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.

I was going to write this post earlier in the week but it seemed that everywhere I turned I saw more developments and wanted to include them.  The market is really starting to get frothy and there are many big SaaS/Cloud deals happening and companies going public with very large market caps.  Let’s take a look:

Recent Acquisitions

SuccessFactors (NASDAQ: SFSF) Acquires Plateau Systems for $290M, which was paid in half cash and half in stock.  This is an interesting move since it is the first acquisition that could be considered ‘core’ functionality when compared with other acquisitions like CubeTree (Collaboration), YouCalc (Analytics), Inform (Analytics) and Jambok (eLearning).  Plateau also has a fairly significant product portfolio overlap including compensation, performance management and succession planning, so it should be interesting to see how these offerings are consolidated.

Plateau has a very respectable customer-base with a large number of federal government customers as well as many large enterprise customers.  The company also was profitable and has some interesting Platform-as-a-Service capabilities that should be very useful for a larger SaaS portfolio.

Based on the market basket of publicly traded SaaS firms, this deal will make SuccessFactors the second largest firm in the group based on current revenues.  We estimate that at their current quarterly run-rate of $68M and Plateau’s estimated annual revenues, the combined company now is probably around $340M, which is only second to Salesforce.com.

CenturyLink (NASDAQ: CTL) Buys Savvis (NASDAQ: SVVS) for $2.5B, which is now third largest telecommunications company in the US with $18B in annual revenues.  The company had purchased Qwest earlier in the year and that deal was finalized on April 1st.   Now with the acquisition of Savvis, CenturyLink is moving into the Cloud Computing market with more than 48 data centers globally.

This is the second major deal in the Cloud Computing market of an emerging Infrastructure-as-a-Service provider, when Verizon purchased Terremark for $1.4B in January.  This should stimulate further consolidation of other providers and Rackspace may be the next target.

Salesforce.com (NASDAQ: CRM) Picks Up Radian6 for $326M for the Canadian social media monitoring company.  Radian6 helps their customers monitor ‘hundreds of millions’ of social media conversations. Salesforce believes that the acquisition will enable it to enhance all of its products, including Sales Cloud, Service Cloud, Chatter and Force.com.

Infor and Golden Gate Capital Buys Lawson Software for $2B.  Now this is technically not a SaaS or Cloud related deal but it just is another example of the pressure traditional providers are feeling from the up and coming SaaS and Cloud providers like Netsuite, Workday and even Oracle’s new Fusion offerings.

Recent SaaS IPO’s

Cornerstone OnDemand (NADSAQ: CSOD) went public on March 16th and quickly captured a market cap of $800M, even when the company lost more than $45M.  The company offers a suite of Talent Management solutions similar to what is offered by SuccessFactors and Taleo.

ServiceSource International (NASDAQ: SREV) completed their IPO on March 25th and were valued at more than $800M as well.  ServiceSource helps companies manage their revenue streams from renewals, maintenance and subscription agreements, which is especially important for SaaS firms.

Responsys (NASDAQ: MKTG) was able to launch into the public markets on April 21st and got a very respectable market value of $2.4B.  The company offers SaaS-based software and services that help retailers and eCommerce firms build and manage online campaigns.

By Kevin Dobbs

Montclair Advisors, LLC

Now that many software companies really feel that the risks associated with a second recession are firmly in the rearview mirror, it now seems like everyone is looking to grow their businesses.

I read a great post yesterday by Bruce Cleveland at InterWest Ventures about the Value of Growth for SaaS Companies, which I thought really accurately captured a challenge that many software firms face when transitioning to a SaaS model.   This is a subject that is near and dear to me given my background as a reformed marketing executive and someone who was responsible lead generation at Oracle years ago during the Tom Siebel and Marc Benioff era.   I think it was Tom Siebel when he was running Oracle’s inside sales team that told me “I want it to rain leads from the sky!” At the time I was actually shocked because he was asking me to literally drown his sales team with qualified opportunities who wanted to buy Oracle’s database products.

