by Kevin Dobbs

Montclair Advisors, LLC

When advising software clients who are interested in moving to a SaaS business model, one of the areas I really dig into is how are they selling to new customers. Most of us in the SaaS community realize that carefully tracking your Customer Acquisition Costs or CAC, is a critical component in building a successful and profitable company, but I think it is equally important to understand how traditional software sales  and marketing models and SaaS models differ.

Traditional Software Sales & Marketing Model

Over the past 25 years there has been a traditional way to market and sell enterprise software which has been based on key principles such as:

• You need a Large direct sales force including a large support team, or as I used to call them, ‘The Cast of Thousands‘
• Front loaded compensation plans that pay out when deals are sold
  
• High average sales prices, including services, that would almost always be over $500,000
• Long sales cycles, usually 6-12 months, with pursuit costs averaging around $70,000 for every deal the company played in
• Win rates are in the 30-50% range
• Average face-to-face selling time that is around 15%
• Pipeline building using a combination of in-person events (seminars, tradeshows, user group meetings), telemarketing teams (inbound and cold calling) pounding the phones and a lot of paid marketing campaigns
• Lead pipelines that appeared full but always seemed to lack the appropriate level of qualified opportunities
• First generation CRM systems and reports that were produced periodically using Excel

Brings back the good ol’ days doesn’t it.  Many software firms are still using this model and they are finding out that it doesn’t work very well in the new world of Software-as-a-Service sales.  Some of the reasons it doesn’t work is that software buyer preferences are definitely changing, but one big issue is it is very expensive to operate this type of model, especially when you get your revenues paid out over time.

SaaS Sales & Marketing Model

There are several important differences in the SaaS model that make the traditional software sales and marketing model less than effective;

• SaaS customers pay a subscription based on users or usage of the software service over time, usually over three years.  After the recession, this has become the new normal for software sales
• More focused solutions that usually have Average Sales Prices that are typically lower, so reps need to sell more deals to hit the same quota targets
• Key metrics like customer satisfaction, renewals, up-selling and cross selling are even more important for SaaS than they were in the past
• Sales method is more of a “penetrate and radiate” approach
• It takes a long time to build up a recurring revenue stream

Given these differences, then what should your SaaS Sales & Marketing model look like?  Here are some ideas to consider when building out your SaaS sales and marketing plans for 2011 that can help you to build out a low-cost but high-efficiency sales and marketing machine;

Marketing

• Hire experienced marketing leadership and professional
• Evolve a good list of key influencers and industry contact and communicate with them frequently
• Develop a clean prospect database
• Mix paid and free social networking programs
• Build a vibrant customer community and market to them with products like Lithium
• Leverage social media like LinkedIn, Facebook and Twitter to generate interest and leads
• Use Web 2.0 marketing tools like Marketo, Eloqua, Pardot and try drip marketing
• Track everything (see the last Smart SaaS post)

Sales

• Hire experienced SaaS sales leadership and reps
• Your SaaS sales team should be more low touch than your traditional sales team
• Experiment with telesales even with high end enterprise products
• See is using an indirect channel makes sense for your business, if managed correctly these distribution partnerships can dramatically lower your sales costs
• Carefully track your lead hand off between marketing and sales, make sure leads are not falling through the cracks
• Track everything

Metrics like Customer Acquisition Costs and the Magic Number can help your sales and marketing teams see how effective their programs are and can provide insight when to invest and when to continue developing your repeatable sales model.  I would also encourage you to learn more about Mark Leslie’s Sales Learning Curve, because it offers a more scientific approach to cost-effectively building out your SaaS sales team.   Best-in-class firms that have profiled in this blog have adopted many of these techniques to build a scalable but cost-careful sales and marketing organizations.

Stay tuned for Tip #6 Package for Viral Adoption

Continue reading…

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

The broader SaaS market (I would include PaaS and Cloud Computing) have been really interesting this year and here are some of the notable news items that have caught my attention over the past couple of months:

Mergers & Acqusitions

SuccessFactors buys CubeTree for $50M… Interesting move into the collaboration space

IBM buys CastIron … Nice compliment to their Cloud Infrastructure offerings.  Is Boomi next?

… then IBM buys CoreMetrics.

Salesforce.com buys JigSaw for $142M! … Surprised that they would pay up for a content company.

CA buys Nimsoft for $350M … gets into the SaaS infrastructure management market.  Good company.

SAP buys Sybase for $5.8B …  not sure about this one?  A diversion to deflect attention away from BBD?

RedPrairie buys SmartTurn … traditional SCM provider begins their move to SaaS.

