By Kevin Dobbs

The last few months have been quite active in the SaaS market and here are some things that caught my attention:

• Who would have believed that we would be seeing Initial Public Offerings after our recent recession but new offerings include SciQuest (NASDAQ: SQI), Qlik Technologies (NASDAQ: QLIK), Ancestory.com (NASDAQ: ACOM) and Financial Engines (NASDAQ: FNGN).  There are a number of upcoming IPO’s including Talent Management provider Cornerstone OnDemand.

• You can tell the SaaS and Software markets continue to gain momentum based on the number of M&A deals over the past 90 days including Oracle buying Art Technology Group, hardware company Dell purchased SaaS integration firm Boomi, Deltek buys government market research firm INPUT, talent management leader SuccessFactors buys analytics firm Youcalc, Taleo purchasing Learn.com for $125M, recruiting firm Kenexa acquired Salary.com and even PE-owned SumTotal Systems buying Softscape.

• Firms that are making good progress in their SaaS transitions include Callidus (NASDAQ: CALD) and Plateau Systems.

• Software companies who seem to be having more trouble with their current subscription and license models include Concur (NASDAQ: CNQR), MicroStrategy (NASDAQ: MSTR), Manhattan Associates (NASDAQ: MANH), and SAP (NYSE: SAP).

• The Venture community continues to fund SaaS and Cloud Computing firms, several who have been profiled by this blog have received funding in the last six months (congrats!) internet billing firm Zuora lands $20M, Cloud management platform RightScale grabbed $25M, multi-tenancy Cloud platform firm Nimbula raises $15M, marketing automation provider Marketo, Bill.com, social platform provider Jive Software raises $30M, Gooddata and Cloud9 Analytics.

• SaaS, Software and Cloud Computing firms have also made some interesting management changes over the past few months including; ex-Oracle president Charles Phillips (video) moved over to become the new CEO at Infor, Taleo lands a new CFO former Palm executive Douglas Jefferies, Saba has added a SaaS-experienced CMO Karen Steele, SuccessFactors brings in seasoned President from Salesforce.com - Doug Dennerline, PeopleclickAuthoria Chairman Charles Jones returns as CEO to run company and well-respected analyst Ray Wang joins Constellation Research.

Seems like we were just here a few months ago but a lot of things have happened since the last Oracle OpenWorld in 2009.

It was great to see a full house of exhibitors that consumed most of the Moscone center in San Francisco. Walking through the two completely full tradeshow floors, which indicates some degree of growth in the broader technology market, especially after I saw a number of mega-booths with a lot of promotional events.

Fusion Applications

I didn’t see the Sunday keynote with Larry Ellison, but I heard multiple times that he announced everything at that session.  It appeared that area that SaaS followers were keenly interested in learning more about was Fusion and as one analyst mentioned to me it, ‘Larry mentioned a couple of the new Fusion Apps and then went Yada Yada Yada for the rest of them.’  His opinion was the anytime you Yada Yada anything that means you are not taking it seriously.  Well maybe.

It sounds like Oracle is taking Fusion serious, having invested close to $4B in R&D during 2010 alone,  in order to be ready to launch these next generation apps.  Oracle is offering 100 modules and over 7 different product families including Financials, Procurement, Sourcing, Project and Portfolio Management, HCM, CRM and SCM. We will see over the next few days if there is real detail and deliverables around all of this investment in Fusion or just more Yada Yada.

If Oracle plays this correctly, they will be able to cash in on the buying public’s shift to OPEX spending rather than traditional capital spending on software, which is no longer in vogue.  Fusion applications could be a viable alternative to smaller more risky best-of-breed application alternatives, but they need to be both pure-SaaS and functionally complete.  We will know over next few days.

Riding Hurd

I personally think that Oracle’s hiring of Mark Hurd was a true master stroke, and a major mistake on the part of HP for letting him go.  Mark kicked off the Monday keynote session and he looked like he had worked at Oracle for years, brimming with confidence and very comfortable.  It is also clear that having someone with his knowledge of the hardware world at the helm, is a major advantage, with all of the Sun technology now firmly part of the Oracle ‘Full Stack’ offerings.

We saw a fully buzzword set of presentations this morning; OLTP, Petabyte, threads, cores, and ZFS to name a few.  Speeds and feeds were the name of the game and Mark Hurd and John Fowler discussed the new Exadata 2 and Exalogic products.  Oracle loves fast products and breaking records, so owning the entire technology stack is going to be fun for Larry.   It is interesting that all of these really fast “Full Stack” products will be huge advances and will definitely improve the performance and scalability of future Cloud Computing services, offered by Oracle and others.

