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ServiceSource is a leader in an emerging field called Service Revenue Management, which for most technology companies refers to management of their ongoing subscription maintenance streams. The company offers a technology platform and a suite of applications, as well as a managed services capability for some of their largest technology customers. Some of their recognizable customers include Adobe, Cisco WebEx, NetApp and Xactly. Montclair Advisors did a Smart SaaS Business Profile on ServiceSource in 2011 that provides background on the company, their strategy and product portfolio.
Last week I visited the ServiceSource offices in San Francisco to get a sneak peak of their new Avalon platform. Avalon is ServiceSource’s next generation SaaS platform that will pull together multiple capabilities including a beautiful new user experience, integration services with other leading Cloud platforms, a connected ecosystem of ServiceSource managed services and their continuous intelligence capability.
I was very impressed by their new user interface, its very clean and uses info-graphics metaphors along with in-line analytics to create a very easy-to-use, and understand product. The graphics were elegant and provided a lot of drill down and mouse over information for the user. Because ServiceSource is using HTML5, this interface is available on mobile devices as well as through a standard web browser. The charts and graphs are all available inside of the product, which makes it easier to use than other CRM-like systems. The design point was to create a system that offers a walk-up interface, one that required little or no training for the users. Here’s a screen shot of the new user interface.
Another unique aspect to the product is that there is a near real-time data warehouse that feeds the analytics for Avalon. For example, when their customers are comparing their renewal rates against the industry or even their peer group, they will be looking at really fresh data. It is common for most aggregated data of this type to be compiled and delivered in a quarterly or in some cases a monthly basis. So this continuous intelligence capability may deliver a competitive edge to ServiceSource customers because the information is representing how the company is operating right now. For most SaaS companies, it is difficult to gather service revenue-related data about their business on a continual basis but with this aspect of the ServiceSource Avalon product, it will make it really straightforward because it will be delivered through easy-to-use metrics and dashboards.
ServiceSource is using a very modern Cloud infrastructure for their Avalon platform. The infrastructure is build on Node.js and Amazon Web Services, which is interesting because I haven’t seen a lot of enterprise software vendors building their next generation platform on the Amazon infrastructure. There are clearly some scalability and elasticity advantages to using the AWS platform for a SaaS offering and ServiceSource is using many of these capabilities. The company also has a strong Avalon development team with some ex-Coghead alumni leading the efforts.
With their new user interface and the flexibility they are building into their SaaS platform, it may be very easy for the company to allow their customers and prospects to ‘try before they buy’ new software modules and capabilities. I believe that this inherent flexibility, for this type of application suite, should really increase user adoption and consumption levels, which should help ServiceSource continue to renew their customers and sell them additional products and managed services.
The Avalon service will be generally available later in 2012.
At Montclair Advisors I work with many different types and sizes of software firms that are jumping into the SaaS business model for the first time. Here are a few tips that I would tell a new client who is looking to get into the SaaS business in 2012.
Think “Whole Product”
A SaaS offering is more than just software, it is also the services to get the product up and running, training, support, the infrastructure and security.
For most SaaS firms, they really view their platform as synonymous with their company’s overall brand, which includes more than just the technology. This brand promise is a product experience that is smooth and consistent. It also takes into account issues like business continuity and being able to quickly restore systems and data after an outage. This also means that SaaS offerings must understand and how to properly manage security and compliance concerns for large, complex customers. In some cases this promise needs to do a high level of monitoring and even anticipate and correct problems before they occur.
When considering the professional service component of a SaaS offering, there should be extra focus on efficient provisioning and on-boarding of new customers. It is important to make this initial experience quick and easy in order to improve the customer’s overall time-to-value. By combining many customer-facing functions like support, training and service into a Customer Success team is also another popular way of trying to deliver a positive ‘whole’ product experience.
Focus on Adoption and Consumption
The economics of SaaS requires both a high rate of new customer sales combined with a better than 90% renewal rate for the financial model to work. The trick that the really fast growing SaaS firms have discovered is that up-selling additional capacity and cross-selling new products not only increases top line revenues but also improves overall Customer Acquisition Costs (CAC) and business margins.
The objective in any software company should always be to build a satisfied customer-base, but in the SaaS model you can’t stop there, it is important get customers to actively use and adoption the product. When a product is easy-to-use, intuitive, being used every day, and built on a solid platform, then it can become viral. Viral products like DropBox, Yammer and Salesforce.com’s Chatter can throw off high marginal add-on sales, that can boost a SaaS company’s revenues very quickly. This type of product consumption is important for all SaaS company’s even if the use of their product may never go viral.
It’s All About Growth
Many new SaaS firms spend a lot of time and capital building out their products, which makes sense. Often they underestimate the amount of effort and focus required to build a high growth sales and marketing machine. Because it is hard initially to jump start the recurring revenue model, it is important to develop a highly productive sales methodology, usually based on a ‘land and expand’ approach. For the most successful SaaS companies (SuccessFactors, Salesforce.com, Workday), an aggressive Compound Annual Growth Rate (CAGR) is imperative to building a profitable company. Many of these firms, even though they are large, are still growing at 30-50% per year.
