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:        Lithium Technologies

Started:           1997

Located:          Emeryville, California

Geography:     Global

Market:            On-demand Social CRM

Products:         Lithium Social CRM

Key Customers: AT&T, Future Shop, Lenovo, PitneyBowes, Barnes & Noble, Best Buy and Verizon

Website:          Lithium

Blog:               Lithosphere Blog

Twitter:           @LithiumTech

Recent News:

Lithium Achieves 80 Percent Revenue Growth in First Half of 2009

Crucial.com Enhances Customer Experience with Online Community

Lithium Ushers in the Next Generation of Customer Relationships with Social CRM

Future Shop Recognized As Customer Leader by 1-to-1 Magazine

I asked Sanjay Dholakia, Lithium’s Chief Marketing 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, or at least an on-line business. The company was started in 1997, and was a spin out of Gamers.com a leading on-line gaming site. Because there was a lot of IP around how to manage the social dynamic related to on-line communities, the founders decided to apply this technology to help enterprises better manage their customer forums and networks. The Gamers.com experience was helpful because the founders had learned how to manage very large on-line gaming communities.

Why do your customers buy from Lithium?

Our customers come from a lot of different point products like forums and various types of social media and in-house solutions. These companies are looking for a better way to leverage their customer relationships to build vibrant customer networks, what we are calling Social CRM. Some social networking platforms are internal collaboration tools or platforms, others are consumer social networking solutions, but Lithium’s Social CRM platform is focused primarily on that outbound relationship with the customer.

The three major reasons a customer buys from Lithium are related to innovation, promotion and support.

Our customers use the Lithium solution to innovate around new product ideas, as well as solicit ideas and feedback from their customers. A good example of this is iRobot, a robotics firm that makes a variety of clever home accessories. Many of their customers have actually developed a pet affinity with their in-home robots and based on customer feedback from their Lithium customer community, iRobot developed personalized robots which has generated millions in incremental revenue from just that one community-based idea.

When it comes to promotions, our customer myFICO, the credit score company, has used the Lithium platform to build out their customer network. Because the company is highly regulated, they are prohibited from marketing their products to consumers but their customer network does the marketing for them. They have found that FICO Forum members, of which there are 850,000 members, usually spend 40% more than those customers who are not members, demonstrating the power of their network.

Support is a clear benefit of creating a vibrant customer network, because it shifts costs to a free channel where customers can support each other. Cisco’s Linksys division has been able to quantify up to $10M per year in savings by leveraging the Lithium Social CRM platform for their Linksys Forum. Sage Software has also found that their customers view the company as more responsive and have seen improvement in their Net Promoter Scores as they have rolled out customer support forums, like this one for their SalesLogix product.

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

There is an emerging opportunity to create new information products based on all the data that many SaaS companies have access to. So by applying their own best practices and proprietary algorithms, many companies are devising very valuable analytic-based products that expose information that enables enterprises to more efficiently manage organizations as well as to create new revenue streams.

Lithium wants to start building benchmarks and best practices that provide actionable industry information for our customers and show them how to better leverage their customer relationships.

What is your outlook for 2009?

We just put out a press release announcing that we had 80% growth in our recurring monthly revenues during the first half of 2009, which is impressive in this economic climate. During the first half we also welcomed new customers like Aflac, Trend Micro, Betfair, France Telecom, Avnet and Leapfrog Enterprises.

During the first half of the year we have also opened new offices in Zurich and London as well as hiring a new general manager for EMEA. The company has decided to invest into the despite the downturn and take market share. Overall we are feeling cautiously optimistic for the balance of 2009 and heading into 2010.

Thank you to Sanjay Dholakia and Raksha Varma for contributing to this profile.