VMWare looking at EngineYard … interesting since Amazon funded this Ruby-on-Rails PaaS startup.

Fundings & IPO’s

Marketing Automation: Marketo raises $10M Series D, led by Mayfield.

Enterprise Collaboration: Yammer raises $10M Series B, led by Emergence Capital.

Financial Analytics:  Host Analytics raises $15M Series C, led by Next World Capital.

Cloud Business Intelligence:  Cloud9 Analytics raises $8M Series C, led by Mayfield.

Recent SaaS/Cloud IPO’s include Convio, SPS Commerce and Financial Engines.

New Products and Launches

Broadvision launches Clearvale … Ning for the enterprise.

Plateau launches PaaS platform for Talent Management

Mercer partners with PeopleClick Authoria, first combination of HR consulting content with Talent Management technology platform

VMware and Force.com partner, launch VMForce.

Lawson launches ERP Cloud offering on Amazon AWS … too little, too late?

Recently Profiled SaaS Companies by Montclair Advisors

Birst, CentralDesktop, Cloud9 Analytics, GoodData, Marketo, Netsuite and WOLF Frameworks.

There are definitely a lot going on in the SaaS and Cloud Computing markets and we will continue to cover newsworthy events and profile leading players throughout 2010.

Since everyone is interested in SaaS funding and valuations I thought it would be helpful to tell you about an interesting Cloud Computing investor panel I attended at the recent All About the Cloud conference in SF. The session was moderated by Jason Green from Emergence Capital Partners and was joined by Gary Hromadko from Crosslink Capital, Mark McNay from William Blair and Evangelos Simoudis from Trident Capital.

So what did they have to say?

The market has finally changed for the better

2009 was all about survival and the venture community did less than half the investments than in a typical year.

This year is now about growing again and current investments are more focused on companies that have weathered the economic downturn. Their investments are focused on changing the slope of these types of company’s growth curves, by concentrating more on sales and marketing.

SaaS and Cloud companies are leading the way

Consumers have been driving the adoption of easier to use Cloud-based solutions like eBay, iTunes, Facebook, Twitter and LinkedIn. They are viral and can reach critical mass very quickly because there are low barriers to adoption.

With SaaS, the recession has really pushed the advantages of a subscription business model and moving from CapEx to OpEx software investments. It’s like leasing your car rather than buying it.

Lean start-ups are definitely in. Almost all early stage software investments in 2009-10 are Cloud-based because it takes a fair amount of capital to fund SaaS firms and it takes a long time for them to reach profitability. One interesting comment was that later stage on-premise companies are now being asked about what their SaaS/Cloud strategy is for the future, because without it, they may find funding might be difficult.

What the VC’s are looking for

SaaS 1.0 focused on a company’s income statement, expenses and cash flows than GAAP reported financials. One important measurement is a company’s incremental contribution margins (gross margins), which is critical for SaaS. Companies needed to balance capital efficiency with building a business that can scale.

Investors are looking for unique business processes that can only be built or automated through SaaS or the Cloud. Emergence latest investments are pure Cloud-based companies that have viral qualities like YouSendit, the files sharing company and Yammer and the enterprise micro-blogging firm, both of these companies are viral enterprise solutions. Yammer has more than 70,000 customers with at least 1 user and is signing up between 7-10,000 users a month and 10% are turning into paying customers. Crosslink invested in Carbonite, a backup and recovery company, has high margins and is the only other independent player in the category with Mozy, who is owned by EMC. They felt that scarcity of competitors and their ability to manage Customer Acquisition Costs were important in establishing the company’s value.

The panelists also said they are looking for companies that have a rigorous focus on metrics like Customer Lifetime Value and Customer Acquisition Costs. In fact CAC appears to drive business value because it has a lot to do with capital efficiency and the company’s ability to grow their business.

Exits, IPO’s and Valuations

Economy has recovered and CEO’s are ready to start taking on more risk, and it’s a real change in psychology because we are at the beginning of a macro trend that will last more than 10 years.

This is evident by more than 100 M&A transactions last quarter including high profile deals like IBM buying CastIron, Salesforce buying Jigsaw for $142M, Successfactors buying CubeTree for $50M. The current environment is right for deals, especially as SaaS is gaining enterprise momentum with recent deals like SuccessFactors’ mega deal with Walmart for 1.6M users. Transactions like Jigsaw, CubeTree, and CA’s purchase of 3Tera and Nimsoft for $350M all indicate a return to a healthy M&A atmosphere, that will probably last for the next 12-18 months.

