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Here is our updated Public Company SaaS interactive spreadsheet. Enjoy!
As Zach Nelson kicked off last week’s Netsuite’s Partner and Developer Conference – SuiteCloud 2010 in San Francisco, there was a real focus on the importance of their platform as a way for partners to play a critical part in helping to take his company to the next level.
They kicked of the special launch event that featured a video of some of their key partners including TrueCloud, InsideView (who has been profiled in this blog), Aria, Hein & Associates, PaceJet, RootStock Software and Demand Solutions Group.
I think it is great with companies are building their business around their partners and creating a cool ecosystem where everyone can make money… more on that in a minute.
Zach then covered some Cloud Computing trends;
· Fake SaaS – He compared the NetSuite offerings, which are Cloud-based to Microsoft’s GreatPlains offering which is just a hosted version of their same on-premise offering. Still single tenant, version locked and requires Citrix to make it work like a true SaaS application. These types of business models will find it almost impossible to make money using a Fake SaaS. Other vendors mentioned here were Lawson and SAP.
· SaaS-based Financial Systems Are Popular. He showed a Gartner market slide (from 2008) that showed NetSuite as the fastest growing FMS provider.
· Traditional License Software Firms Are Hurting – This is nothing new because Saugatuck Technologies, Ray Wang from Altimeter and Montclair Advisors have all written about this but this slide says it all…
Customers are moving away from the old software model.
· The Cloud can now handle complex business processes. This has been demonstrated by vendors like NetSuite, Workday (Flextronics), Amazon AWS and SuccessFactors (Siemens) servicing very large and complex clients.
· Customization is no longer the Achilles heel of Cloud applications. In fact, it was argued that customization with NetSuite is now a killer feature of their Cloud offerings.
· Channels are emerging as an important component of a successful Cloud business model.
· The Cloud is getting social. With applications like Twitter, Facebook, LinkedIn, blogs, Fluid, Mzinga, InsideView, applications are more focused on communities and content than ever before.
There was a funny segment that discussed the complexity associated with the development of years of on-premise software, which he called an infrastructure hairball. It is much more cost effective to manage a single architecture, database and system of record. He mentioned that the cost of managing an SAP system (ala hairball) was approximately 3% of a company’s revenues, while operating their system was only 0.1%.
Then Zach got back to the partners and referenced a number of applications that are being built on top of the NetSuite platform – SuiteCloud , like RootStock Software’s MRP application. Other providers who have integrated into SuiteCloud include Amazon Web Services, Google, InsideView and HostAnalytics.
I thought the most interesting part of this session was when they brought IRON Solutions and NewHolland on stage to discuss the vertical application they had built on top of SuiteCloud.
New Holland has approximately 9,800 customers and they wanted to automate and enhance their relationship with their partners/distributors. They started working with NetSuite in 2007.
IRON Solutions is the Kelly Blue Book of agricultural equipment and offered a very complex product configurator along with CRM capabilities that allowed distributors better create and manage pricing and leads. They launched their new products built on NetSuite, IRON HQ for new product promotions, IRON Builder for pricing and lead management, IRON Guides for appraisal and trade and IRON Search for promotion and sales.
New Holland wanted to balance both the science and art of their business to move more of their customers to the web. Darwin Melnyk, CEO from IRON Solutions and David Greenberg from NewHolland whipped out their iPads and demonstrated their new applications.
Increasingly these type of vertical partner applications are going to be popular with customers looking for more tailored solutions for their specific businesses. NetSuite has more than 200 channel partners and sales through their channel has grown by 40% on a compounded annual basis. Which is quite healthy given our recent recession.
New partner announcements included;
· ISV/OEM’s – JCurve Solutions
· Systems Integrators – Hein & Associates (a Top 50 CPA firm), Fujitsu that is forming a strategic relationship for Japan with NetSuite and WIPRO who is building a practice around NetSuite OneWorld.
· BPO – GenPact is building an ERP Outsourcing business on NetSuite
I mentioned at the beginning why working with partners like NetSuite can be really profitable and with their new SP100 program, channel partners can get 100% of their first years revenue when they move older client/server applications to NetSuite.
Overall, it is nice to see major players embrace their partners and give them an opportunity to build their business and help their partner - a real win-win for everyone.
After our post on January 26th we got several great comments about the cost of starting a SaaS company. It definitely takes a commitment to build a true SaaS company, especially when you consider some the following facts about the 15 public companies that I tracked in my high level analysis:
- Average Start-up Capital Required: $44M
- Average Time Required from Start-up till IPO: 7 years
- Average Capital Required per Year till IPO (Burn): $6.8M
- Average IPO Proceeds: $76M
- Additional Capital Raised After the IPO: $243M
- Average Total Capital Raised: $363M
- Average Market Capitalization: $1,262M
- Companies Who are Profitable: 8
The costs of getting a SaaS start-up off the ground are substantial but only about half of the firms we tracked actually started out as a pure SaaS company. These other Cross-Over firms started out as either Application Service Providers (ASP’s) or were traditional On-premise ISV’s that move to SaaS through a combination of organic migration or through a series of acquisitions. Companies like Concur, Kenexa, Taleo and Ultimate Software have all transitioned to SaaS from an on-premise heritage.