In order to build this sales and marketing engine, it requires a meaningful investment in lead generation, a sales organization that separates hunters from farmers and has a set of metrics that are tracked at least weekly. For ISV’s that are moving to a SaaS model, don’t co-mingle the SaaS and non-SaaS sales teams. Each sales team should be very focused on selling a single type of product or a single function. For example, having a SaaS team that focuses on selling only new SaaS deals, another is only doing renewals or up-selling.
Because products and markets are different, it is important to constantly be testing lead generation, pricing, packaging and sales processes in order to find the best one that works for your business. If something doesn’t work, stop doing it, and pivot to another idea. The best SaaS companies are always testing and trying to improve their revenue generation processes.
Optimize Cost of Goods Sold
Most SaaS executives are focused on their COGS and how best to optimize them. This is why many early SaaS firms use free open source software and Infrastructure-as-a-Service providers to build out their platforms, or outsource components of their business to partners to save money. The best way to optimize COGS is to reduce the number of people required to on-board, provision and operate your SaaS platform. It is better to automate as many of your processes as possible, which not only saves precious capital, but also can often improve the overall scalability of the business.
One the best examples of this type of automation is with the popular commercial SaaS storage solution DropBox [Check out this video]. They have built a service that is easy to use, self-provisioning and needs no human intervention. This is why they were able to on-board 40 million new customers during the last 12 months with a net increase of only 7 people across their entire company! This is where SaaS companies can become very profitable and grow very quickly.
Another area that can really impact COGS is related to the 30-day trials associated with most SaaS software. Without a scalable platform that has a sufficient level of automation, the launching, management, tear down and re-provisioning of resources will all be done by an ever growing team of professional services or IT professionals. Best practice is to leverage a multi-tenant platform and automate everything possible.
Strive for Independence
For ISV’s who are either transitioning to or launching a new SaaS offering, it is important to seriously consider keeping the new SaaS organization separate from the main business. I have seen many ‘shared service’ models where different groups share sales, operations, demand generation, services and even support and they experience a lot of challenges. The SaaS business model in many ways is unique and conflicts with most traditional software business practices.
For example, professional services in most software companies is a revenue-center and they are always looking for ways to generate additional projects and revenue. At a SaaS company, the professional services team is doing the opposite. A SaaS services team is trying to minimize their level of involvement with the customer, and the less services involved in setting up a SaaS product, the better. This would be a difficult group to manage if you have both a revenue quota and are also trying to minimize revenue associated with SaaS accounts.
The other reason I often recommend creating an independent group for transitioning ISV’s is that the overall rate and pace of SaaS companies is quite different than traditional software firms. SaaS firms develop products more quickly, sales processes are faster, deployments are more rapid and this mismatch in speed creates a lot of stress when traditional ISVs try to adopt this rate and pace.
It is also important to continue the care and feeding of the core business and realize that is also a critical success factor. By allowing this type of co-existence you can move at the right rate and pace, while continuing to build and run your core business.
There are many other tips and tricks to starting your SaaS business. Feel free to email me at kevin@montclairadvisors.com and I have some other materials that can be helpful for those who are new to the SaaS model.
As it turned out I was right about 50% of my predictions last year, so here’s my educated guesses for what is going to happen to the SaaS market in 2012:
#10 Oracle will buy Netsuite.
I know this isn’t much of a surprise since Larry Ellison owns approximately 65% of Netsuite, but with the RightNow acquisition, this type of move makes more sense as part of coordinated Cloud acquisition strategy.
#9 SaaS IPO window remains open.
There are a number of SaaS firms who have either filed, like Eloqua, or are seriously considering going public in 2012, like Workday, Dropbox, Box, and Guidewire. This window can be opened even wider by successful IPO’s from companies like Yelp and Facebook. The only problem is that there are over 100 companies who have already filed to go public in 2012, so it might be difficult for smaller SaaS firms to do their IPO.
#8. Master brands will continue to chase SaaS offerings.
IBM just purchased DemandTec and SAP bought SuccessFactors, while Oracle bought RightNow. This is a big change from 2010 when most of these companies were not interested in the Cloud or SaaS. All of these master brands have tried to build their own SaaS businesses, but I think they have now finally realized that SaaS is a business model, not just new technology. The smart firms will keep their SaaS businesses and their core license businesses separate and not try and merge them. Good luck.
#7. Workday will have a monster IPO.
There is no doubt that the 2012 IPO of Facebook will set all sorts of records but for enterprise software, I think Workday will be one of the biggest on record. The company just took in $85 million in funding over the past few months, in what was termed an IPO preview round. Workday could raise as much as $500 million in an IPO, which would force the big ERP players to start building out their SaaS businesses as a defensive strategy at the bare minimum.
#6. SaaS starts to go global.
