firms that look to get everyone’s attention with potential IPO’s next year include Cornerstone OnDemand, Workday, Marketo, Service-Now and possibly Plateau.
Major Players Merge to Form the Next Big SaaS Brand
So my prediction (which is a pure guess) is that SuccessFactors and Taleo finally get over their respective CEO ego issues and decide to merge. Sounds a little crazy, but when you really consider their product portfolios, there might not be as much of an overlap as you might think. SuccessFactors is basically a performance and analytics company and Taleo is a recruiting and learning (after acquiring Learn.com) company. They both have some additional components that could be plugged into to create a more comprehensive suite of CPM and Talent Management offerings.
This would also create a combined company with a market cap approaching (SFSF + TLEO) $4B and annual revenues in excess of $400M, which would be the second largest SaaS firm in the market, and a clear leader in their space. Another potential marriage might be Concur and Ultimate Software.
Oracle Finally Pulls the Trigger on NetSuite
It seems like most Oracle SaaS rumors involve the acquisition of Salesforce.com, and that may happen some day, but the more likely combination for 2011 is NetSuite. Larry Ellison is a major investor in NetSuite (early investor) and own/controls more that 50% of the company’s shares. He may come to the conclusion that he needs some real SaaS DNA inside of Oracle to help grow their Fusion business in 2011 and beyond.
SAP Throws in The Towel and Buys Leading SaaS Player
Similar to the realization that many other major traditional ISV’s will come to in 2011, that they are too far beyond in SaaS to catch up organically, SAP will buy their way into SaaS. The Business ByDesign project for SAP, by some estimates, has cost more than $1 billion and there isn’t much to show for it. I always thought that the Sybase acquisition was just a smoke screen to cover up how little progress has been made with BBD at their most recent Sapphire user meeting. Like Oracle, I think SAP reaches out into the market and purchases a SaaS firm to jump start BBD. RightNow would be an interesting choice since SAP wants to make a splash in the CRM market.
Master Brands Continue to March Towards SaaS
These big software companies are no longer just paying lip service to SaaS or the Cloud, they continue to catch up with the subscription software market transition that is happening everywhere. All sizes of customers who were battered during the recession are no longer interested in spending a lot of capital and time that has been associated with traditional software projects and are becoming increasing comfortable with SaaS. This shift in the Software market is massive and is going to take at least 10 years, and we are probably only in the second year (post-recession) of this shift. Continue to look to see what SaaS moves firms like Oracle, SAP, HP, CA and Infor make in 2011.
Continued Explosion of PaaS offerings
Look at Salesforce.com’s recent moves to expand their Force.com Platform-as-a-Service portfolio with VMForce and then buying Ruby on Rails provider Heroku for over $200 million. Beyond Force.com there are many other offerings here today and coming in 2011 including App Engine by Google, Apprenda, Azure by Microsoft, Corent, Engine Yard, Facebook, Flex by Adobe, Fusion by Oracle, Intalio, IPP by Intuit, LongJump, Nimbula, SuiteCloud by NetSuite, and Wolf Frameworks.
As long as traditional ISV’s continue to move towards SaaS, there will be a green field opportunity for all types of PaaS solutions. Look for several of these firms to be acquired in 2011 by larger ISV’s.
Salesforce.com Continues to Expand Beyond CRM
After attending Dreamforce this month, it was curious to see a number of Force.com firms offering ERP extensions starting to gain real market momentum. Companies like FinancialForce.com (they purchased Appirio’s PSE business) who are delivering a growing suite of financial and accounting applications, JobScience who continue to build out their Talent Relationship Management suite on Force.com, Less Software who is selling a targeted Supply Chain Management solution and even Remedy’s Service Desk offering, RemedyForce Cloud. If Salesforce offers an attractive exit for any of these firms or their Force.com products, like they did with Heroku, then it might be possible to do a quick roll-up of key partners to create a competitive Cloud-based ERP solution.
Interestingly this type of move might be triggered by Oracle buying Netsuite or Workday going public.
Fake SaaS Firms That Use Private Clouds Will Loose Altitude
Although Private Clouds might be a viable alternative for enterprises who are looking to leverage the economics of the Cloud, for software companies this type of approach will only provide short term ‘Fake SaaS‘ types of solutions. This type of business model of hosting single-tenant software was known as Application Service Providers (ASP’s) and none of these companies that emerged about 10 years ago were able to find a business model that really scaled profitably. Private Clouds will offer a short term technology transition steps for software companies who are moving away from just offering traditional on-premise software but this trend will really start to fade by later next year.
New Revenue Streams for SaaS Firms That OEM
At Dreamforce ‘10 Salesforce.com announced that they are launching their new Database.com offering, a Database in the Cloud. What was interesting about this news is that Salesforce is really just reselling a private-label version of Oracle’s database technology. For Salesforce this is a unique way to take proven Oracle software, designed for on-premise deployment, and create a true subscription-based version of this product. No doubt that Salesforce will need to do some work to create a massive multi-tenant version of an ORACLE database and then deliver it as a service, but they are already doing this today through their Force.com platform. This could be a significant new revenue stream for both companies and look for other SaaS firms to try OEM’ing their software as a way to improve their CAGRs in 2011.
This should be an interesting year as the economy improves and the SaaS market really begins to gain some serious momentum. It should be a fun time to be in the Software business again.