Montclair Advisors - SaaS Start Up Costs - Pre IPO
The shortest time to go from start-up phase to an IPO was 4 years and the longest was 13 years. Most of the firms we tracked were founded between 1997 to 1999, which was prior and during the Internet Bubble.
When these firms went public they raised a range between $30M (LivePerson and Ultimate Software) to over $150M (DealerTrack and NetSuite), but on average they raised about $75M. All the firms then went on to do additional capital raises from $32M (LivePerson) up to $750M (DealerTrack) but on average each raised $243M! The total capital raised, when considering both pre IPO, IPO and post IPO capital raised, these firms raised between $100M (LivePerson and Ultimate Software) to close to more than $500M (DealerTrack, Salesforce.com and SuccessFactors).
Montclair Advisors - SaaS Start Up Costs - Post IPO
After going public, this SaaS market basket of companies have done well as a group. The majority of the firms are profitable, which makes for solid cash flow performance, revenue visibility and overall stability of the company’s stock, for the real SaaS firms.
The most valuable company, based on their Market Cap is Salesforce.com at more than $8B and there are at least 4 other SaaS firms with valuations over $1B (Blackboard, Concur, NetSuite and SuccessFactors). When comparing the amount of capital raised to the market valuation, the 5 best performing firms are Salesforce.com (.09), Ultimate Software (.13) , Concur (.19), RightNow (.22) and LivePerson (.31).
Montclair Advisors - SaaS Start Up Costs - Market Caps
This year, as the economy improves, promises to launch a few new SaaS IPOs and we will continue to track this core group as well as a larger group of Hybrids and Cross Overs and will periodically report back with our findings.
Company: OpenAir, a NetSuite Company
Started: 1999
Located: Boston, Massachusetts
Geography: Global
Market: Cloud Computing PSA Solutions
Products: OpenAir Business Development, Resource Management, Project Management,
Knowledge Management and Project Accounting
Key Customers: American Federation of Teachers, Clickability, MetricStream, Model N,
PreVisor, Selectica, State of Oregon, and SupportSoft
Website: OpenAir
Twitter: @OpenAir
Recent News:
OpenAir CEO Joins SIIA Panel to Discuss Growting a SaaS Business Internationally
OpenAir Launches OpenAir Connect for SAP, Oracle and Salesforce.com
I asked Morris Panner, OpenAir’s CEO a few questions about his business and his view of the SaaS market as we move into 2010.
Did you start out as a Software-as-a-Service company?
We started the company in 1999 and were one of the original Software-as-a-Service pioneers like Salesforce.com according to Phil Wainewright who was at ASP News at the time.
Professional Services Automation or PSA started out because the world economy was moving to more of a Human Capital intensive market. Companies where beginning to leverage talent wherever they could get it through outsourcing, consulting and all types of value added professional services. Product companies were also evolving into services companies that were trying to solve all types of complicated business challenges. Companies like PRTM, a global strategy firm, Lafarge Cement, Siemens, AstraZeneca, Software AG, Progress Software and BMC were all evolving into product and services companies.
All the OpenAir founders came out of a variety of professional services organizations and we realized at that time, there were no good ways to manage complex, global services projects, especially using spreadsheets and email. Then the Internet came along and OpenAir saw this market need, where existing companies were struggling, then we refined our strategy and began developing products to meet this opportunity. There were other PSA firms at the time, including Niku, who moved into IT management, but the overall PSA market space was and continues to consolidate around fewer, larger players.
About 18 months ago, Zach Nelson, the CEO at NetSuite approached me and we agreed that the market was moving towards not just SaaS-based Enterprise Resource Planning (ERP) market but to a Service Resource Planning market. At that point we agreed to merge the companies and since then we also acquired QuickArrow and now the OpenAir PSA segment of NetSuite comprises more than 1,000 customers and 85,000 users globally.
Why do your customers buy from OpenAir?
We think our customers are looking for a knowledgeable, long-term PSA partner. This type of partnership is very different than an infrastructure or transaction-type of software relationship, because professional services is it is really complex business process software. Our customers expect us to bring them our specific professional services domain expertise to help to make their businesses operate more efficiently.
For example, when we launched in Europe, we did a presentation to Siemens in Barcelona. They had SAP but didn’t like using their platform for managing complex services. Siemens wanted to select a services- oriented software platform that was referenceable with large enterprises like theirs. OpenAir’s difference wasn’t just the platform; it was our deployment approach for enterprise customers as well as our people.
Being a SaaS player is also an advantage because you don’t have to install anything, which saves our customers time and cost. This especially important for large global companies, because the types of services problems they face are distributed and complex, so SaaS just makes a lot of sense for them. Typically our customers are probably using Oracle, SAP platforms or even email and spreadsheets, to manage their services projects, but they aren’t easy-to-use or efficient solutions.