I was involved in an Oracle SaaS webinar a couple of weeks ago for an audience in Europe and the response was really impressive. I initially thought that most of the registrants would be from the UK, the Netherlands, Germany and Scandinavia. Actually there were attendees from almost every country in Europe. I have also started to hear about strong SaaS interest in Australia, New Zealand, Brazil, Japan, China and many other countries. 2012 will just continue to build on the SaaS market’s growing global momentum.
#5. Salesforce continues to expand beyond CRM.
During 2011 Salesforce purchased several firms that added new capabilities to their platform including DimDim (collaboration), Radian6 (social analytics), Model Metrics (mobility) and then they bought Rypple in December, which launched them into the Human Capital market. I predict that Salesforce will add several other HCM tuck-in acquisitions (JobScience, Jobvite), financial applications (FinancialForce, Zuora), or even supply chain management (Glovia OM, Kenandy).
#4. IT Management and Security SaaS offerings emerge.
Companies like CA have been successful in launching their new Nimsoft ITM SaaS offering during 2011, but there are also many other firms that are beginning to gain momentum with their new SaaS offerings as well. This is a very big market opportunity to replace existing legacy infrastructure and security offerings. Companies to watch include Service-Now, Trustwave, Splunk, PingIdentity and Proofpoint.
(Note: CA/Nimsoft and PingIdentity are Montclair Advisors clients)
#3. SaaS continues to be social.
With Jive going public during December 2011, they are just the most recent example of SaaS social applications gaining market acceptance. Salesforce has been very successful with their Chatter and Radian6 offerings. Independents like Yammer, SocialCast, Lithium and CentralDesktop will continue to see increased demand for their social/collaboration platforms.
#2. More big VC rounds for SaaS firms.
2012 will continue to see VC’s put a lot of money to work with leading SaaS companies. We saw some major investments during 2011 including Box ($81 million), Dropbox ($250 million), HubSpot ($32 million), Marketo ($50 million), Workday ($85 million) and Zuora ($35 million). This trend will continue in 2012 and companies will be putting a lot of money to work to build out their platforms and distribution capabilities.
#1. Storage is a major story for 2012.
As more and more data is stored in the Cloud, consumers and businesses are looking to all different types of on-line storage services. During the year that Apple launched its iCloud small business and music storage service, we also saw major funding rounds for SaaS companies including Dropbox and Box. We even saw a new IPO from Carbonite that provides a small business/consumer Cloud back-up service. This is definitely a segment of the SaaS market to keep an eye on in 2012.
Company: Eloqua
Started: 1999
Located: Vienna, Virginia
Geography: Global
Market: Revenue Performance Management
Products: Marketing Automation platform and Revenue Performance Management applications that help growing businesses align their sales and marketing teams, identify and nurture revenue opportunities and measure marketing and sales effectiveness
Customers: Adobe, AON, Dow Jones, ADP, Fidelity, Polycom, and National Instruments.
Website: Eloqua
Blog: It’s All About Revenue
Twitter: @Eloqua
Recent News:
Eloqua’s Social Media ProBook Takes Home the Gold
Citrix GoToWebinar Integrates With Eloqua AppCloud
Innovative, Revenue-Focused Marketers Recognized at Eloqua’s Fifth Annual Markie Awards
Eloqua Creates “All-in-One” Marketing Automation Resource Hub with New “Business Center” Portal
I asked Joe Payne, Eloqua’s CEO, a few questions about his business and view of the SaaS market in 2011 and beyond.
Did you start out as a Software-as-a-Service company?
Eloqua has always been a SaaS company from the day it was founded in late 1999. The vision at the time was to help businesses sell products through a combination of web analytics, email, and chat. As prospect data was collected and tracked through Eloqua, it soon became obvious that companies could really benefit from tracking this “digital body language” and then use it for demand generation. We went on to develop marketing automation technology and became the unquestioned leader in the space.
We recognized early on that businesses wanted cutting edge technology but were often burdened by the expensive infrastructure and IT staff. Eloqua was a pioneer in the Software-as-a-Service delivery model long before it became popular.
Why do your customers buy from Eloqua?
We help our customers win their markets. If you can be more effective and faster than your competitor, you can win your market. Eloqua’s technology and best practices helps our clients win.
A major reason companies choose Eloqua is that we invest heavily in our customers and really promote a culture of customer success. Our SmartStart program is an on-boarding process that provides customers with marketing best practices from day one. With a SmartStart our clients are up and running in days. It is such a successful program that we offer a money-back guarantee to all clients who use it. We have numerous resources available to our customers helping to ensure their success. We provide education services through Eloqua University, best practices through our Topliners community, success coaching, and more. Our culture is rooted in customer success and every employee’s bonus is actually tied to customer satisfaction.
Finally, our product is the deepest and most powerful in the industry. As the largest player in the space we can invest in R&D to innovate. For example, we’re currently the only vendor in our space to invest in HTML 5 for our platform delivering an exceptional browser interface and user experience. We also developed the industry’s first online marketplace for B2B marketing applications called the Eloqua AppCloud. The AppCloud eliminates custom integration offering on-demand “connections” from marketing, sales and social media applications to Eloqua.
What do you see as the key trends emerging in the SaaS industry?
