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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
According to Gartner, the Software-as-a-Service market is forecast to have a 15.3% compound annual growth rate through 2014 for the enterprise application markets, compared with total application market CAGR of 5.3%. It is this type of growth and adoption that is causing many traditional ISV’s to seriously consider transitioning their business models to SaaS.
This is obviously easier said, than done. According to our informal research, close to 50% of all ISV’s fail at least once before successfully rolling out a successful SaaS strategy. What is interesting is that 35% of all ISV’s are currently in the process of trying to move to SaaS according to Saugatuck Technologies. Because it is difficult, I am going to share my 12 best tips when transitioning to a SaaS business model over the next few Smart SaaS posts.
Tip #1: What Is Your SaaS End Game?
This sounds basic but it is amazing how many clients don’t really know how far they plan to go with SaaS. Will your company go all the way and convert 100% of your business to multi-tenant subscription solutions over time or will you continue to offer on premise software as well. This diagram is helpful with speaking with your team to determine where your company fits along our Software Continuum.
Depending on your strategy - traditional, hybrid, cross-over or SaaS, this should change your game plan. Keep in mind that a complete SaaS transition can take anywhere from 3-5 years to complete, so break your plan into 12 month phases. For a company just looking to launch a hybrid model, offering both deployment options, the timing for transition will be less than a company looking to do a full move to SaaS.
A new SaaS start-up takes about 5 years to break even and most venture capitalists are looking at 7 years before the company could possibly go public. On average most successful SaaS firms take about $35M in investment before they can reach an IPO stage, so you should be prepared to invest in your SaaS transition as you shift from a perpetual model to a subscription model.
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