For the SaaS world, Oracle’s OpenWorld has lately been all about hardware and the Exastack products. These offerings have limited appeal to all but the largest SaaS ISV’s.   The good news is that there were some new announcements though that were much more interesting for the SaaS community at last week’s Oracle OpenWorld in San Francisco.  Here is a quick summary of the news and drama:

Oracle Public Cloud

This was a welcome move by Oracle, to finally embrace their vision of the Cloud. Oracle is re-packaging many of their assets including the Exastack, Java, and the Oracle Database into a pay-as-you-go service, which should be appealing to smaller customers as well as ISV’s looking for an easier way to leverage Oracle technology.

The key theme that Larry Ellison [video] kept emphasizing was that the Oracle Public Cloud is standards-based and will allow a customer to port products they built on their Cloud to other standards-based Clouds or even on-premise. Larry was quite funny in his keynote by referring to his competitor’s Clouds as the “Roach Motel of Clouds”, because once you go in, you never come out.

In addition to just pure infrastructure services, Oracle will also make available its applications including Fusion CRM and Fusion HCM products as their collaboration platform.

Here are some other interesting articles on the Oracle Public Cloud:

• Ellison Reveals Oracle’s Public Cloud; Calls Salesforce The ‘Roach Motel’ Of Cloud Services, Rip Empson, TechCrunch.
• How Oracle’s Public Cloud Is Different, Charles Babcock, InformationWeek.
• Oracle Public Cloud might be extensive, but it’s boring, Larry Dignan, ZDNet.

Oracle Social Network

Sounds a little like that movie about Facebook. The Oracle social strategy is to provide an easy-to-use interface for both their new Fusion applications as well as the Oracle Public Cloud.

Their social network looks remarkably similar to the Chatter offering from Salesforce.com. The Oracle Social Network allows you to track projects by activity streams, follow people and objects as well as standard collaboration inside the enterprise.  There is no social analytics capability similar to the Radian6 offering that Salesforce offers, but I think this is just version 1 of the Oracle Social Network.

This new collaboration tool will also be available on-premise as well as in the Cloud. The Oracle Social Network also provides an iPad front-end that should be appealing for mobile workforces

Fusion Application Suite – Now Ready

Last year there was a quiet announcement of the general availability of the Oracle Fusion applications. This year was much different with Larry Ellison announcing the full suite of Oracle Fusion apps and he even did a demo of their new Fusion CRM system (BTW he did a great demo).

Oracle spent six years to completely re-write all of the PeopleSoft, Siebel, Hyperion suites of applications and now there is a new generation of Fusion applications including;

• Fusion CRM
• Fusion Financials
• Fusion Governance, Risk and Compliance
• Fusion Human Capital Management
• Fusion Procurement
• Fusion Project Portfolio Management
• Fusion Supply Chain Management
• [Photos] Fusion Apps

The interfaces look modern and don’t appear to be warmed over client/server applications. Coupled with the Oracle Social Network, these products should be quite competitive in the SaaS market. All of the Fusion applications are available either on-premise, as a managed service and as a SaaS service through the Oracle Public Cloud. There weren’t a lot of details about this hybrid architecture and like the Oracle Public Cloud and Social Network, there will probably be more details early in 2012.

Salesforce – Occupy OpenWorld

As always, there is some great theater at OpenWorld when Oracle rescheduled Marc Benioff’s keynote to Thursday morning (the day the conference ended) and he went rogue. Salesforce quickly shifted the keynote to the hotel down the street. Montclair Advisors was right at the press conference but as it turned out it was basically the same Social Enterprise keynote that was delivered at Dreamforce.

A lot of kudos goes out to the Salesforce marketing team for being able to pull off such a solid event, including streaming the keynote speech over the Internet, in less than 24 hours. Talk about business agility!

Here are some pictures from the event and a few articles with more controversy:

• [Video] Marc Benioff’s rogue Oracle OpenWorld keynote.
• [Pictures] Montclair Advisors was at the rogue Salesforce press event, got some good shots.
• A Keynote Cancelled, A Database Dropped, Lauren Carlson, Software Advice.
• Benioff, Denied OpenWorld Keynote, Mounts Podium Anyway, Charles Babock, InformationWeek.
• Oracle OpenWorld snub fails to put off Salesforce CEO, Brid-Aine Parnell The Register.

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

So what did they have to say?

The market has finally changed for the better

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

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

SaaS and Cloud companies are leading the way

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

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

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

What the VC’s are looking for

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

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

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

Exits, IPO’s and Valuations

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

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

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

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

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

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

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