Social, Mobile and Apps. SaaS applications are perfectly situated to take advantage of emerging trends in a way that on-premise software cannot.
SOCIAL. Because our applications are already in the cloud we can use components to connect and embrace social media. We allow our clients to quickly tie their marketing and social efforts together and to track the effectiveness of both. It is almost impossible for an on-premise application to have this kind of social extensibility.
MOBILE. Extending the capabilities of a SaaS app to a mobile device is easy. We build that mobile app once and it works for all our customers. We don’t have to worry about different firewall settings or VPNs or configuration issues for each client like an on-premise vendor would. This gives us a tremendous advantage in responding to the speed with which customer browsing is changing.
APPS. Apps allow cloud offerings to talk to each other. Any Eloqua customer – no matter the size — has instant integration with D&B, ON24, Cvent, Klout, Radian6 and 35 other platforms. That integration all occurs in the Cloud. Such an undertaking in a non-SaaS environment would be cost prohibitive for most companies. This is a huge advantage for SaaS companies.
What is your market outlook for 2011?
Our outlook is positive. Our products are market-leading. We are twice as big as our closest competitor and we’re in a fast growing market, which will continue to experience strong growth in the next few years. Compared to other software categories, there is still relatively low adoption of our technology. Companies in the software and technology space were early adopters and now we’re seeing other vertical markets adopt marketing automation. We also introduced an entire new business category, Revenue Performance Management (RPM). While RPM is still new, the category is gaining steam (other vendors and analysts in the industry are adopting it) and we expect to see this continue into 2012.
Over the past few months SaaS companies have continued to announce very large funding rounds as they are demonstrating the power of their subscription-based business platforms. Many of these firms are deciding to do large private rounds before filing to go public. Here is a quick round-up of some of these firms:
The company has raised an amazing series B round of $250 million. Dropbox is the Cloud storage company that is very popular with mobile phone and iPad users. They have about 70 employees and have secured more than 40 million customers in the past 12 months. This round put the company’s market valuation at close to $4 billion. This is probably the largest B round we have seen and may have been done as an alternative to doing an IPO. Sounds like a Facebook type of story because like Mark Zuckerberg turned down a significant acquisition offer from Google, and apparently the DropBox founders, Drew Houston and Arash Ferdowsi, turned down a nine-figure offer from Apple in 2009.
Workday or “PeopleSoft 2.0″, has been making consistent progress towards a 2012 IPO and announced at their recent Workday Rising conference in October that they had just closed an $85 million dollar round of funding. Like Dropbox, Workday has now raised about $250 million. With this lastest round, the company is now valued at $2 billion. What was interesting is that unlike most private fundings, which are usually led by venture capital firms, this round was lead almost exclusively by institutional investors like T. Rowe Price, Morgan Stanley, Janus and Fidelity. As co-CEO Aneel Bhusri put it “In some ways, it’s an early debut of an IPO.” Workday claims they are on track to do about $320 bookings during 2011, which is more than 100% CAGR from 2010.
Another major Cloud storage company, Box.net, resisted a $600 million dollar offer from Citrix and just closed an $81 million round with Bessemer Venture Partners, NEA, Salesforce.com and SAP and existing investors Draper Fisher Jurvetson and Andreesen Horowitz. After this round the company’s valuation is $600 million. The company has about 7 million users and is leveraging a very successful ‘freemium’ go-to-market model.
With competitor Eloqua already in IPO registration to raise $100 million for their Revenue Performance Management (RPM) platform business, Marketo isn’t far behind. The company announced last week that they had just raised another $50 million in a round led by Battery Ventures along with Institutional Venture Partners, InterWest, Mayfield Fund and Storm Ventures. Marketo’s estimated size of around $15 million in in 2010, should double in 2011, but they are probably a little small to do an IPO at this point. Obviously the venture community thinks this RPM area around marketing and revenue optimization for SaaS is quite hot right now.
As part of their IPO registration, Jive Software just raised another $40 million prior to their public offering. Sequoia Capital and Kleiner Perkins Caulfield & Byers purchased stock through preferred warrants. Jive is provides an enterprise social business platform. Currently the company is on a $80 million run-rate but still not profitable and has raised close to $100 million overall.
Enterprise subscription commerce and billing provider Zuora also announced a large round of funding last week. The company raised a Series D round of $35 million from Index Ventures, Greylock along with a personal investment from Workday co-CEO Dave Duffield and their existing investors. To date the company has now raised $82 million. Zuora plans to use these funds to aggressively expand their distribution activities internationally, specifically in Europe.
The common thread for all of these companies is that they have businesses that are growing rapidly and have built very scalable platforms. With the IPO window open, but the public markets are still uncertain, we will probably see more of these type of IPO-preview type of funding announcements as SaaS firms continue to gain momentum in the market.
The buying habits of software buyers over the past couple of years has really shifted. The way software was sold in the recent past was by promoting its revenue-producing benefits or the Return On Investment (ROI). This changed when the Great Recession hit the broader software market and buyers started thinking less about ROI and more about reducing or controlling their overall operational costs.
