THINK IT Services

I had the privilege of attending a pre-announcement briefing last night during which Salesforce.com’s Chairman/CEO, Mark Benioff, discussed the company’s acquisition of Kieden Corporation and the launch of a new offering called Salesforce for Google AdWords.

Unless you are a faithful Salesforce.com user or follower of the company’s AppExchange, you probably have never heard of Kieden. The fact is that the company is less than nine months old, only has four employees and boasts just 45 customers. Yet, the company’s decision to acquire Kieden was seen as important enough for it to orchestrate a multi-city briefing tour led by Benioff. The kickoff of the tour was in Boston where it attracted a mix of analysts, press and major Salesforce.com customers.

What makes acquiring a little company such a big deal?

1. Search engine marketing is a huge and rapidly growing advertising mechanism which still holds many risks when it comes to demonstrating a ROI.
2. Kieden has leveraged Salesforce’s AppExchange development platform in conjunction with APIs from Google to enable marketers to measure the effectiveness of their online search engine advertising campaigns.
3. It took Kieden just two weeks to create its “mashup” of the AppExchange and Google functionalities that addresses an age-old business challenge…quantifying the value of marketing investments.
4. Kieden’s solution and Salesforce’s acquisition undercut the potential impact of new search engine advertising algorithms promised by Yahoo and MSN.
5. The rapid deployment and simple elegance of Kieden’s solution demonstrates the power of Salesforce.com’s AppExchange as a development platform.
6. The acquisition of Kieden by Salesforce.com proves that the AppExchange is more than a platform or “ecosystem”. The AppExchange is also becoming a powerful incubator of new companies, with Salesforce.com in an advantageous position to get the first view of them.

Cynics and skeptics of the Software-as-a-Service (SaaS) movement may still discount the significance of this announcement by suggesting the deal that merely enhances Salesforce.com’s core services aimed at small- and mid-size businesses (SMBs).

The sampling of Salesforce.com customers at last night’s briefing should dispel the myths about the target audience for SaaS solutions and their perceived value. Among the company’s local customers attending the event were representatives from Analog Devices, Fidelity Investments, TD Banknorth and Northeastern University. All the customers I spoke to clearly understood the potential benefits of the Kieden acquisition and sold on the fundamental business value of SaaS.

In sum, Salesforce.com’s little announcement has big implications.

On August 17, 2006, ADP announced its intention to acquire Employease, Inc., in a move that will certainly become a watershed event for both the Software-as-a-Service (SaaS) and business services industries.

Although the financial terms of the deal have not been revealed, the market implications of this transaction are significant.

Unlike previous SaaS acquisitions which have been discussed in this blog, the Employease acquisition is the first that doesn’t involve another technology company. Instead, it is the first major acquisition of a SaaS vendor by a business services company.

The acquisition further legitimizing the functional capabilities and scaleability of SaaS.

The transaction demonstrates that business service companies are beginning to recognize that they can more quickly and cost-effectively enhance and expand their solution portfolios by buying SaaS vendors rather than building their own on-demand applications and service delivery infrastructures.

One of the primary attributes which has set many of today’s SaaS providers apart from the application service providers (ASPs) of the past is their focus on business benefits as opposed to technical features. This focus has made the convergence of SaaS and business services, including business process outsourcing (BPO), a predictable and natural step in the evolution of both industries.

The logical fit of these two worlds has already been tested and proven in the case of ADP and Employease who have been working together since October 2004. Employease is a provider of web-based solutions and outsourcing services for HR and benefits professionals. Over the past twenty-two months, ADP Major Accounts Services has sold, deployed and supported Employease’s solutions to mid-sized businesses seeking an integrated suite of web-based, hosted payroll, human resources and benefit administration solutions under the brand name, ADP HR/Benefits Solutions.

Based on the success of their alliance, an otherwise risky acquisition should have a good chance of succeeding. In part, this is because business services and SaaS share a common service-orientation. In this particular case, both companies also share common customers and goals of delivering a full suite of integrated solutions.

Unfortunately, the same hasn’t always been true when a variety of technology companies have acquired SaaS vendors, and couldn’t meld their differing cultures and operating models together.

THINKstrategies expects this announcement to spark a series of additional acquisitions of SaaS companies by business service providers.