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:            NetDocuments

Started:               1998

Located:              Orem, Utah

Geography:         Global

Market:               Enterprise Content Management

Products:            NetDocuments – Basic, Professional and Enterprise

Key Customers:   Kegler Brown, Sterling Futures, Xtreme Mountain Development, National Retail Properties and IPiphany

Website:               NetDocuments

Community:        NetDocuments Community – Marketplace, blogs, forums, channel partners

Blog:                   NetDocuments SaaS Blog

Twitter:               @netdocuments

Facebook:           NetDocuments on Facebook

LinkedIn:            NetDocuments Group on LinkedIn

Recent News:

NetDocuments® Develops Integration With Google Wave

I asked Ken Duncan, NetDocument’s Chief Executive 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?

NetDocuments started about ten years ago as a single instance and multi-tenant solution. The majority of the company came out of Novell, and had experience with Netware and the Internet. We started with ten principles from Novell and half of them were vice presidents or general managers.

Many of us started out at SoftSolutions Technology which was acquired by WordPerfect and then Novell bought them. SoftSolutions was a document and content management software company using Data General mini computers. Then when we started NetDocuments, the team took their knowledge of document and content management and immediately jumped at the chance to use the Internet.

After the Dot Com crash, we just learned how to survive. Prior to the Crash many Fortune 500 companies who were tired of using traditional content management systems, started to work with a web-based content management systems. That changed after the Crash, they all just went back to their old content management solutions, but we just stuck with it.

Why do your customers buy from NetDocuments?

More than 70% of our customers are either in the legal field or law firms. This was a logal vertical market for NetDocuments to specialize in, because law firms are so document-intensive.

We are the leader in the Internet-base document management based on functionality, features, multiple languages and patented technologies. NetDocuments architecture is not tied to a database, which improves efficiency and performance.

One of our key benefits is a strong and powerful search engine. NetDocuments uses, the Fast Search & Transfer product, which was purchased about a year ago by Microsoft. This was good news for us because Microsoft will support the Fast technology for the long term.  Microsoft has now embedded the Fast search engine with their SharePoint products.

It is important for us to keep our customers satisfied and earn their business every month. Whether they pay monthly, quarterly or annually, we need to make our customers successful. We work with all types of law firms, on average they have about 250 users, with offices worldwide. NetDocuments offers a high level of security and availability for our customers using two state-of-the-art data centers.

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

Indirect channels are becoming very important to the SaaS industry.  The major trend we see is that SaaS now makes it possible for the large industry players like Microsoft, Google and EMC to reach the SMB market much more effectively. Over time these large firms are going to either form partnerships or acquire companies who have figured this out. New ISV’s are not only trying to figure out how to build Software-as-a-Service businesses, but also trying to create compensation plans that drive business for them and their channel partners.

What is your outlook for 2009?

NetDocuments has been doing well during the recession and we have been experiencing double digit growth while still being profitable. The legal market is resilient and we have been able to cherry pick old Interwoven and OpenText customers by offering a better service at a lower cost.