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.

Depending on who you listen to, things are either recovering slowly, or we are slipping back into a recession. It can be argued that for most software companies, if you are selling a SaaS-based solution then it shouldn’t affect your business very much. In fact, as the economy gets tighter for buyers, SaaS solutions even make more sense for forward thinking businesses who are focusing on innovation and cost controls.

During the Great Recession we saw that traditional software companies experienced a net decline in their revenues and in some cases their revenues went down by nearly 50% year-over-year between 2008-2010. In big part this was because traditional software customers no longer had available the necessary capital dollars to spend on their perpetual license-based products and the banks were no longer lending.

These traditional software companies had also hastened their revenue decline by raising their annual maintenance rates, which put more pricing pressure on their customers at a time when they could least afford it. So their customers started taking a hard look at SaaS solutions as potential alternatives to traditional on-premise software.

Recession Accelerates SaaS Adoption

It wasn’t that SaaS solutions hadn’t been around for many years, it was that for many large software buyers, they hadn’t felt comfortable with software that was being managed by another companies. There were a lot of questions: Where was their data being housed, was it safe, what if they can’t handle our requirements? These were legitimate questions but many SaaS value propositions began to win over these large, skeptical customers:

• You could try their software before you buy it
• Get can get this software up and running quickly
• Only buy the functionality that you need
• If you don’t like their software, for any reason, cancel your subscription
• The software’s performance and availability is guaranteed
• Pay though a subscription, a big lump sum payment is not required
• No more upgrades, this type of software is always current
• Less or even no staff required to manage their software
• Lower total cost of ownership

These types of on-line solutions started resonating not only with the small and medium-sized company buyer but also with the very large, global enterprises as well. Over the last couple of years we have seen well-known organizations like Siemens, Walmart, Flextronics, Thomson Reuters and even the US government adopt SaaS and Cloud-based solutions.

It’s About Innovation Not Reducing Costs

Businesses during the last recession were primarily trying to reduce costs, which resulted in large scale layoffs. These firms were trying to ‘do more with less’.  This was the reason that many of these companies continued to buy software because they not only wanted to streamline operations, but also they needed to continue to innovate their business.

By deploying the latest in software technology, these innovative companies are looking to move into new markets, provide state-of-the-art tools to their employees, and optimize their supply chains.   This required them to get smarter about their businesses, markets and competitors, and solutions like SaaS-based business intelligence products were also really in high demand.  Given the flexibility and affordability of SaaS products compared to their on-premise predecessors, it is no wonder that most SaaS companies grew at more than 30% year-over-year even during the worst part of the recession.

There are SaaS solutions for almost every enterprise need including ERP, Financials, CRM, Marketing, Human Resources, Talent Management and even specific specialized vertical solutions.  Click on this link to access Montclair Advisors Public SaaS Index to see which firms offer leading SaaS solutions.

In the next 12-18 months we may be either headed for very slow growth in the economy or even another recession, but SaaS companies will continue to grow quickly because most companies are still looking for ways to lower their total cost of operations and improve their ability to innovate and increase their overall competitiveness.  As long as SaaS providers continue to deliver on their Cloud-based value propositions, they will experience rapid growth even if the economy continues to be tight throughout 2012.

Company:             athenahealth, Inc.

SuccessFactors – SuccessConnect 2011

Montclair Advisors did a SaaS business profile in April 2009 and recently participated in the company’s SuccessConnect 2011 in San Francisco, where we were able to hear from key members of their management team about recent news and a business update.

New Branding

SuccessFactors had changed their focus about two years to be corporate performance management focused. Darryl Dickens their new chief marketing officer announced that although Business X is still the core positioning, they wanted to reach back out to the HR buyer. Their new tag line is now more HR friendly; ‘It’s time to love work again.’ (… and by the way, I like the new branding).

With the new branding SuccessFactors wanted to re-focus their messaging around being a proven, visionary Cloud-brand for HR and business performance solutions. This new branding means there is a new logo, website, and icon system.