Kevin Dobbs, Montclair Advisors, LLC
June has been a big SaaS month for Intuit! Over the past few months I had noticed that Intuit had quietly started moving more into the Software-as-a-Service market. These moves became more apparent this month with these announcements:
June 2 - Intuit acquires PayCycle, a leading SaaS payroll firm
June 4 - Intuit announced their new SaaS partner platform - Intuit Partner Platform, releases their online portal Intuit Workplace and pulls in their Intuit Marketplace.
So what does this all mean?
Well, for a company that couldn’t seem to spell SaaS and has traditionally sold almost all of their products in CD’s, this is a really major shift. Intuit had dabbled in on-line versions of Quicken and QuickBooks but these announcements were a real strategic departure in their business away from the old software model.
Consider the Intuit business franchise for a moment;
* 4 million QuickBooks customers, representing 25 million users
* 1 million Intuit Payroll customers, about 14 million employees. Of this maybe 100,000 are onlinebut that still represents about 1.5 million employees. With the PayCycle deal adding another 80,000 customers.
* QuickBase adds another 250,000 customers to the portfolio.
* The Intuit Developer Network has approximately 75,000 developers enrolled.
These are big numbers, in a market segment, Small and Medium Business, that everyone in the software market is looking to penetrate.
Why Buy Another Payroll Engine?
This was the first thing that crossed my mind when I heard the news. I guess it’s obvious. Moving Intuit’s existing payroll engine over to SaaS would cost too much and take too long, so they bought the leading SaaS payroll product.
Why is payroll important? Because if you think about a sticky application for any size business, payroll has got to be one of the most important. Look at ADP, Paychex and Ultimate Software to see the type of rock solid franchise you can build with a great payroll engine. Considering how many small businesses already use Intuit’s other off-line software products, some basic cross selling of payroll could dramatically increase their revenues and help them to move these customers on-line, where the real revenue play is.
So Once You Get Your Customers On-line, Then What?
This has been one the bigger challenges for most software companies transitioning to the SaaS world, how best to bring along their legacy customers. Just telling your customers that you can get the same application over the Internet, won’t get customers to move. If you are luck you can get 10-25% of them to move to a new platform over their lifetime.
A different approach to getting them on-line is to offer very compelling products that they need and aren’t currently offering as an off-line or on-premise solution. Payroll? This is also where the Intuit Partner Platform comes in. Bob Warfield, in a recent blog post about Intuit’s plans, relays what Bill Lucchini, Intuit’s GM for their IPP, told him about the platform:
1. Need to offer a platform that you can truly build great applications on
2. Partners must be able to build a profitable business on top of the Intuit platform
3. Intuit must offer developers significant cost and time to market savings
The plan seems to be to start offering all types of new products on-line, make it easy and really affordable, then you might have a fighting chance of moving a majority of your customers over time.
More about the Intuit Partner Platform
Intuit really made an interesting decision that was quite a contrast to others in the maketplace by picking a third party technology for their IPP Software Development Kit (SDK), Adobe Flex. Salesforce, Google,NetSuite, FaceBook and every other Platform as a Service (PaaS) player is based on their own proprietary technology, but Intuit must have believed that their best shot at delivering a platform to build great applications on was to use someone else’s technology. Flex is also complimentary to SAP, Salesforce, Amazon and others.
Another thing to like about the IPP is that you don’t have to use the IPP SDK to develop SaaS applications. You can use any other technology or Cloud infrastructure and then publish to the IPP. The advantage to the developer is, develop once but publish in many places. This Federated Applications approach will provide for faster adoption. The advantage to Intuit is that existing AppExchange and other SaaS developers can move their products over to the IPP quickly, which will provide a lot of application choices for their customers. So not only the 75,000 Intuit Developer Network members but also all the other SaaS ISV’s will be able to leverage the IPP to expand their SMB market penetration.
Intuit also provides the Intuit Workplace which allows customers to integrate Intuit and non-Intuit applications using their federated integration and security structure. The Intuit Workplace provide single sign-on to all types of applications, all offered inside of an Intuit Cloud infrastructure.
The ability to access the Intuit customer base is also priced reasonably. Partner revenue sharing ranges from 14-20% plus a small fee for monthly usage. Some early adopters of the IPP include Vertical Response (email marketing), DimDim (web conferencing), Rypple (performance management), Setster (appointment management) and Expenseware (T&E expense reports). It looks like Intuit has about 100 applications in their marketplace today and it will be interesting to check back with them in six months. There appear to be other go-to-market services that can help the partner market, manage and bill for their applications as well.
My general conclusion is that Intuit is clearly making some good moves towards migrating its business model to SaaS, but it is going to take time to make the move and old habits die hard. If I were offering a competitive offering like Workday, Netsuite or Intacct, I would be watching their progress very carefully over the next 6-12 months.
Other commentary on the Intuit Partner Platform include:
Jeff Kaplan, THINKStrategies: Why Intuit Can Become A Major SaaS Platform Player
Phil Wainwright, ZDNet: Intuit makes two-pronged PaaS and SaaS push
Laurie McCabe, Horwitz: Intuit Partner Platform: Changing the Rules of Cloud Platforms with Federated Applications
Intuit Partner Platform on Twitter: http://twitter.com/ippdev
Intuit IPP Blog: IPP Team Blog
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