Our partnership with NetSuite has definitely helped us step on the gas with regard to new customer acquisition. Zach really understands markets and how they evolve, which is why he choose to work with OpenAir. Services and consulting executives are at the center of this market shift to a Service-based economy and OpenAir is helping them improve their businesses.
What do you see as the key trend emerging in the SaaS industry?
We see the major drivers as Cloud Computing and the shift from a manufacturing-based economy to a people and services-baed economy. OpenAir’s Cloud-based solutions are going to do for the service economy, what is what SAP did for the manufacturing economy.
NetSuite is making a big bet on Professional Services Automation and now have put the resources behind our Service Resources Planning approach to the market.
What is your outlook for 2010?
Even though last year was difficult for most software companies, 2009 was a great year for OpenAir.
As we look to 2010, growing our talent is the key to the success of our company and we will continue to build out our capabilities in Boston, Austin, London and the Philippines. We doubled our headcount in 2009 and we building a great team.
We’re very thankful for our good results in 2009 and 2010 looks to be on track for us.
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.
| Company | Investment | Current Market Cap | Ticker Symbol |
| (in 000’s) | (in 000’s) | ||
| Blackboard | $100.7M | $1,300M | BBBB |
| Concur | $30.2M | $2,100M | CNQR |
| Constant Contact | $37.3M | $527M | CTCT |
| DealerTrack | $48.0M | $774M | TRAK |
| Kenexa | $54.5M | $256M | KNXA |
| LivePerson | $41.6M | $335M | LPSN |
| LogMeIn | $20.0M | $448M | LOGM |
| NetSuite | $84.9M | $1,000M | N |
| RightNow | $32.2M | $553M | RNOW |
| Salary.com | $5.7M | $40M | SLRY |
| Salesforce.com | $64.5M | $8,500M | CRM |
| SuccessFactors | $54.5M | $1,100M | SFSF |
| Taleo | $36.9M | $891M | TLEO |
| Ultimate Software | $25.1M | $755M | ULTI |
| Vocus | $26.4M | $345M | VOCS |
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.
When most companies think about moving towards a Software-as-a-Service business model they often just change their pricing model. You know the drill, instead of charging a big perpetual license fee upfront with some services and then an annual maintenance fee, you switch over to a SaaS agreement that is structured quite differently; with the subscription being spread over the term of the agreement and some upfront services to get started.
Don’t get me wrong, changing your pricing is a big deal if you are a traditional software company. By changing your pricing dynamic you are moving from a Capital Expense (CapEx) to an Operating Expense (OpEx) orientation, this is a dramatic change! It’s even a bigger deal if you are a publicly traded software company. But the overall SaaS business model is really all about monitoring and measuring metrics, ratios and statistics.
I ran into a very interesting company recently, OpEx Engine, that has done extensive benchmarking of SaaS and technology companies, and has complied a library of operational metrics for over 50 public and privately held software firms. Lauren Kelley, OpEx’s CEO is an ex- Art Technology Group (ARTG) executive who realized that smart technology people were looking for these types of real-world benchmarks and operating metrics. Lauren’s team has spent the last two years accumulating a lot of really value information. I can’t tell you how many times I have looked for good comparative metrics on how much companies typically invested in sales and marketing, research and development and G&A when building out a business model. For instance, did you know that of all of the publicly-traded SaaS companies that DealerTracker (TRAK) has the lowest R&D investment as a percentage of their revenue? (4.9%) Did you also know that Salesforce.com (CRM), Omniture (OMTR), NetSuite (N), and SuccessFactors (SFSF) all spend more than 50% of their revenues on sales and marketing? That’s an easy one but you should definately check out the free information that Lauren provides on her site.
There are many other metrics that are needed to successfully run a SaaS company but one of the most important is your overall cost of sales and marketing. Understanding what your true Customer Acquisition Costs is a critical SaaS business performance indicator. I was recently at the SIIA On Demand Conference in San Jose where I heard Josh James, the CEO at Omniture present his sales and marketing modeling methodology, that he has dubbed the ‘Magic Number’ for SaaS companies. Since it would probably justify a completely separate post, all I can say that this is a really innovative way to determine if your % of sales and marketing spend is either too much or too little. Phil Wainewright wrote a great piece on the Magic Number - When to spend cash in a SaaS business - which is definitely worth reading. What Omniture has done really well is to figure out the overall profitability of their clients, market saturation, marketing effectiveness and the number of Quota Bearing Sales Reps (QBSR’s) that are required to grab market share. It’s cool.
Other sources of good SaaS market information and metrics are:
TripleTree, a boutique investment bank which conducts some solid SaaS research, Cutter Consortium, Saugatuck Technologies, and Jeff Kaplan’s firm Think Strategies.
If you hear of any other good ones, let me know.
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