Between 2008-2009 this was a natural reaction by most businesses because their revenues began to dry up and they needed to reduce costs, payrolls and other investments in order to survive. This was when SaaS all of sudden made a lot of sense to software buyers because:
- They could try the software before they bought it
- Pay for the software through a subscription, usually out of the company’s operating budget
- Only buy the software functionality they were going to use
- The SaaS provider paid for and managed all of the required infrastructure
- It was possible to get the software up and running very quickly
During this period of time most SaaS companies sold their products based solely on their Total Cost of Ownership or TCO benefits. It was possible to make a strong case around shifting the software buyer’s costs from their capital budgets to their operating budgets, and this was attractive since most businesses were focused on conserving their cash. This is why leading SaaS firms like Salesforce.com and SuccessFactors enjoyed very strong Compound Annual Growth Rates, usually in excess of 40%, even during the depths of the Great Recession.
A subtle benefit that buyers started realizing was that purchasing a software service was that all of the required software support and management costs like facilities, hardware, power and even staff, were no longer needed. So companies could take fixed costs associated with facilities, infrastructure and staff and make them a variable expense by purchasing SaaS. This is a powerful benefit because if the economy is bad then it is easy to dial down the costs and use less of the service and if things get better, then it is easy to add more capacity or functionality. This shifting of fixed expenses to variable expenses continues to be popular among software buyers even now, given the instability in the economy.
As more businesses continue to look for ways to streamline their costs and improve overall agility, SaaS products are a nature enabler but buyers are starting to become more skeptical of blanket TCO savings claims. Smart SaaS firms classify their product’s cost savings and business benefits in more of a tiered business justification framework that allow the software buyers to more easily build their own internal business cases. By structuring costs and benefits in this way they have been able to retain their credibility during the sales cycle.
Here is an example of a simplified tiered cost/benefit structure for a SaaS product purchase that we have used with several of our software clients. Costs are classified into hard costs, or as CFO’s refer to them as ‘real costs’ and then there are soft costs which are more productivity-based benefits. Then there are strategic benefits that are not necessarily cost-based but provide additional benefits at a higher level. Some of these may actually be revenue opportunities or ROI-based benefits.
Hard Cost Savings
- Headcount
- Facilities
- Hardware
- Power
Soft Cost Savings
- Improved user productivity
- Faster cycle times
- Better reporting
- Transactional accuracy
Strategic Benefits
- Move fixed costs to variable costs
- User adoption and engagement
- Improved collaboration
CFO’s at companies that are buying software often follow a similar type of internal justification framework for purchases even of SaaS products. The key is not to lead with an ROI-focused sales approach but more with a lower cost of operations and some additional benefits approach.
Remember that most companies are also looking for ways to free up capital that can be re-purposed towards innovation. In fact, the larger the buyer, they probably have a lot of fixed IT costs and they are looking for creative ways to move some of these frozen capital investments over into new revenue producing projects. As growth flattens out across the economy, all companies will need to come up with new products and services that will create a new demand stream that will increase growth rates. [Think iPad] Leveraging SaaS solutions is not only a great way of reduce existing operational costs, but this type of investment can also act as a catalyst for new innovation and growth opportunities. Is an attractive theme for C-Level buyers in today’s market.
In summary, most organizations buying software today are not very focused on the ROI-types of benefits that were commonly sold during the last ten years. Keep in mind that even a pure-TCO sales approach will be attractive to most buyers who continue to look for ways to lower or control operational costs. The real winning formula to position your SaaS solution in a way that combines the TCO-saving theme with the ability to free up new funds for innovation. This approach is even more potent when the SaaS product can actually be an innovation catalyst for creating new products and services. The good news is that SaaS solutions can be positioned just for cost control (TCO), improvements in operational efficiencies, even increasing revenues (ROI) as well as a catalyst for innovation.
Depending on who you listen to, things are either recovering slowly, or we are slipping back into a recession. It can be argued that for most software companies, if you are selling a SaaS-based solution then it shouldn’t affect your business very much. In fact, as the economy gets tighter for buyers, SaaS solutions even make more sense for forward thinking businesses who are focusing on innovation and cost controls.
During the Great Recession we saw that traditional software companies experienced a net decline in their revenues and in some cases their revenues went down by nearly 50% year-over-year between 2008-2010. In big part this was because traditional software customers no longer had available the necessary capital dollars to spend on their perpetual license-based products and the banks were no longer lending.
These traditional software companies had also hastened their revenue decline by raising their annual maintenance rates, which put more pricing pressure on their customers at a time when they could least afford it. So their customers started taking a hard look at SaaS solutions as potential alternatives to traditional on-premise software.
