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.

By Kevin Dobbs

Montclair Advisors, LLC

When thinking about your transition to SaaS, there are many questions to consider including target customers, value propositions, packaging, pricing and how best to build customer relationships.

After conducting more than 50 Smart SaaS business profiles of all different types including pure SaaS, Hybrids and Cross-Overs, all of these companies would probably answer many of these types of questions differently depending on their type of customer, functionality, geography, vertical markets and the only way they can get useful answers is to continually test everything.   Best in class SaaS firms are always trying different pricing, packages, messages in order to optimize their businesses, like a recent firm we profiled - Clarizen.

Some resources when thinking about these types of considerations include:

Software Pricing Partners - Jim Geisman

Chaotic Flow - Joel York

SaaS Blogs

Sixteen Ventures - Lincoln Murphy

4 Pillars of SaaS - Phil Wainewright, ZDNet

In addition to testing, it is a good idea to measure everything including website traffic, marketing campaigns, product usage, customer satisfaction and a myriad of other SaaS and business metrics.  Again, the best firms track and monitor all the key business metrics in order to improve their ability to generate revenues, build market share and reduce unnecessary customer churn.  SaaS requires a very tight operational model and has moved business an art to a science and now there are an entire new class to tools to improve revenue performance and reduce costs.  Some of these next generation of tools include:

Sales Automation

EchoSign - Provides electronic signature and contract management.

InsideView - Sales business intelligence and social media platform.

JigSaw - Business information and data services.

NetSuite - CRM and ERP suite.

RightNow - CRM, call center and social platform.

Salesforce.com - Salesforce is not only a solid Customer Relationship Management system but also a great system of record for all types of sales, marketing and service information and applications. Also offers a application marketplace that provides value added extensions.  Salesforce also offers Chatter a collaboration platform to improve internal communications.

SugarCRM - Open source based CRM that provides a robust no cost solution.

Marketing Automation

Eloqua - Marketing automation platform.

Genius.com - Sales and lead automation.

MarketBright - Marketing and lead generation management.

Marketo - Marketing and revenue management.

Pardot - Business to Business lead automation.

SaaS Analytics

Birst - On demand business intelligence product.

Cloud9 Analytics - SaaS performance management.

GoodData - SaaS business intelligence product.

PivotLink - On demand business intelligence product.

Using many of these tools companies can help a SaaS firm track their business, sales and marketing performance.  The question that I often get is ‘what should I be tracking?’  There are an emerging set of SaaS-based business metrics that include Monthly Recurring Revenues (MRR), Churn, Customer Acquisition Costs (CAC), The Magic Number (MN) and others that provide very precise views into how a SaaS business is performing.  Here is a chart that details some of the more common SaaS business metrics by functional area:

Other resources to learn about SaaS metrics;

5 C’s of SaaS Finance - Bessemer Ventures

Chaotic Flow - Joel York

For Entrepreneaurs - David Skok, Matrix Partners

Haut Tech - Michael Dunham at Scio Development

My opinion about the SaaS business model is that there are a lot of new considerations about building a profitable subscription business today.  The buyers are different, there are many robust low-cost tools available, Cloud technology that can radically change your cost model and time to market as well as many other business factors, so the only real way to really tune your business for SaaS is to continually test everything!

I would be interested in your comments and hearing about what you are testing.

Stay tuned for Tip #4 Sales & Marketing on a Budget

As Zach Nelson kicked off last week’s Netsuite’s Partner and Developer Conference – SuiteCloud 2010 in San Francisco, there was a real focus on the importance of their platform as a way for partners to play a critical part in helping to take his company to the next level.

They kicked of the special launch event that featured a video of some of their key partners including TrueCloud, InsideView (who has been profiled in this blog), Aria, Hein & Associates, PaceJet, RootStock Software and Demand Solutions Group.

I think it is great with companies are building their business around their partners and creating a cool ecosystem where everyone can make money… more on that in a minute.

Zach then covered some Cloud Computing trends;

· Fake SaaS – He compared the NetSuite offerings, which are Cloud-based to Microsoft’s GreatPlains offering which is just a hosted version of their same on-premise offering. Still single tenant, version locked and requires Citrix to make it work like a true SaaS application. These types of business models will find it almost impossible to make money using a Fake SaaS. Other vendors mentioned here were Lawson and SAP.

· SaaS-based Financial Systems Are Popular. He showed a Gartner market slide (from 2008) that showed NetSuite as the fastest growing FMS provider.

· Traditional License Software Firms Are Hurting – This is nothing new because Saugatuck Technologies, Ray Wang from Altimeter and Montclair Advisors have all written about this but this slide says it all…

Customers are moving away from the old software model.

· The Cloud can now handle complex business processes. This has been demonstrated by vendors like NetSuite, Workday (Flextronics), Amazon AWS and SuccessFactors (Siemens) servicing very large and complex clients.

· Customization is no longer the Achilles heel of Cloud applications. In fact, it was argued that customization with NetSuite is now a killer feature of their Cloud offerings.