Oracle and SAP won’t be aggressive on the M&A front until they come to the realization that they can’t build Cloud solutions internally. Because many SaaS companies have now crossed the $25-30M in recurring revenues threshold, these firms may become quite attractive to these larger ISV’s looking to make the move to the SaaS business model.

But these acquirers don’t want to take on the burn associated with many start-ups so it will be important to stay close to breakeven and you may have to sacrifice growth for profitability. Since the access to capital is still tight, start-ups will have to try and collect cash upfront and continue to tune their business models to improve cash flows.

Companies that seem to own a category have perceived scarcity value which will result in a premium on any transaction, especially if they are perceived to own a segment franchise. VC’s and acquirers are looking for a minimum of 40% CAGR to get a premium valuation.

On the other side of the liquidity front, the IPO window for SaaS companies is beginning to open up and firms like SolarWinds and LogMeIn have now been joined by SPS Commerce and Convio. At least before the recent stock market downturn, these companies had traded up by 15% since their IPOs.

The panel seemed to believe that the market is definitely getting better and that is good news for SaaS and Cloud Computing companies looking for funding or an exit!

When speaking with entrepreneurs and investors about the investment required to start up a new Software-as-a-Service company, I often refer back to this list.   At Montclair Advisors thought this would be a handy reference for those looking to start a SaaS company during 2010.

Looks like you might need a money tree to start a SaaS company, but for those that reach critical mass and go public, there is a tremendous payback.  This is information has been gathered from various sources including Wachovia, CrunchBase and Google Finance.

Given we are starting a new decade and many could argue that SaaS started in during the last ten years, I thought it would be appropriate to recognize leaders of the SaaS movement. Here are the winners of the Montclair Advisors 2010 SaaS Hall of Fame:

Most Influential SaaS Company:     Salesforce.com

Salesforce has have been the most vocal proponents of the SaaS business model for the last 10 years. They are also the largest SaaS Company based on revenues ($990M) and market value ($8.5B).

Most Influential SaaS Individual:     Marc Benioff

As the CEO of Salesforce, Marc has been the major evangelist for the past ten years. His recent book Behind the Cloud is a great primer for entrepreneurs who are considering starting their own SaaS Company.

Best Transition to SaaS:                  Concur (Steve Singh)

Concur was the most visible company to move their business model to Software-as-a-Service from a traditional on-premise model. He moved his company from a low of .90 a share to creating a company with revenues of $250M and a market cap of over $2B.

Biggest SaaS Acquisition:                 Omniture (Josh James)

Adobe purchased Omniture firm for $1.8B in October 2009.

Largest SaaS IPO:                              NetSuite (Zach Nelson)

The largest SaaS IPO so far is Netsuite’s public offering in December 2007 for $185M. This event made Larry Ellison quite happy since he owned more than half of the company.

Largest SaaS Deployment:              SuccessFactors (Siemens)

In 2009 SuccessFactors announced the largest SaaS applications deployment to date with Siemens where they will deploy their performance management software for more than 400,000 managers and employees.

Biggest SaaS Comeback:                     Dave Duffield (Workday)

After his company PeopleSoft was acquired by Oracle, Dave Duffield formed one of the most successful pure SaaS companies, Workday, designed to create the next generation of ERP solutions.

Most SaaS Customers:                       Salesforce.com

Since they are one of the original SaaS companies it is not hard to believe they would have the largest customer base but they are clearly much larger than any other SaaS company with more than 65,000 customers.

Most Influential SaaS Analyst:         Bill McNee (Saugatuck Technologies)

Bill, a Gartner Group alumni, has built his firm, Saugatuck Technologies to be exclusively focused on Software-as-a-Service and Cloud Computing for the past ten years.

Most Influential SaaS Journalist:          Phil Wainewright

Phil has been a blogger and journalist with many different publications including ZDNet doing a comprehensive job of covering SaaS industry events, companies and trends.

Most Influential SaaS Pundit:              Jeff Kaplan (THINKstrategies)

Jeff has been a very visible figure at industry events, associations, publications where he has promoted and commented on SaaS trends and players for the past ten years.

Most Influential Investment Firm:          Bessemer Venture Partners

Byron Deeter and his colleague Philippe Botteri published a very popular Top 10 Laws for Being ‘SaaS-y’ as well as having invested in many leading SaaS companies.