Recession Accelerates SaaS Adoption
It wasn’t that SaaS solutions hadn’t been around for many years, it was that for many large software buyers, they hadn’t felt comfortable with software that was being managed by another companies. There were a lot of questions: Where was their data being housed, was it safe, what if they can’t handle our requirements? These were legitimate questions but many SaaS value propositions began to win over these large, skeptical customers:
- You could try their software before you buy it
- Get can get this software up and running quickly
- Only buy the functionality that you need
- If you don’t like their software, for any reason, cancel your subscription
- The software’s performance and availability is guaranteed
- Pay though a subscription, a big lump sum payment is not required
- No more upgrades, this type of software is always current
- Less or even no staff required to manage their software
- Lower total cost of ownership
These types of on-line solutions started resonating not only with the small and medium-sized company buyer but also with the very large, global enterprises as well. Over the last couple of years we have seen well-known organizations like Siemens, Walmart, Flextronics, Thomson Reuters and even the US government adopt SaaS and Cloud-based solutions.
It’s About Innovation Not Reducing Costs
Businesses during the last recession were primarily trying to reduce costs, which resulted in large scale layoffs. These firms were trying to ‘do more with less’. This was the reason that many of these companies continued to buy software because they not only wanted to streamline operations, but also they needed to continue to innovate their business.
By deploying the latest in software technology, these innovative companies are looking to move into new markets, provide state-of-the-art tools to their employees, and optimize their supply chains. This required them to get smarter about their businesses, markets and competitors, and solutions like SaaS-based business intelligence products were also really in high demand. Given the flexibility and affordability of SaaS products compared to their on-premise predecessors, it is no wonder that most SaaS companies grew at more than 30% year-over-year even during the worst part of the recession.
There are SaaS solutions for almost every enterprise need including ERP, Financials, CRM, Marketing, Human Resources, Talent Management and even specific specialized vertical solutions. Click on this link to access Montclair Advisors Public SaaS Index to see which firms offer leading SaaS solutions.
In the next 12-18 months we may be either headed for very slow growth in the economy or even another recession, but SaaS companies will continue to grow quickly because most companies are still looking for ways to lower their total cost of operations and improve their ability to innovate and increase their overall competitiveness. As long as SaaS providers continue to deliver on their Cloud-based value propositions, they will experience rapid growth even if the economy continues to be tight throughout 2012.
With Dreamforce ‘11 coming up later this month, I thought it might be interesting to do a quick review of what I am seeing in the market around the Force.com initiative. Salesforce has been one of the early proponents of using a Platform-as-a-Service or PaaS solution in building out your SaaS business. I believe that the Force.com platform offers new and existing ISV’s several real value propositions:
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Pay-as-you-go pricing model. This is really helpful to small companies just getting started and Salesforce will allow the customers to tie their their revenues to the royalty fees for the platform.
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Packaged platform. The platform contains everything from a development kit, database, configurable UI, reporting and the hosting infrastructure, all for one price. In addition to the price advantages it is just the streamlining of vendor relationships by getting all of your technology from a single supplier.
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Elastic scalability. Because Force.com is built on the Salesforce infrastructure, it can scale up and down to meet the needs of high transaction or even periodic type applications. This is a very nice feature that makes true multi-tenant Cloud Computing infrastructures so cost efficient to operate.
For a company that is new to the Cloud and looking to launch a SaaS business quickly, Force is a great way to start. Based on some of my discussions with clients and other ISVs, here are some of the real and perceived challenges associated with Force.com and other PaaS solutions.
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Lock-in. Most companies tell me that having a PaaS package is attractive but they don’t like putting all of their technology needs in the hands of a single provider.
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Development environment. For many companies who are used to coding in Java or other languages, the Apex 4GL language is not very appealing to hard core developers. It also doesn’t offer enough flexibility for certain types of applications.
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Complexity. Companies who offer complex enterprise applications that require robust rules and calculation engines, workflow, integration or are offering other types of deep infrastructure solutions, find that Force is not a good match for their requirements.
Even with these potential drawbacks, there are many companies who are building their SaaS businesses on top of the Force platform. Here is my short list of some of the more well know firms:
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FinancialForce. The company is a joint venture between Salesforce.com and Unit4, a Dutch ERP firm. FinancialForce offers both financial and professional services applications.
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RemedyForce. Developed by BMC Software and Salesforce.com, it is based on the popular Remedy ITIL and help desk product.
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AgileVision. This is CA Technologies Agile development tool based on Force.com.
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ServiceMax. Independent company that is offering a Cloud-based Field Service Management solution. The company just landed a Series B round of funding for $14M.
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JobScience. Offers a talent relationship management suite on top of Force.com.
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Veeva Systems. Offers CRM and regulated content management solutions.
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BasicGov. Delivers a suite of applications designed for the needs of state and local governments.
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CyberU. Cloud-based learning management system.
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Less Software. Provides a light-weight supply chain management software product.
Other traditional software firms, or Hybrids, and even some SaaS firms are using the Force.com platform to extend their existing products and solutions. Some of these companies include:
- Axway. Axway Community Management (ACM) is a new offering that extends the company’s existing on-premise B2B and EDI products.
- Callidus Software. This hybrid company built a new set of Cloud-based SMB sales performance management solutions, Plan Communicator and Commission Manager.
- Convio. Their Common Ground product extends their constituent engagement solution for non-profit organizations.