As I have come to learn that he knew exactly what he was talking about and his track record demonstrates that productive sales teams deliver amazing revenue growth results.  Bruce’s post highlights that a SaaS company without meaningful growth is not worth very much and probably will fetch the low-end of the valuation curve, which is still pretty good in today’s crazy market (See last week’s post about the SaaS Bubble).   So how are high flying SaaS companies like Salesforce and SuccessFactors achieving CAGR’s in excess of 30% every year?   Check out this chart I put together on some of the leading publicly traded SaaS firms (sans Salesforce because they will skew the chart):

As you can see the companies with the higher growth rates are also the ones that have high market caps (valued more highly by Wall Street).  What is really interesting is that SuccessFactors was able to grow by almost 50% for the past three years, even through one of the worst recessions in the last 100 years.  The value of growth can also been seen by a company that recently went public, Cornerstone OnDemand, they have been rewarded with a market cap that is over $800M even though the company lost more than $40M last year.  Seems crazy right?  But they have a great organic growth story along with a major channel relationship with ADP which could also signal even faster growth in the future.

If you talk to any software sales rep they often complain about their pipeline and the lack of quality leads. Reminds me of those coveted Glengarry leads  from Mitch and Murray downtown.    So at the heart of all of these companies and their rapid growth rates is that they have all developed a core competency to generate high quality leads and build pipelines quickly.

(click on picture to see clip)

Here are some tricks that I have learned along the way that will help you to build out your SaaS lead generation strategies:

• Use a Portfolio Approach - Depending on your product, buyers, and market there may be many ways to generate interest.  Campaign elements of a typical lead generation strategy are a combination of organic and paid web traffic, email campaigns, webinars, customer programs, social media and targeted events.   Don’t put all of your investment in a single demand generation approach, but reward the tactics that generate quality leads at an affordable price.
• Test and Test Again - With the portfolio approach you will need to continually test your messaging, packaging, value propositions, and price points.   The best-in-class SaaS firms are continually testing and refining their lead strategies.  This is important as most SaaS marketing organizations are trying to lower and optimize their Customer Acquisition Costs (CAC).
• Automate Where Possible -  There are a lot of great Sales 2.0 tools available today that can give you a real unfair advantage in the lead generation process.  Companies like Marketo, Pardot, Eloqua, Constant Contact, NetSuite and even Salesforce offer many tools to help you automate and analyze your marketing efforts.  I would definitely recommend implementing a lead nurturing or drip marketing program to continue to work your lower quality leads, this is a great way to build your pipeline over time with little direct human intervention.
• Track Everything - Make sure your sales operations and marketing teams are tracking and analyzing all of your lead activities and conversion rates.  You don’t need to be overly complex, but just tracking some basic things like lead scores, lead acceptance rates, leads converting to opportunities and close rates can help your organization to fuel your high growth SaaS sales engine.

With Cornerstone OnDemand’s recent IPO (NASDAQ: CSOD) and their high valuation based on a negative EBIDTA, many are starting to ask if we are headed for a second Internet or SaaS Bubble?

I do agree that some of the valuations at this point are a lot higher than a reasonable person would expect, but this is probably just pent up interest in the technology sector. It doesn’t help that Facebook and LinkedIn has seriously pumped up the valuations for Internet/Social Media firms, but today’s SaaS companies are very different from the Dot Bombs of 1999/2000.

Remember these companies?

All of these companies were built on bad business models, too much money and expectations that were out of control. And by the way are all out of business.

But not all of the Internet companies that were formed during this period were bombs; in fact there are a number of firms that are now pillars of the technology industry including these firms:

It would be safe to say that each of these companies struggled during and after the Dot-Com collapse but they were able to modify their models to take advantage of the efficiencies that the Internet provided. Amazon has built a business that can effectively compete against the largest retailer in the world, Walmart, even though its sales are only 1/12^th their revenues.

All of these Internet Survivors had to develop a real business model that would deliver solid margins, profits and growth. They each had to assemble experienced management teams, learn how to deliver superior customer service and build trusted brands. Not easy to do, but they did it.

Fast-forward to today and we have a whole new set of Internet and Software-as-a-Service companies that have emerged and gone public including these firms:

(1) CSOD IPO: March 17, 2011

(2) SREV IPO: March 25, 2011

As you can see most of these companies were founded before the Internet Bubble burst and were forced to create real business models that could deliver profits.

At Montclair Advisors, we specialize in SaaS business advisory services and we know many of these firms quite well and they all have strong management teams, growing businesses and staying power. Unlike the Internet firms that went IPO in 1999 or 2000, most of these firms have had to build up their businesses over ten or more years and are based on some form of recurring revenues.

Major differences between the companies on this list versus the early Dot Bomb firms include:

• Proven Over Time. As you can see most of these firms are at least ten years old and have weathered the economic changes through the last two recessions.

• Businesses at Scale. Most of these companies are over $100M in annual revenues, which means they have been successful in selling into multiple markets and geographies.