Company:        Clarizen

Started:            2005

Located:           San Mateo, California

Geography:      Global

Market:             Online work and project management software

Products:          Online work and project management software

Key Customers:     AutoDesk, Clara, Enlaso, Fortinet, Lenovo, NBC Universal, NEC, O₂ and UPS

Website:            Clarizen Website

Blog:                 Clarizen Blog

Twitter:             @Clarizen

Recent News:

Clarizen Secures $8M in Financing From Leading VCs

More than 100 Service Providers Enrolled in Clarizen’s Vendors Connect Initiative

Leading Analyst Firm Names Clarizen as One of the Innovative Applications Companies
Under $100M to Watch

Clarizen Reports More Than 100 New Customers in Q3 2009

I asked Guy Shani, Clarizen’s vice president of Sales a few questions about his business and his view of the SaaS market as we start 2010.

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

The company was started four years ago by a group of executives who had come from a company called SmarTeam, that specialized in enterprise Product Lifecycle Management (PLM) solutions.

The idea for Clarizen came after SmarTeam was acquired by Dassault Systemes and IBM. During the 10 years we all worked at SmarTeam, we built very expensive, heavy, customized enterprise project management software solutions. But after talking to our clients over the years, we began to realize that they were looking for lighter weight enterprise solutions on a different platform, and this is when we started looking into Web 2.0 technologies.

At Clarizen we began to evolve project management into work management. This involved a more active way to manage both structured and unstructured work activities. Work management revolved around resource loading, document management, and all types of communications involving wiki’s, bug tracking, expense management and time sheets. The traditional way to do project management was more related to planning and less about activities and execution.

During our transition away from an on-premise company mentality to starting Clarizen we learned many lessons the hard way. One of the core beliefs of the company is that we have to measure everything, and in my area of sales, we track all campaigns, conversion rates and gates, average sales cycles, adoption and churn rates just to name a few of the metrics we monitor. We also track all of our costs – costs per lead, customer acquisition costs and many other metrics. The on-premise model of sales was all based on relationship selling, where as the SaaS model is much more about endless testing and monitoring what works and then doing it again and again.

We have been funded by very well-known venture capital firms including Benchmark Capital and Carmel Ventures who is based in Israel. In December 2009, we announced our ‘C’ Round of funding of $8M, which was led by our newest investor DAG Ventures, who is based in Silicon Valley.

Why do your customers buy from Clarizen?

Main reason was our new idea around a lightweight work management solution, that no provider was really focused on delivering. The market has been traditionally dominated by Microsoft Project, which is a very static way to view projects, with little or no collaboration capabilities. Clarizen was developed to be collaboration-oriented. This worked well with our customers who are working in a cross-organization frameworks, especially outside just their own organization, which is challenging for a standard on-premise software solutions.

Our competition breaks into three different market segments; High-end enterprise solutions, that are highly customized like Primavera and Computer Associates; Lower-end unstructured collaboration tools like WebEx, BaseCamp, Zoho, many which are free; and Mid-market products that embrace both on-premise and hosted deployments, solutions like Daptiv and @Task which are targeted toward the professional project manager.

Clarizen is a scaleable, mid-market SaaS solution that is easy to use, serving the needs all employees who are involved in projects inside the enterprise.

The SaaS lessons we learned included that in order to be successful we needed to have wide user adoption, so our solution needed to be easy to use. This was also important because we would have a hard time training everyone who might want to use the system, so it needed to be a product that could be learned in five minutes. The other reason adoption was critical is that you wanted users to update their project status and completion, so we developed techniques like our email notifications that look like Microsoft Outlook invitations that encourage users to update their status. This type of interactivity makes the systems not only easy to use but the reporting much more reflective of how work and projects are actually progressing.

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

Many companies have tried to run a thin client, Web-based project management application solution over the past 10 years, not many have been successful. 2010 enterprise software buyers are now really looking at SaaS – for a serious and scaleable work management solution.

As we learned over the years, work management is an entirely different market, with different buyers, than trying to sell high-end, customized engineering solutions. Customers would always complain how long it took to implement our software, which was painful and a big business challenge we were constantly dealing with at SmarTeam. Things needed to be simplified. Our realization was that it wasn’t the solution that we were delivering but how we were delivering it that needed to change.

Based on our experience with on-premise approaches to project management, we definitely liked the Web-based approach and that’s why Clarizen started out as a SaaS company, which is what the market is looking for in 2010.

What is your outlook for 2010?

Customers are looking for real business savings, for friction-less solutions and functionality that is broader than today’s current on-premise offerings. Clarizen can offer a more flexible work management solution that addresses this unique business opportunity in the market.

Now with our recent funding, we have proved that we not only know how to build a SaaS machine but also by running our business by KPI’s and performance indicators as I mentioned earlier, we can fine tune and logically expand our business. This is why we have experienced a 400% growth in our subscription sales, since last year,  even in this very difficult economy.

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.