M&A in the Air

There have been a number of deals in the technology space over the past 30 days including HP purchasing both 3PAR and ArcSight for close to $4B.  In the HCM space there have been a very rapid spat of deals including one announced between SumTotal Systems purchasing Softscape, Taleo purchasing Learn.com, Kenexa buys Salary.com and Stepstone picks up MrTed.  One has to wonder if there won’t be a big announcement at Larry’s Wednesday afternoon keynote.  I have heard that Oracle might buy Netsuite, which is interesting considering that Larrry already owns about 65% of the company.  Considering Salesforce.com is speaking and exhibiting here at OpenWorld that might be sort of embarassing to everyone concerned.  It might also not be a ringing endorsement of Fusion either, but we will wait and have to see what happens.

More from OpenWorld tomorrow.

As I go out and talk to firms about Software-as-a-Service I am increasingly finding firms that offer technology solutions that won’t easily fit into a traditional software mold,  but want to move to a real subscription model.  Part of the reason is that capital budgets are clearly being cut back in 2009 and also because of the success of larger, publicly traded SaaS firms and their perceived market value.

Consider that Salesforce.com (NYSE: CRM) in FY ‘09 will have $1B in cash on their balance sheet!  That is really amazing for a software company their size.  The longer term success of the SaaS model is based on predictable and transparent revenue streams that are attractive to not only investors, but also with the customers who are buying their solutions, investors who are taking stock in these firms and even employees who would rather work for these types of companies.

So back to the headline, Hybrids, Cross-Overs and TaaS.  These are new variants of  that I have come across that show that the software subscription model is evolving into many different formats.  Let me tell you about what I am seeing:

Hybrids:

Many firms are now offering solutions that don’t just comprise software but also include specialized services and hardware.  I have also found that these firms often combine a mix of hosted and on-premise deployments.  In some situations the need for an on-premise deployment is often related to the vertical market company sells into and their client’s security requirements.  For instance, in healthcare, hospitals often have very inconsistent infrastructure from location to location and the necessary integrations may be more easily accomplished by deploying behind the firewall.  Security for certain types of industries won’t allow for hosted or cloud-based systems, they really need an on-premise control of their data and systems and this would apply to many branches of the Federal government.

What’s even more interesting is the emergence of device companies who require mostly a hardware solution that is wrapped with software and services.  A great example of this is Garmin the GPS provider.  As they look at the market, is it better to sell a GPS device for $499 and a $10 a month subscription or sell the entire solution as a subscription for $39 a month?  Think about all of the device companies who are going to be challenged to get corporations to pay capital dollars for hardware, maybe a subscription option in their business makes more sense in 2009.

A couple of interesting articles to look at are Hybrid SaaS Approach is Likely Way to Go and SaaS + Appliances = Possible Peace of Mind.

Cross-Overs:

These are traditional software firms who are beginning to migrate their business models from purely a perpetual license to a subscription business.  There are thousands to these traditional firms, sometimes referred to as ISV’s (Independent Software Vendors) but not all of them are technically Cross-Overs.  Making the change can be a very difficult and dangerous endevour.  Some of the best known Cross-Overs I have run across are Concur (Expense Management),  Ariba (Procurement), and SciQuest (also Procurement).  What is clear is that many other firms are starting to moving towards a SaaS model including firms like Sabrix (Tax software), AutoDesk (AutoCAD), SumTotal, BusinessObjects (acquired by SAP), and Kana (Email).

Clearly changing your entire business model is not something that can be accomplished in a couple of quarters, it often takes companies several years to fully migrate.  Smart companies will usually create a multi-year roadmap for each of the functional areas of their company as they transition.  This transition is much harder to do if you are a publicly traded company, especially with near-term affect on cash flows.  That is why firms like SciQuest went private as part of their transition.

TaaS:

With the tightness in the credit markets and shifting technology buying habits, I believe in 2009 you will see a strong shift by any firm selling technology to embracing a subscription model.  I think this will result in a broadening of the SaaS term to expand to Technology-as-a-Service or TaaS.  Just like with the Hybrids and the Cross-Overs, this won’t happen overnight but these TaaS firms will want to have the ability to deliver their products through a subscription and host through the cloud where possible.

Think of industries that have low margins and will be challenged to purchase technology in 2009; Retail, Healthcare, Transportation, Education, State and Local governments to name a few.  Imagine if you could go to a school district and completely outfit them with laptops, wireless infrastructure, software, training and support - all for one easy monthly fee paid over five years?  What about the trucking company that wants to deploy a GPS tracking and monitoring system across their fleet, pay $5M now or $138K over 3 years?  Smart technology firms that begin to rethink their business models to take advantage of this market shift will be the big winners in 2010 and beyond.