Part of the strategy behind the re-branding has to do with the new products and capabilities now available across the SuccessFactors product portfolio including collaboration (CubeTree), learning (Plateau and Jambok), reporting and analytics (YouCalc and Infohrm) and HRMS like Employee Central. The new brand is a laminate designed to put a logical wrapper around the suite, which can help to rationalize product bundles, pricing and packaging.

Employee Central 2.0

As customers have grown more comfortable with the Cloud, those who have older versions of PeopleSoft are now looking for alternative options for their core HR systems, and that is where Employee Central fits in. The Employee Central solution has been built for the BizX suite to integrate talent management, analytics, collaboration as well as employee services. Employee Central 2.0 was made GA in March 2011.

Most talent management providers have shied away from offering a system of HR system of record. SuccessFactors sees a real opportunity to integrate their offerings as well as a potentially large market for new Cloud-based HRIS offerings. As Workday offers not only core HR solutions but also talent management applications, both of these firms are chasing a growing replacement market in the SMB and enterprise markets.

Employee Central offers a basic system of record but stops short of a full HR and payroll system. SuccessFactors has decided to partner for payroll with Patersons, Ceridian and Meta4.

Plateau

The biggest news was that SuccessFactors purchased SaaS-based talent management provider Plateau Systems in April 2011 for $290 million in cash and stock. This was the largest acquisition to-date for SuccessFactors and marked the first time that the company had purchased a talent management application instead of an add-on technology. Plateau has a large and satisfied customer-base of both commercial and federal accounts.

Doug Dennerline, SuccessFactors new president (ex-Salesforce.com) was very clear that they were planning on getting very close to Plateau’s customers and assure them that they will allow them to do what makes the most sense for their businesses. Unlike the other learning-related acquisition, Jambok, Plateau offered an enterprise-class Learning Management System with a world-class customer-base. Plateau not only adds revenues and customers but also provides an interesting SaaS architecture and platform that SuccessFactors may be able to leverage to service their their very largest customers.

With this business combination, SuccessFactors is now one of the largest HCM SaaS providers based on total revenues, customers and numbers of users.   After all of these acquisitions, it is clear that the company now has many different growth engines moving into 2012.   Based on our briefing with the very seasoned SuccessFactors management team, it will be interesting to see how they are able to integrate all of these offerings and manage all of these potential business opportunities.

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.

Company:                   Ariba

Started:                       1996

Located:                      Sunnyvale, California

Geography:                Global

Market:                        Collaborative business commerce solutions

Products:                    Ariba Commerce Cloud Buy, Sell and Manage Cash

Key Customers:         Avaya, Clariant, Deloitte, Del Monte Foods, Ohio State Medical Center, OfficeMax, Saks and Staples

Website:                      Ariba

Blog:                            Ariba Exchange Blog

Twitter:                       @Ariba, @AribaExchange and @AribaContract

Recent News:

B&H Boosts Business through Ariba

Growing Enterprises Boost Profits and Performance with Ariba

Gasunie Fuels Better Commerce with Ariba

I asked Dan Ashton at Ariba a few questions about his company’s transition to a SaaS business model over the past few years, ideas around best practices and lessons they have learned.

Why did you launch a Software-as-a-Service business?

We started our transition to SaaS about 6 or 7 years ago. Our entire management team looked into the future and realized that this was the way the market was moving and they wanted to get in front of this growing trend.

When we looked at our installed base, we had mostly large, Fortune 100-type on-premise customers, who had all highly customized our solutions. We felt that heading down this path exclusively we were limiting our market to only the very largest companies and we saw the potential to embrace SaaS and how it could open up our opportunities to serve a broader section of the overall market.

What lessons have you learned in building your SaaS business?

In order to move to SaaS you need to really change your culture in order to successfully embrace the subscription business model. We had to understand and communicate inside of our organization, and focus our energies and talent on building out this new model. We didn’t want to just re-create our CD-based business in the Cloud, and it was important to convince everyone that this was the right thing to do for our company.

It required that we look at our entire business in a new way. For example, deploying our software through a self-service approach instead of always having to use a professional services team to implement out software. We also had to realize that our first SaaS product was not going to be perfect or functionally complete as compared to our existing on-premise product, but this was just a step in our transition to a subscription business model and that it was good enough to start with. Today our subscription products offer more and better functionality that their on-premise counterparts.

