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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
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.
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.
Company: NetSuite
Started: 1998
Located: San Mateo, California
Geography: Global
Market: Cloud Computing Business Management Suites
Products: NetSuite Accounting/ERP, CRM, eCommerce, NetSuite OneWorld, Suite Cloud Platform and OpenAir PSA
Key Customers: SuccessFactors, Smashbox, Solarwinds, Intuitive Surgical, Isuzu Truck, GestureTek, Virgin Money, Six Apart, Cash Edge, Oakland A’s, Ashi Kasei Group, Cartridge World
Website: NetSuite
Blog: Cloud NetSuite
Twitter: @NetSuite
Recent News:
NetSuite OneWorld Strengthens Links at Wireless Matrix
Independent Survey Finds High Satisfaction Amongst NetSuite Customers
I asked Mini Peiris, NetSuite’s VP of Product Marketing a few questions about their business and her view of the SaaS market as we move into 2010.
Did you start out as a Software-as-a-Service company?
Yes we were founded in 1998 as a SaaS or Cloud-based solution. The company was started Evan Goldberg and Larry Ellison, providing cost-effective business management software for small and medium sized businesses or divisions of large enterprises. We’re now the #1 cloud business management suite, with over 6,600 customers.
Our original focus was on small businesses and over time we have moved up market, . When we started NetSuite, we were based around financial management and we have now developed an entire business management suite across ERP, CRM and Ecommerce. Then in 2008 we launched NetSuite OneWorld for global businesses or their divisions, that are looking for a comprehensive business or financial management suite.
Why do your customers buy from NetSuite?
The value of purchasing NetSuite software is we allow our customers to focus on operating their core business instead of running and maintaining all different types of business management software and infrastructure. Most companies operate a hodge podge of different systems for financials, CRM, support, eCommerce and inventory. This requires substantial initial and ongoing investment, time to manage and resources to upgrade.
Cloud Computing reduces a lot of this IT pain by allowing customers to pay as they go, and eliminating the need to buy, maintain and upgrade expensive hardware, software, and infrastructure. NetSuite offers a fully integrated web-based cloud business management suite, which offers significant business benefits, such as CRM solution that is fully integrated into financials and into inventory, which creates a much more efficient order to cash process. Some of the big benefits include significant ROI because you can do more work with fewer employees and the work is more accurate. Older systems require business analysts who create and maintain sales orders, conduct ad hoc reporting, data management across systems and a lot of re-keying.
Our customers also like that they can centralize their data, centralize their customer data and have a single version of the truth.
NetSuite customers can leverage our standard analytics, run real-time reports, dashboard and fulfillment, without having to try and integrate a hodge podge of information using Excel. All of this all included and completely integrated with our system, so customers don’t have to pay a separate fee.
We typically service companies who have outgrown Intuit’s QuickBooks, struggled with having to maintain Microsoft Great Plains with multiple other business systems, and we’ve even had SAP R/3 customers convert to NetSuite, who have become weighed down by the IT costs, and multi-million dollar upgrade costs.
For example, Asahi Kasei Spandex America moved from SAP R/3 to NetSuite and reduced their IT spend from 3% of revenue to 0.1% of revenue with NetSuite - with NetSuite providing an easier to use, modern, integrated and cost effective completely web based solution. In fact, NetSuite has been shown to be 50%+ more cost effective than traditional on-premise solutions. Our sweet spot in the market is companies with 11-1,000 employees in high tech or software, wholesale/distribution, retail/eCommerce, manufacturing or services verticals, and our solutions are used across the globe.
What do you see as the key trend emerging in the SaaS industry?
A major trend is the enterprise adoption of SaaS. For example, we are seeing significant share of our new business bookings for our NetSuite OneWorld solution, our solution for global companies or divisions of global enterprises.
The increasing media coverage of SaaS and Cloud Computing is definitely a driver, because the significant cost savings and business efficiencies are very attractive to CIOs and they are starting to take a closer look at Cloud-based solutions. Even during the economic downturn, Gartner rated NetSuite for the first time as one of the Top 10 Financial Management Systems vendors in 2008 by market share - and the fastest growing in that Top 10. And IDC recently rated NetSuite one of the Top 10 ERP solutions for sub-1,000 employee organizations .