- Xactly. A leading SaaS firm that offers incentive compensation and sales performance management solutions. Built a very lightweight solution on Force.com for very small companies called Xactly Express.
- Zuora. Offers their Z-Force 4.0 subscription management platform for Salesforce.com customers who want a tightly integrated solution.
There are many more applications being developed and I am sure more will be announced at Dreamforce at the end of August. What is clear is that there are many different use cases and the PaaS market is evolving very quickly, it is just important for companies to carefully evaluate their needs before committing to any platform.
I would also recommend to connect to other firms that are doing similar types of products or services and ask them about what has worked and what to watch out for. When used in the proper situation Salesforce can really offer a nice Force multiplier for your SaaS business.
Company: athenahealth, Inc.
Started: 1997
Located: Watertown, Massachusetts
Geography: United States
Market: Health Care Information Technology for U.S. Health Care Providers
Products: A portfolio of cloud-based business services: athenaCollector, athenaClinicals, athenaCommunicator and the Anodyne Intelligence Platform
Key Customers: Large hospitals, health systems and emerging care delivery models such as Community Health Systems and CVS MinuteClinic as well as independent medical groups and solo physician practices
Website: www.athenahealth.com
Blog: athenahealth
Twitter: @athenahealth
Recent News:
Wisconsin’s Regional Extension Center Selects athenahealth as an EHR Value Vendor Partner
athenahealth Begins Collecting EHR “Meaningful Use” Dollars for Physicians
I asked Jeremy Delinsky, athenahealth’s Chief Technology Officer, a few questions about their business and his view of the SaaS market in 2011 and beyond.
Did you start out as a Software-as-a-Service company?
Jonathan Bush and Todd Park, our founders, worked together at Booz Allen Hamilton in the managed care practice and were interested in finding ways for medical practitioners
to deliver better outcomes for their patients. They decided to acquire a number of medical practices and create a new type of network. They started out in 1997 when they acquired a women’s health practice in San Diego, California called Athena Healthcare.
One big surprise for them was how difficult it was to get reimbursed by insurance companies, which put a lot of pressure on their business. When they started out they had no infrastructure and what they found was that there were not many practice management software solutions available that met their needs, so they built their own.
Todd then enlisted his brother Ed Park to build a web-based practice management system for athenahealth, which ultimately became our athenaCollector product. In 2000, we switched over from the physician practices and became a provider of software-enabled-services.
Why do your customers buy from athenahealth?
Our athenaNet product is a single-instance, multitenant software application platform that is used to deliver healthcare IT services. Specifically, we provide revenue cycle management (athenaCollector), electronic health record (athenaClinicals) and patient communications (athenaCommunicator) services through this platform.
We strongly believe that software-enabled services deliver more value to clients than software-only models. A good example of this approach is the difference between Amazon.com and Salesforce.com. Where Salesforce delivers industry-leading software, we think more like Amazon where we take superior software and bundle it with our people and best practices, which offers a more complete solution to our clients.
In terms of our services, our team regularly sends out medical claims, explanations of benefits, posts payments, calls insurance companies, manages the physician’s chart room, and faxes referrals and lab results on behalf of our clients. We really help our physicians and hospitals to transition from healthcare done on paper to the new Internet world. This means our teams are often data entering forms, classifying them or building out more efficient workflows. Our company spends a large amount in R&D but our core differentiation is grounded in services that improve our clients’ financial health and enable them to focus more energy on delivering care to patients.
Our mission is to be medical groups’ most trust business service by being the best in the world at getting doctors paid for doing the right thing for their patients. By offering superior technology and services, we free them from cumbersome paperwork and manual processes, enabling them to do what they do best.
Here are some quick reasons why our clients like our products:
- athenaCollector, our revenue cycle management service, is used by doctors to schedule patients and manage the entire revenue cycle. The work our staff does on our clients’ behalf in processing claims, managing denials and tracking payer rule changes through athenaCollector drives superior results for clients. Approximately 94% of claims are resolved on the first pass, compared to an industry average of only 65%, and clients’ days in accounts receivable are improved by an average of 37% after adopting athenaCollector.
- athenaClincials, our electronic health record (EHR) service, manages all patient health record information and processes clinical documentation on behalf of clients. Due to healthcare reform, this is a major area of change in the industry and regulations are constantly evolving. This is why a SaaS-based EHR has tremendous advantage over static software systems (whether on premise or hosted) that will need to be manually updated at an additional cost to clients. athenahealth excels because we can just update the rules once in our application, instantly updating all clients and at no charge. We call this “future-proofing” our clients and their practices.
- athenaCommunicator, our patient communications service, includes a patient portal, secure messaging to patients via email, phone and text, and a team of live operators to handle patient inquiries for practice staff. This allows for not only inbound but also outbound scheduling and communications that get patients back in the office, which builds additional revenue but more importantly improves the overall quality of patient care.