• Recurring Revenue Streams. Anyone who has been involved with a company that has developed a subscription business can tell you how hard it is to create a meaningful recurring revenue stream. The advantages of being a SaaS software company based on subscriptions means that revenues remain consistent so there is a high degree of transparency and visibility.

• High Degree of Customer Satisfaction. All of these companies are dependent on satisfied customers that want to renew their annual subscription agreements and purchase more services. This is quite different than the ‘drive-by’ relationships many of the early Internet companies developed with their customers.

• Strong Management Teams. After the Dot Com crash it became much harder to file for an IPO and manage a company in the post Sarbanes-Oxley world. These next generation of Internet companies have attracted leading management expertise that knows how to innovate and rapidly scale viable businesses.

So are the valuations of companies like Cornerstone OnDemand and Servicesource, Facebook and LinkedIn too high? Are we beginning to see a SaaS Bubble? Maybe, but all of these companies have been built for the long term and will be around long after any correction, unlike their early Internet cousins Web Van or Kozmo.com.

As part of Montclair Advisors‘ SaaS strategy work with several of our clients over the past couple of years, we have learned quite a bit about the specific requirements for large and small manufacturers who are evaluating SaaS-based ERP and MRP solutions.   For many reasons, the manufacturing community has been slow to respond to the SaaS and Cloud Computing revolution.  One of the main reasons we found was that because many small factories operate in low-cost regions of our country or the world, many don’t have reliable access to the Internet, which would render SaaS solutions useless.  But things are now changing and there are a whole new set of SaaS-based ERP solutions emerging on the market.

We were pleased to review a recent blog post by Derek Singleton at Software Advice, where he does a very good job of reviewing some of the latest ERP products that have made the move to the Cloud including Epicor, Infor, NetSuite, Plex and SAP Business ByDesign.

It is a great read.

Enjoy.

Kevin

Manufacturing software vendors are making aggressive moves to the cloud. In the past year alone, four vendors rolled out full suite Software-as-a-Service (SaaS) offerings for the industry. That brings the current tally of full-suite SaaS players in the manufacturing arena to five: Epicor Express, Infor SyteLine, NetSuite, Plex, and SAP Business ByDesign.

The buzz around the cloud has manufacturers asking if a cloud solution is right for them. To help answer that question, I’ll explore the features and functionality each vendor offers, and the ideal target market for each. Many more vendors are redesigning their software for the cloud, but I thought I would spotlight the five that are already there.

First, here’s a brief introduction to the vendors.

In May of 2010, Epicor released Epicor Manufacturing Express Edition (Epicor Express), the SaaS version of their Epicor 9 product. Their SaaS offering was designed specifically with smaller job shops and manufacturers in mind. Currently, 70 of Epicor’s 9,500 manufacturing clients are working in the cloud on Epicor Express. The product is currently targeting a 20 to 30 day period to go live. That should be attainable for small job shops without complex data migration needs.

Infor moved their flagship SyteLine product to the cloud in October of 2010. Of their 70,000 customers, mostly manufacturers, 800 have put some of their solutions in the cloud. Infor takes pride in the flexibility of their .NET architecture and their ability to serve mixed-mode manufacturers. In future releases, Infor plans to expand multi-site capabilities, and expand their mobile applications.

NetSuite began pursuing light assembly and less complex discrete manufacturing customers in 2007. In June of 2010, they launched their first full-suite manufacturing offering to target mid-market manufacturers. As a pure SaaS company, NetSuite’s manufacturing clients all operate in the cloud. NetSuite currently supports multiple sites, multiple languages and currencies. In future releases, they plan to expand upon this functionality and target more complex manufacturing industries.

Plex was the first SaaS player to target the manufacturing industry with their 2001 cloud-computing debut of Plex Online. At their start, Plex targeted the automotive industry. Since then, the company has expanded into several other verticals. As a pure SaaS vendor, all of Plex’s 589 manufacturing clients are in the cloud. Future releases will focus on expanding global capabilities, and developing functionality for more vertical manufacturing markets.

The July 2010 release of Business ByDesign 2.5 marked the on-premise ERP powerhouse’s first SaaS move into the manufacturing market. The product hosts 250 customers, but we don’t have a detailed count for how many customers are manufacturers. Regardless, SAP has tremendous manufacturing domain expertise to incorporate into the product over time. In future releases, SAP will focus on expanding their functionality to cover mixed-mode manufacturing and engineer-to-order.

Read the rest of the post… click here.