ERP upgrade cycles are coming up again like they did 3-5 years ago and customers are faced with either upgrading or switching their systems, and NetSuite’s solution provides the ideal solution to slash IT costs, and get off the upgrade treadmill.
Cloud solutions are becoming more highly tailored towards specific industries. NetSuite’s SuiteCloud platform provides the ideal platform for ISV’s to deliver industry specific cloud apps to market. For example, RootStock Software is a NetSuite partner that is building a manufacturing resource planning application on top of the NetSuite platform, because they can take advantage of NetSuite’s native ERP, CRM and eCommerce functionality and their application logic for manufacturers. ISVs can even market and distribute their applications through our marketplace at SuiteApp.com.
Traditional software resellers and solution providers are looking to transform their business models as the traditional on-premise market slows down and buyers become more skittish around large capital outlays. Cloud computing offers the opportunity for resellers to provide truly cost effective and compelling solutions to their customers. This transition is happening worldwide, and NetSuite’s cloud pay as you go solution provides the opportunity for resellers to to build a recurring revenue stream, and better fit with their customers’ needs. With our NetSuite Solution Provider program, partners can leverage NetSuite to make this transition. In fact, we recently announced the NetSuite SP100 Program which enables resellers to get paid 100% of the first-year revenues on new sales of NetSuite.
At our upcoming SuiteCloud2010 event in San Francisco in April, NetSuite partners will be coming together, sharing ideas and best practices and seeing how others have both built natively on top of NetSuite’s platform, as well as integrated with it.
What is your outlook for 2010?
Well, we’re pleased that at NetSuite we just closed out our 2009 fiscal year with record revenues.
In a recent Gartner forecast they are projecting that SaaS ERP/CRM versus traditional ERP/CRM, SaaS will grow at a much stronger growth rate. As Cloud Computing gets more play and enterprises continue to upgrade, this should be good news for us.
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 |
SMB Financial Productivity Software
There is an increasing number of Software-as-a-Service (or SaaS) firms jumping into the smallest end of the Small and Medium-size Business (SMB) market, and they are offering a variety of financial productivity solutions. This is the fastest growing segment of the economy according to the Bureau of Labor Statistics there are up to 21 million self-employed consultants and small firms in the US.
This has traditionally been the sweet spot in the market for companies like Intuit. Although most customers are somewhat happy with their offerings, Intuit’s offerings tend to be cumbersome, packed with way too many features, hard to use and upgrade.
A new set of SaaS providers has emerged with products designed specifically for the small business owner. These packages are all delivered through the Internet as a service, so no more visits to Best Buy were required. Many of these new software services are very low cost and some were even free, and because of this, the adoption of these products has been rapid.
This Sector Report only covers the incumbent software provider and the promising new SaaS suppliers.
Financial Productivity Software Profiles
QuickBooks Free and $
The clear leader in providing Financial Productivity solutions for small businesses is Intuit. They have now also wrapped a set of small business services to help newly formed companies including payroll, website and logo development. Intuit is now offering a free single user version of QuickBooks, Intuit Online Payroll and Intuit Websites (from the Homestead acquisition) to encourage small businesses to use their financial and business productivity products.
Intuit has been trying to move more of their offerings to a subscription model for several years, without a lot of success. But they are continuing to push SaaS and you will see more SaaS offerings in 2009-2010 including QuickBooks Online.
Estimate millions of Quicken and QuickBooks users/customers.
Public company (NASDAQ: INTU)
New Alternatives
Online money management and budgeting software service. Free
This company has been adding 3,000 customers a month and have been a SaaS company to watch. Mint’s service is delivered through a subscription model but their software is free to use. To set up Mint’s money management service takes about 5 minutes, compare that to other industrial-strength solutions which require outside assistance and offer too much functionality for a small business.
Estimate 850,000 users/customers.
Private company based in California. 30 employees.
Online invoicing, time tracking and expense management.