Overall, our clients like our services model because our interests are aligned; our revenue is directly tied to the doctor’s collections activity because we price our services as a percentage of total collections. This alignment of incentives means that we will intervene to make sure that our doctors are optimizing their time and efforts because it is in both of our best interests. This is also a big reason why our culture is very different from a traditional software company’s culture. We are passionate employees, called “athenistas”, with a vision to build an information infrastructure that makes health care work the way it should.
What do you see as the key trends emerging in the SaaS industry?
We believe that athenahealth is the only pure SaaS healthcare IT player in the market that is this service oriented. Healthcare reform has now fueled interest in SaaS and the government is pushing for more use of the “Cloud” and Web-native applications. Over time we have reflected on how best to deliver our services and we really think that offering software-enabled-services is the best business model for us and our clients.
An important trend we are watching is related to patients and doctors moving beyond browser-based solutions. As a result, we are actively looking into mobile applications, in particular those that foster social, business-to-business networking. People want to use iPads and iPhones but it is difficult to deliver complex business processes into these new form factors. We think these mobility trends will become increasingly important, as doctors and patients want to engage around improving costs and securing better outcomes. We are working on our own business-to-business social network through our athenaCoordinator initiative, formerly known as athenaCommunity, which facilitates the movement of patients through the health care supply chain.
Salesforce championed the platform play by allowing their customers to replace paper with electronic systems. We think that this same thing will happen with health information exchanges that will store and manage very large amounts of patient information and that standards based EDI approach will emerge. Over time we could definitely see traditional network effects take hold around information sharing, best practices and even patient referrals. Maybe one day these referrals could be done on LinkedIn or even Facebook leveraging their Cloud or SaaS infrastructure.
What is your outlook for 2011?
athenahealth has grown revenue at more than 30% per year for more than a decade. There is no denying that Web-native platforms and the “cloud” concept are gaining more traction in healthcare, in particular due to the need for better data exchange and the rapid pace of regulatory change. Due to these factors, we believe that SaaS models and the cloud are becoming the infrastructures of preference for healthcare. Given all of these changes in the market we feel very well positioned for continued success.
SuccessFactors – SuccessConnect 2011
Montclair Advisors did a SaaS business profile in April 2009 and recently participated in the company’s SuccessConnect 2011 in San Francisco, where we were able to hear from key members of their management team about recent news and a business update.
New Branding
SuccessFactors had changed their focus about two years to be corporate performance management focused. Darryl Dickens their new chief marketing officer announced that although Business X is still the core positioning, they wanted to reach back out to the HR buyer. Their new tag line is now more HR friendly; ‘It’s time to love work again.’ (… and by the way, I like the new branding).
With the new branding SuccessFactors wanted to re-focus their messaging around being a proven, visionary Cloud-brand for HR and business performance solutions. This new branding means there is a new logo, website, and icon system.
Part of the strategy behind the re-branding has to do with the new products and capabilities now available across the SuccessFactors product portfolio including collaboration (CubeTree), learning (Plateau and Jambok), reporting and analytics (YouCalc and Infohrm) and HRMS like Employee Central. The new brand is a laminate designed to put a logical wrapper around the suite, which can help to rationalize product bundles, pricing and packaging.
Employee Central 2.0
As customers have grown more comfortable with the Cloud, those who have older versions of PeopleSoft are now looking for alternative options for their core HR systems, and that is where Employee Central fits in. The Employee Central solution has been built for the BizX suite to integrate talent management, analytics, collaboration as well as employee services. Employee Central 2.0 was made GA in March 2011.
Most talent management providers have shied away from offering a system of HR system of record. SuccessFactors sees a real opportunity to integrate their offerings as well as a potentially large market for new Cloud-based HRIS offerings. As Workday offers not only core HR solutions but also talent management applications, both of these firms are chasing a growing replacement market in the SMB and enterprise markets.
Employee Central offers a basic system of record but stops short of a full HR and payroll system. SuccessFactors has decided to partner for payroll with Patersons, Ceridian and Meta4.
Plateau
The biggest news was that SuccessFactors purchased SaaS-based talent management provider Plateau Systems in April 2011 for $290 million in cash and stock. This was the largest acquisition to-date for SuccessFactors and marked the first time that the company had purchased a talent management application instead of an add-on technology. Plateau has a large and satisfied customer-base of both commercial and federal accounts.
Doug Dennerline, SuccessFactors new president (ex-Salesforce.com) was very clear that they were planning on getting very close to Plateau’s customers and assure them that they will allow them to do what makes the most sense for their businesses. Unlike the other learning-related acquisition, Jambok, Plateau offered an enterprise-class Learning Management System with a world-class customer-base. Plateau not only adds revenues and customers but also provides an interesting SaaS architecture and platform that SuccessFactors may be able to leverage to service their their very largest customers.
With this business combination, SuccessFactors is now one of the largest HCM SaaS providers based on total revenues, customers and numbers of users. After all of these acquisitions, it is clear that the company now has many different growth engines moving into 2012. Based on our briefing with the very seasoned SuccessFactors management team, it will be interesting to see how they are able to integrate all of these offerings and manage all of these potential business opportunities.
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