It is always hard to predict the future, but here are my 10 Predictions for the SaaS market in 2011, and they might just happen:

Blockbuster Subscription Software IPO’s

A number of large consumer subscription software players including Facebook, Groupon, LinkedIn, Zynga and Skype could really open up the public markets with a major blockbuster IPO (or IPO’s) in 2011.  SaaS firms that look to get everyone’s attention with potential IPO’s next year include Cornerstone OnDemand, Workday, Marketo, Service-Now and possibly Plateau.

Major Players Merge to Form the Next Big SaaS Brand

So my prediction (which is a pure guess) is that SuccessFactors and Taleo finally get over their respective CEO ego issues and decide to merge.   Sounds a little crazy, but when you really consider their product portfolios, there might not be as much of an overlap as you might think.  SuccessFactors is basically a performance and analytics company and Taleo is a recruiting and learning (after acquiring Learn.com) company.  They both have some additional components that could be plugged into to create a more comprehensive suite of CPM and Talent Management offerings.

This would also create a combined company with a market cap approaching (SFSF + TLEO) $4B and annual revenues in excess of $400M, which would be the second largest SaaS firm in the market, and a clear leader in their space.  Another potential marriage might be Concur and Ultimate Software.

Oracle Finally Pulls the Trigger on NetSuite

It seems like most Oracle SaaS rumors involve the acquisition of Salesforce.com, and that may happen some day, but the more likely combination for 2011 is NetSuite.  Larry Ellison is a major investor in NetSuite (early investor) and own/controls more that 50% of the company’s shares.  He may come to the conclusion that he needs some real SaaS DNA inside of Oracle to help grow their Fusion business in 2011 and beyond.

SAP Throws in The Towel and Buys Leading SaaS Player

Similar to the realization that many other major traditional ISV’s will come to in 2011, that they are too far beyond in SaaS to catch up organically, SAP will buy their way into SaaS.  The Business ByDesign project for SAP, by some estimates, has cost more than $1 billion and there isn’t much to show for it.  I always thought that the Sybase acquisition was just a smoke screen to cover up how little progress has been made with BBD at their most recent Sapphire user meeting.   Like Oracle, I think SAP reaches out into the market and purchases a SaaS firm to jump start BBD.  RightNow would be an interesting choice since SAP wants to make a splash in the CRM market.

Master Brands Continue to March Towards SaaS

These big software companies are no longer just paying lip service to SaaS or the Cloud, they continue to catch up with the subscription software market transition that is happening everywhere.  All sizes of customers who were battered during the recession are no longer interested in spending a lot of capital and time that has been associated with traditional software projects and are becoming increasing comfortable with SaaS.  This shift in the Software market is massive and is going to take at least 10 years, and we are probably only in the second year (post-recession) of this shift.  Continue to look to see what SaaS moves firms like Oracle, SAP, HP, CA and Infor make in 2011.

Continued Explosion of PaaS offerings

Look at Salesforce.com’s recent moves to expand their Force.com Platform-as-a-Service portfolio with VMForce and then buying Ruby on Rails provider Heroku for over $200 million.  Beyond Force.com there are many other offerings here today and coming in 2011 including App Engine by Google, Apprenda, Azure by Microsoft, Corent, Engine Yard, Facebook, Flex by Adobe, Fusion by Oracle, Intalio, IPP by Intuit, LongJump, Nimbula, SuiteCloud by NetSuite, and Wolf Frameworks.

As long as traditional ISV’s continue to move towards SaaS, there will be a green field opportunity for all types of PaaS solutions. Look for several of these firms to be acquired in 2011 by larger ISV’s.

Salesforce.com Continues to Expand Beyond CRM

After attending Dreamforce this month, it was curious to see a number of Force.com firms offering ERP extensions starting to gain real market momentum. Companies like FinancialForce.com (they purchased Appirio’s PSE business) who are delivering a growing suite of financial and accounting applications, JobScience who continue to build out their Talent Relationship Management suite on Force.com, Less Software who is selling a targeted Supply Chain Management solution and even Remedy’s Service Desk offering, RemedyForce Cloud.   If Salesforce offers an attractive exit for any of these firms or their Force.com products, like they did with Heroku, then it might be possible to do a quick roll-up of key partners to create a competitive Cloud-based ERP solution.

Interestingly this type of move might be triggered by Oracle buying Netsuite or Workday going public.

