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.

Last week at Salesforce.com’s Dreamforce conference, it was interesting to see how their Platform-as-a-Service offering, Force.com is starting to gain momentum among the Independent Software Vendor community including Computer Associates and BMC Software.

What is clear for traditional software providers who are starting think seriously about getting into the SaaS and Computing arena, it might be cheaper and faster to use a partner platform than trying to re-invent the wheel.  Both CA and BMC have resources to rewrite their older applications but it isn’t the cost that seems to drive them it is the time to market.  Force.com can provide a real advantage to software firms who have the domain expertise but lack the infrastructure and skills required to write Cloud and SaaS-based products quickly.

Other interesting aspects are that traditional ISV’s are not rewriting the old applications they have, they are re-inventing these applications leveraging newer development techniques.  CA’s Agile Planner is actually filling a hole in the company’s product portfolio and could be a logical cross-sell or up-sell product for them. BMC’s Service Desk offering is designed to dove tail with Salesforce’s Service Cloud 2 offering, and provide something else ISV’s are looking for, leverage.

I am sure that many traditional software firms will have the internal discussion about build, buy or partner their way into SaaS.  Up until recently there hasn’t been a good partner alternative for ISV’s who wanted to build their own solutions but were looking for a partner with SaaS and Cloud Computing expertise.   Even though rumors abound about Oracle looking to buy Salesforce, firms competitive to Oracle like CA and BMC are dipping their toes in the water.

For these firms leverage doesn’t just stop at the platform, Salesforce delivers a very effective go-to-market capability that few other partners can offer.  Witness the 19,000 participants at Dreamforce.  This type of reach and ability to get IT and business buyers attention might make a bet on Force.com worth the risk.  More importantly, these firms are also looking to bridge their older brands to the Cloud by bridging the Salesforce brand power.  CA and BMC aren’t the only firms interested in upgrading their image how about Dell, Callidus, Fujitsui (Glovia) and the momentum is growing.  According to the AppExchange, there are currently more than 200 native Force.com applications currently available.

While at Dreamforce I spent some time with the FinancialForce.com team at the booth and this is a really interesting story.  FinancialForce.com is a wholly owned subsidiary of a European software firm, Agresso and their CODA division.

FinancialForce.com was started about three years ago at the time that Salesforce.com initially launched the Force.com platform. Jeremy Roche the CEO at FinancialForce.com, reached out to Marc Benioff to just learn on how to build a net-new SaaS product and learned about their platform. They had a number of discussions and then finally decided to build their new accounts receivable product on Force.com in 2006.

The CODA team started out by building an integration connector Saleforce.com and the CODA2Go (On-demand version) of their Accounts Receivable module. They wanted to understand how the products worked together and that required workflow between products. It took them about a year to get comfortable with the Force.com platform, there were issues that were specific to complex ERP-like applications but Salesforce was responsive and did update the platform to support these deficiencies.

Once the new company was formed, FinancialForce.com, CODA then built out an Enterprise Service BUS (ESB) to connect their SaaS solutions with their on-premise solutions. One of FinancialForce.com’s early customers, a UK-based newspaper, were using Salesforce for their CRM requirements and CODA for their back office financials but were custom developing an invoicing/AR solution. When approached about the FinancialForce.com AR module as a possible solution, what was appealing to the customer that this solution was able to integrate to both Salesforce.com and CODA. About 6 months ago FinancialForce.com also launched their General Ledger and Accounts Payable modules and now they have a solid SMB mini-financial suite.

As more partners begin building and launching applications and businesses on top of Force.com, it is clear that the momentum is building.