FreshBooks has had a lot of momentum coming out of 2008 and offers a subscription invoicing service that is designed exclusively for freelancers and small businesses. Their focus is to provide products that are very simple and easy to use as well as integration to other productivity tools like 37Signals Basecamp project management software. FreshBooks offers a free service for a single user and then an incremental pricing structure based on usage.
Estimate over 700,000 users/customers. 60% in the US and 14% in Canada.
Private company based in Toronto, Canada. 30 employees.
On-demand business management suite; marketing, sales, operations and finances.
NetBooks offers a one-stop location for a small SMB to get all of the necessary business services they need to run their company. Their offerings are similar to the breadth that Intuit’s QuickBooks is now offering. NetBooks offers its software on a subscription basis and targets very small SMB’s.
Private company based in California. 30 employees.
Online accounts payables and bill management.
Bill.com provides a simplified way for SMB’s to manage their payables using their SaaS based platform. The company appeals both to SMB’s but also to accounts who can use the Bill.com service to simplify their client’s payable processes.
Bill.com has just formed a partnership with Intacct and integration to QuickBooks.
Private company based in California.
Online account system; banking, invoicing, payables, expenses and contacts.
Xero’s core is a set of financial products with some added contact management and reporting capabilities. Definitely targeting the small business owner with a very simplified SaaS offering. Support for firms in UK and Asia-Pacific. Nice user experience and Mac-friendly.
Estimate over 4,000 customers. Signed up more than 1,000 during December ‘08 and January ‘09.
Private company based in New Zealand. 50 employees.
SaaS-based accounting software.
Kashflow has been in business since 2002 and offers a very simplified online global accounting service. Provides a 60 day free trial and then pricing is based on a per user per month model.
Private company based in the UK. 9 employees.
On-demand income management, expenses and taxes.
Outright used to be gobootstrap.com and targets its products to very small SMB’s by offering dead simple financial products. Outright is offering its products free of charge during its beta test phase. Has integration partnerships with FreshBooks and Shoeboxed.
Private company based in California. 5 employees.
Workday $$
On-demand financial management, expenses, procurement and ERP.
Workday provides a complete financial suite of SaaS-based products that scale for SMB’s and large enterprises. Their ERP suite also provides HR, payroll, benefits, procurement and expenses. Workday solutions require professional services support to install and configure. Dave Duffield, the founder of PeopleSoft is also the founder of Workday.
Private company based in California. 320 employees.
On-demand financial management and accounting software. $$
This product suite is designed for the small business that has outgrown QuickBooks. The suite includes general ledger, purchasing, order management, inventory, contract and revenue management. Intacct has available integration into Saleforce.com, OpenAir, QuickArrow and many industry-specific solutions.
Estimate over 2,500 customers.
Private company based in California. 100 employees.
On-demand corporate travel and expense management.
Although one of the original Software-as-a-Service companies, Concur is focused on the high-end of the SMB segment all the way up the Fortune 500. Deep functionality requires outside consulting assistance to set up. Pricing is a monthly subscription based on usage. Probably not a good fit for a small SMB company.
Estimate more than 6,000 customers.
Public company (NASDAQ: CNQR).
Netsuite Accounting and ERP Suite $$$
On-demand accounting, time and billing, order, purchasing and inventory management.
Netsuite is designed for the company who is looking for a modular on-demand ERP suite. The suite also includes Customer Relationship Management (CRM), eCommerce and Business Intelligence modules. All products are offered in a SaaS format. Company also offers a Platform-as-a-Service (PaaS) framework for Netsuite developers who want to build their own applications.
Estimate over 5,000 customers.
Public company (NYSE: N).
Given the current state of the economy, many individuals are now setting up their own businesses. Using these new subscription-based Office and Finance Productivity tools can not only be very affordable for start-up your businesses but also give the consultant or SMB many of the same capabilities they had at their larger firms.
The good news is that there is no shortage of SaaS-based Financial productivity products out there to choose from and this is just a top line summary of what is available. Many of these products are available at very attractive price points, including many who are free. Using or switching from older solutions not only can save a lot of money but also make SMB’s more competitive in this tough economic environment.
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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