Fake SaaS Firms That Use Private Clouds Will Loose Altitude

Although Private Clouds might be a viable alternative for enterprises who are looking to leverage the economics of the Cloud, for software companies this type of approach will only provide short term ‘Fake SaaS‘ types of solutions.  This type of business model of hosting single-tenant software was known as Application Service Providers (ASP’s) and none of these companies that emerged about 10 years ago were able to find a business model that really scaled profitably.   Private Clouds will offer a short term technology transition steps for software companies who are moving away from just offering traditional on-premise software but this trend will really start to fade by later next year.

New Revenue Streams for SaaS Firms That OEM

At Dreamforce ‘10 Salesforce.com announced that they are launching their new Database.com offering, a Database in the Cloud. What was interesting about this news is that Salesforce is really just reselling a private-label version of Oracle’s database technology.  For Salesforce this is a unique way to take proven Oracle software, designed for on-premise deployment, and create a true subscription-based version of this product.  No doubt that Salesforce will need to do some work to create a massive multi-tenant version of an ORACLE database and then deliver it as a service, but they are already doing this today through their Force.com platform.  This could be a significant new revenue stream for both companies and look for other SaaS firms to try OEM’ing their software as a way to improve their CAGRs in 2011.

This should be an interesting year as the economy improves and the SaaS market really begins to gain some serious momentum.  It should be a fun time to be in the Software business again.

Kevin Dobbs,  Montclair Advisors, LLC

Seems like we were just here a few months ago but a lot of things have happened since the last Oracle OpenWorld in 2009.

It was great to see a full house of exhibitors that consumed most of the Moscone center in San Francisco. Walking through the two completely full tradeshow floors, which indicates some degree of growth in the broader technology market, especially after I saw a number of mega-booths with a lot of promotional events.

Fusion Applications

I didn’t see the Sunday keynote with Larry Ellison, but I heard multiple times that he announced everything at that session.  It appeared that area that SaaS followers were keenly interested in learning more about was Fusion and as one analyst mentioned to me it, ‘Larry mentioned a couple of the new Fusion Apps and then went Yada Yada Yada for the rest of them.’  His opinion was the anytime you Yada Yada anything that means you are not taking it seriously.  Well maybe.

It sounds like Oracle is taking Fusion serious, having invested close to $4B in R&D during 2010 alone,  in order to be ready to launch these next generation apps.  Oracle is offering 100 modules and over 7 different product families including Financials, Procurement, Sourcing, Project and Portfolio Management, HCM, CRM and SCM. We will see over the next few days if there is real detail and deliverables around all of this investment in Fusion or just more Yada Yada.

If Oracle plays this correctly, they will be able to cash in on the buying public’s shift to OPEX spending rather than traditional capital spending on software, which is no longer in vogue.  Fusion applications could be a viable alternative to smaller more risky best-of-breed application alternatives, but they need to be both pure-SaaS and functionally complete.  We will know over next few days.

Riding Hurd

I personally think that Oracle’s hiring of Mark Hurd was a true master stroke, and a major mistake on the part of HP for letting him go.  Mark kicked off the Monday keynote session and he looked like he had worked at Oracle for years, brimming with confidence and very comfortable.  It is also clear that having someone with his knowledge of the hardware world at the helm, is a major advantage, with all of the Sun technology now firmly part of the Oracle ‘Full Stack’ offerings.

We saw a fully buzzword set of presentations this morning; OLTP, Petabyte, threads, cores, and ZFS to name a few.  Speeds and feeds were the name of the game and Mark Hurd and John Fowler discussed the new Exadata 2 and Exalogic products.  Oracle loves fast products and breaking records, so owning the entire technology stack is going to be fun for Larry.   It is interesting that all of these really fast “Full Stack” products will be huge advances and will definitely improve the performance and scalability of future Cloud Computing services, offered by Oracle and others.

M&A in the Air

There have been a number of deals in the technology space over the past 30 days including HP purchasing both 3PAR and ArcSight for close to $4B.  In the HCM space there have been a very rapid spat of deals including one announced between SumTotal Systems purchasing Softscape, Taleo purchasing Learn.com, Kenexa buys Salary.com and Stepstone picks up MrTed.  One has to wonder if there won’t be a big announcement at Larry’s Wednesday afternoon keynote.  I have heard that Oracle might buy Netsuite, which is interesting considering that Larrry already owns about 65% of the company.  Considering Salesforce.com is speaking and exhibiting here at OpenWorld that might be sort of embarassing to everyone concerned.  It might also not be a ringing endorsement of Fusion either, but we will wait and have to see what happens.

More from OpenWorld tomorrow.

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

Here is our updated Public Company SaaS interactive spreadsheet.  Enjoy!

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.