June 2, 2008
NetSuite Buys On-Demand Professional Services Automation Software Leader OpenAir
As the Software-as-a-Service (SaaS) “gold-rush” intensifies, industry consolidation is inevitable. The latest example of this consolidation process is today’s announcement by NetSuite that it intends to acquire OpenAir.
This announcement not only reaffirms the SaaS industry consolidation trend, but it also is the latest example of a company profiled by THINKstrategies being acquired shortly thereafter. Other examples include,
- Vtrenz which was acquired by Silverpop
- Everdream was acquired by Dell
- AimNet was acquired by Cognizant
- Corio was acquired by IBM
(Contact me if you’d like a copy of our Strategic Thinking profiles on these companies.)
I had the privilege of talking with Zach Nelson, CEO of NetSuite, and Morris Panner, the CEO of OpenAir, moments before today’s announcement was made public. They indicated that the acquisition was based on a trend which THINKstrategies has seen coming for a few months now.
Prospective SaaS users are not only seeking more industry-specific SaaS solutions, they are also looking for more strategic sources for these SaaS solutions. Instead of contracting for a series of SaaS point products from a wide array of vendors, corporate decision-makers, both business and IT, are taking a closer look at the SaaS vendors’ overall portfolios, platforms, partner ecosystems and financial viability so they can establish broader, long-term relationships with a fewer number of SaaS suppliers.
While the OpenAir acquisition gives NetSuite a stronger foothold in the professional services market, I think the acquisition also gives NetSuite a stronger set of human resource management (HRM) capabilities in its horizontal portfolio of enterprise applications.
Although the acquisition is another example of a Boston-based tech vendor being acquired by a west coast based company, the good news for OpenAir’s employees and the Boston area SaaS community is that NetSuite plans to use the acquisition as a beachhead for further investment aimed at establishing a greater east coast presence centered in the Hub.
Interestingly, NetSuite refers to its OpenAir plans as based on Oracle’s acquisition model and plans to operate OpenAir as a stand-alone product group with tighter integration to NetSuite’s platform. This reference just reinforces market perceptions of the close alignment of NetSuite with Oracle, and keeps alive suspicions that NetSuite may be acquired by Oracle in the future.
In the meantime, Zach Nelson and Morris Panner told me they will do all they can to maintain OpenAir’s relationship with Salesforce.com via the AppExchange, and build on their other third-party relationships, including their respective channel partners.
Having gone through a number of unsuccessful acquisitions, I know first-hand about the various issues that can get in the way of these transactions achieving their business objectives. However, I think NetSuite and OpenAir have a very good chance of succeeding because they have the right combination of complementary executive personalities, solution capabilities, channel partners and geographic orientations.
The next question is what this acquisition means for OpenAir’s primary competitor, QuickArrow? My bet is that they will also be an acquisition target in the coming months.
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Jeff – reviewing this section from your post:
“Instead of contracting for a series of SaaS point products from a wide array of vendors, corporate decision-makers, both business and IT, are taking a closer look at the SaaS vendors’ overall portfolios, platforms, partner ecosystems and financial viability so they can establish broader, long-term relationships with a fewer number of SaaS suppliers.”
One of the hallmarks of SaaS (I thought) was that the SaaS provider needs to be more focused on customer satisfaction, since switching costs are far lower than on-premise. Also, lengthy services deals should be a thing of the past, as SaaS solutions should provide easy customization.
Do you think that SaaS is reverting to the on-premise model of high switching costs and sizable service engagements?
Peter Laird — June 3, 2008 @ 11:08 am
Thanks for your comments. I don’t think the consolidation of the market in order to give customers more strategic sources for their SaaS solutions runs counter to the fundamental value proposition of the SaaS movement. It is the natural cycle of any strong market. Customers will make their own decisions regarding the amount of ‘lock-in’ they’ll accept.
jkaplan — June 3, 2008 @ 12:02 pm
Jeff: You’ve hit on a clear trend — SaaS companies are beginning to buy one another, and the trend will continue as big software companies try to penetrate the SaaS industry through acquisitions.
The latest example involves Symantec purchasing Swapdrive, an online storage company.
Although SaaS stocks are generally down this year (perhaps because of all the hype they had in 2007…), I have no doubt that SaaS (coupled with open source) will create a perfect storm for ISVs.
Joe Panettieri, MSPmentor
Joe Panettieri, MSPmentor — June 12, 2008 @ 6:24 am