· Channels are emerging as an important component of a successful Cloud business model.

· The Cloud is getting social. With applications like Twitter, Facebook, LinkedIn, blogs, Fluid, Mzinga, InsideView, applications are more focused on communities and content than ever before.

There was a funny segment that discussed the complexity associated with the development of years of on-premise software, which he called an infrastructure hairball. It is much more cost effective to manage a single architecture, database and system of record. He mentioned that the cost of managing an SAP system (ala hairball) was approximately 3% of a company’s revenues, while operating their system was only 0.1%.

Then Zach got back to the partners and referenced a number of applications that are being built on top of the NetSuite platform – SuiteCloud , like RootStock Software’s MRP application. Other providers who have integrated into SuiteCloud include Amazon Web Services, Google, InsideView and HostAnalytics.

I thought the most interesting part of this session was when they brought IRON Solutions and NewHolland on stage to discuss the vertical application they had built on top of SuiteCloud.

New Holland has approximately 9,800 customers and they wanted to automate and enhance their relationship with their partners/distributors. They started working with NetSuite in 2007.

IRON Solutions is the Kelly Blue Book of agricultural equipment and offered a very complex product configurator along with CRM capabilities that allowed distributors better create and manage pricing and leads. They launched their new products built on NetSuite, IRON HQ for new product promotions, IRON Builder for pricing and lead management, IRON Guides for appraisal and trade and IRON Search for promotion and sales.

New Holland wanted to balance both the science and art of their business to move more of their customers to the web. Darwin Melnyk, CEO from IRON Solutions and David Greenberg from NewHolland whipped out their iPads and demonstrated their new applications.

Increasingly these type of vertical partner applications are going to be popular with customers looking for more tailored solutions for their specific businesses. NetSuite has more than 200 channel partners and sales through their channel has grown by 40% on a compounded annual basis. Which is quite healthy given our recent recession.

New partner announcements included;

· ISV/OEM’s – JCurve Solutions

· Systems Integrators – Hein & Associates (a Top 50 CPA firm), Fujitsu that is forming a strategic relationship for Japan with NetSuite and WIPRO who is building a practice around NetSuite OneWorld.

· BPO – GenPact is building an ERP Outsourcing business on NetSuite

I mentioned at the beginning why working with partners like NetSuite can be really profitable and with their new SP100 program, channel partners can get 100% of their first years revenue when they move older client/server applications to NetSuite.

Overall, it is nice to see major players embrace their partners and give them an opportunity to build their business and help their partner - a real win-win for everyone.

Company:                   Patersons

Started:                       1996

Located:                      Salisbury, United Kingdom

Geography:                  Global

Market:                        On-Demand Global Payroll

Products:                    Click4HR, Free HR, and Global HR and Payroll

Key Customers:          Constellation Europe, Henderson Global Investors, Interdean International Relocation, Siemens

Website:                      Patersons

Blog:                           Patersons Blog

Twitter:                       @patersons

Recent News:

Patersons Announces New Partnership with Lawson

CEO Honored At Growing Business Awards | APA Article

Patersons Shakes Up the Market Again Adding ESS to Free HR Offering

Patersons Shakes Up The Market Again With ESS Added To Free HR Offering

I asked Karen Paterson, Patersons Chief Executive Officer a few questions about her business and her view of the SaaS market as we move into 2010.

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

Yes

Why do your customers buy from Patersons?

Patersons ‘Software-as-a-Service’ payroll platform delivers payroll on one single database, one technology platform worldwide. This is the only multi-tenant, multiple country online payroll processing platform in the world. Clients also only have one global contract with Patersons. The leading-edge platform promotes scalability and we can cater for any size payroll anywhere in the world, whether a client has 1 employee in Kazakhstan to 10,000 employees in China. Patersons Logon2 solution is as feature rich as major ERP solutions. It also delivers instant Sarbanes Oxley and SAS70 compliance with its unique International Payroll Workflow, therefore making sure all local requirements are adhered to in a timely and accurate manner. Patersons comprehensive global consolidated reporting suite allows quick analysis of global client data.

SaaS is based on the concept of ‘Pay-as-you-go‘ on-demand and customers only pay for what they use and nothing more. The solution is regularly updated and developed to stay in the forefront of the industry. There is also no additional expense for customers when upgrades or updates are made to the solution, and as the system is delivered via the Internet, customers receive upgrades in real-time. Patersons technology is developed 100% in-house, therefore we do not have to pay third party fees.

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

There is a strong move from on-premise ERP to SaaS as a serious alternative global solution.  Many companies are looking for best-of-breed in a vertical industry rather than an ERP which generally gets 20% functional use of what has been paid for.  The mistrust of not hosting and relying on an outsourcer to provide an IT function is interesting and an indication that internal IT department have been failing the HR function.

What is your outlook for 2010?

2010 will be the Year of SaaS and the Cloud.  Coming out of recession companies are seeking single process outsourcing solutions and best of breed choices from software vendors.