From a technology perspective we also had to rewrite our products on top of a new multi-tenant architecture because the old CD-based architecture was optimized for the scalability and flexibility requirements of our new SaaS business. So we made this investment in rewriting the products but we also invested in bringing new SaaS-experienced talent with specific skills into the organization to help in other areas of the business as well.

We didn’t want to alienate our existing customers, and realized that we couldn’t force them to move and told them they could do it in their own time. This meant that we had to continue to support our existing CD-based products.

For those customers that have highly customized solutions, it is not easy to migrate to SaaS and right now they don’t want to change. Our approach has been to provide additional Cloud-based value-added components like Procurement Catalog content or RFP Management Sourcing, to allow these customers to leverage their existing investments while being able to take advantage of our new SaaS-based solutions.

Product adoption and utilization are also very important. When a customer successfully adopts our products they are usually satisfied and will renew the service. When they don’t use the product fully, they can’t unlock the full value of our solutions, and then we might be at risk.

Ariba tracks all sorts of processes inside of our SaaS business including renewals and customer satisfaction. We send out surveys just after an implementation goes live, as well as throughout the subscription term because we don’t want any surprises. When issues come up, they are escalated all the way up to senior management, if necessary, because we really want happy customers. That is why our customer renewal rates are above 97%.

As part of the transition we created a customer success team that was focused on customer satisfaction, making sure they were utilizing our products to their maximum benefit, helping with product adoption and sharing best practices.

We also monitor when customers don’t put enough spend through our solutions, because when they buy our products they are anticipating a certain level of savings. Ariba is motivated to get our customers to put their spend through our system, because we sell our products based on value-based pricing model. So we are motivated for our customers not only to get value from our systems but we also get additional revenue, so it is a win-win. By putting more spend through our system customers can typically save between 5-15%, which for most customers can be a lot of money.

Another lesson learned was that we had to change to our financial model, especially the necessary shift from license to subscription revenues. This new cash flow model affected everything, and made us more conscious of how we were spending our money.

We also had to work hard to re-calibrate our story and with investors and the industry analysts. This was because our commitment to our SaaS strategy meant that if they didn’t really understand our plans, and the implications of our business changes, there was going to be a price to pay. This is why we carefully explained our roadmap to the financial community and that there were going to be decreased revenues and earnings over the near term but longer term we were really making an investment that would deliver increased stability and security for our company in the future.

During the SaaS transition our management team really had to make changes at all levels of the company. They had to communicate the message and sell the model both internally and externally. It is a hard transition and unfortunately not everyone can make the transition, we just found that some people just can’t do it. Our management stayed focused on customer satisfaction because they knew that a key part of the SaaS model was keeping our customers happy.

Why was moving to SaaS important?

One reason is that it really expanded our addressable market by being able to offer a more affordable, flexible SaaS product. Customers could start with our Sourcing or Contract solutions by doing a free trail and then license the products for as little at $100/month per seat versus having to pay millions of dollars using the old model. This just opened up the broader market for us.

Moving to SaaS has also forever changed our culture at Ariba. We have become a more vibrant and energetic organization that is focused on customer satisfaction. Our employees are excited about working for our company because we are a product innovator and a leader in our market.

At the beginning we felt like we were playing catch up all the time but once we reached product parity, we started to operate a different release cadence, which was really important to our overall business agility. This allowed us to break out different solutions and we no longer had to manage one large monolithic solution that just seemed to slow us down. Now we release a product every quarter.

Market analysts now look to Ariba when they are thinking about where the market is headed around Spend Management. We have even created a new market space and called it the Ariba Commerce Cloud, where we not only connect buyers and sellers but also help our customers manage their cash. The Commerce Cloud is also about how we can help customers collaborate with their sellers, using a very innovative approach. At Ariba Live, our annual user meeting, in the past would only attract a few suppliers to this event but now nearly 40% of the attendees are suppliers and they are very bought into our
SaaS products and our vision for the future.

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

By Kevin Dobbs

Montclair Advisors, LLC

Dreamforce 2010 was in San Francisco last week and there were a lot of announcements and it is only now that I am starting post my thoughts.   This post is going be around Force.com 2 and how Salesforce has rethought their approach, repackaged their platform and now have relaunced their PaaS.

This table provides a quick summary of how Salesforce has repackaged the Force.com 2 Platform.

What is interesting is that several of these offerings are just new packaging concepts and several are net-new products.  Let me walk you through the suite:

Appforce

This is basically the original Force platform using their proprietary 4GL, point-click-language APEX that has been repackaged as a departmental application platform.  What is interesting is that this environment is not just for departments, large enterprises like Japan Post and Thomson Reuters have done very large Cloud development projects using this platform.  I think that Salesforce realizes that due to its proprietary nature, most organizations will be attracted to Force.com but would prefer a more open and portable development environment.  Applications built with Appforce are also able to be easily integrated with Salesforce’s collaboration capability Chatter

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Siteforce

This is a development environment specifically designed for building websites without having to write code. There was a great demonstration of how you can build and modify websites, even for mobile devices, using their drag-and-drop interface.  This will be popular with firms that do a lot of campaigns and need to design a lot of landing pages which can be tied back to Salesforce.  Like the Appforce products, Siteforce can be linked to Chatter to add social and mobile features to websites.  This was an existing capability inside of Force.com that has now been exposed as a new offering.  The marketing materials we were given state that there have been more than 20,000 website built using Siteforce.

VMforce

This platform is a result of a partnership with VMware, that opens up the Force.com platform to more than 6 million Java developers.  Using VMforce, developers can now run their Java-based applications on the Force.com platform, similar to what they would do it they were using Amazon EC2.  Developers can also use Java IDE’s like Spring or Eclipse as well as other open standards.  With my clients, this is a popular approach, it provides some leverage with existing Java-based apps as well as professional developers prefer to develop in this type of environment, rather than using a 4GL point-and-click product.   VMforce is currently in beta and will be ready for general availability in 2011.

Heroku

In a really interesting move, Salesforce went out an purchased a leading provider of Ruby-on-Rails for $212M in cash, $27M in stock and another $10M for un-vested employee shares.  Like VMforce, Heroku will offer developers a way to write applications using Ruby and then run them on Force.com.  The rumor was that VMware had made a run at the firm several months ago, but wanted to remain independent.  Marc Benioff in his keynote indicated that Heroku would remain independent from Salesforce, I am assuming in the way VMware has remained independent from EMC.  Several benifits for Heroku as part of Salesforce will be access to their 87,000 customers as well as their technology stack including Chatter.  Today, there are more than 100,000 websites and applications written using their platform including BestBuy and FlightCaster.

ISVforce

In another re-packaging move Salesforce has taken the Force.com platform and created a new program to help larger ISV’s to build their next generation applications on top of their PaaS.  This is a program that contains services and tools to help Independent Software Vendors to move their apps to the Cloud. Salesforce provides development services, trails and provisioning, connections to AppExchange and application monitoring along with their multi-tenant Infrastructure-as-a-Service.  Some early adopter ISV’s include Blackboard (who did a quick little demo), BMC (RemedyForce) and CA (Agile Vision).

AppExchange

Salesforce continues to promote their on-line application marketplace, which is similar to what Apple offers with their App Market, and how has over 1,000 applications available. Some interesting facts provided by Salesforce about the AppExchange include there have been more than 360,000 application test drives through the AppExchange, nearly 700,000 application installs and more than $1B invested in companies who are on the AppExchange.

Database.com

Another interesting announcement is that Salesforce has gone into the database business.  When I first heard this, I thought it wasn’t necessarily a good idea, but then I read that they were just repackaging a gigantic Cloud-based version of Oracle and selling the database by-the-slice.  Apparently Oracle thinks this is not a secure approach to selling databases, but let’s see how this all works out.  Amazon has something similar with their RDS offering.

The result is that Salesforce now has a suite of offerings that are designed to meet the needs to enterprise customers, software companies, professional and casual developers.  The strategic benefit of all of these offerings is to open up several new revenue streams for the company and continue their leadership momentum in the Cloud.