THINK IT Services

Last week Appirio announced that it had secured Series B financing of $5.6 million led by Sequoia Capital, the investment firm which has become notorious for also backing Google, Yahoo!, LinkedIn, and PayPal. Sequoia also funded one of my previous employers, International Network Services (INS), one of the high-flyers of the 1990s.

Appirio’s latest round of funding comes on the heals of a Series A investment of $1.1 million which it captured earlier this year from salesforce.com and angel investors. Although there is lots of VC money chasing Software-as-a-Service (SaaS) and cloud computing opportunities, it is rare to have a start-up collect two rounds of funding in the same year.

What makes this latest round of funding for Appirio of interest to me is the implications which it has for the overall on-demand services market.

As I mentioned, I was a part of a Sequoia Capital-funded company in the 90s. Like Appirio, INS was a professional services company. While Appirio is focused on the on-demand services market, we were focused on the internetworking market. Like Appirio, we followed the 800-pound gorilla in the market at the time, Cisco Systems. Nearly every time Cisco won a big router contract with a service provider or enterprise customer, INS won the deployment contract because Cisco didn’t want to build a costly field service organization. Appirio has built a similar business helping companies develop and deploy solutions based on the salesforce.com and Google platforms because both of these companies have shied away from building their own consulting arms.

The Appirio and INS stories are also similar because they were both smart enough to see an opportunity to convert individual customer engagements into packaged service solutions.

INS’ engineers recognized the shortcomings of traditional network/systems management (NSM) platforms and built a network performance management software solution, EnterprisePRO, which we sold as a subscription service before the application service provider (ASP) and managed service provider (MSP) concepts were borne. Today, Appirio is productizing the end results of its customer engagements and reselling them on salesforce.com’s AppExchange.

Many analysts and trade pub reporters have questioned whether there is a role for consulting and professional services in the SaaS market. There is no question that traditional professional services firms such as Accenture and CAP Gemini are still searching for the right way to scale down their methodologies and costs to fit the on-demand services market. However, Appirio’s revenues have grown more than 400% in the last three months, during which over 1500 customers in 80 countries have adopted its on-demand solutions.

Appirio isn’t alone in experiencing tremendous success in the on-demand consulting business. Astadia, Bluewolf and SaaSpoint have also caught this tiger by the tail and are growing rapidly.

I’m pleased to be moderating a panel at the SIIA’s On-Demand conference in November that will include executives of Appirio, Astadia and SaaSpoint talking about the SaaS and cloud computing markets from their street-level professional services perspectives. I look forward to seeing you there.

A little over a year ago, I contributed a commentary to eWeek’s Channel Insider, entitled “On-Demand a Boon for the Channel”, that stated the Software-as-a-Service (SaaS) movement doesn’t have to be the death-kneel for channel organizations.

At that time, many resellers and integrators feared that SaaS would ‘dis-intermediate’ them because of its direct sales and simpler deployment characteristics. There is no question that these attributes will certainly disrupt the traditional business models of many resellers and integrators who capitalized on the complexities of the legacy applications in the past. However, there is still plenty of complexity in today’s enterprise-oriented SaaS solutions to give innovative resellers and integrators a new round of business opportunities to pursue.

Just as in the past, customization and integration remain challenges in the new world of enterprise SaaS solutions. A year ago, I discussed in the eWeek article about how Bluewolf Group had grown to become the largest independent integrator of Salesforce.com deployments. I also discussed how retailers, like CompUSA teaming with NetSuite, were seeking to become viable channels to market for SaaS.

Shortly after my Channel Insider commentary was published, ADP and AmEx also entered the SaaS market as potent new players with their acquisition of Employease and alliance with Rearden Commerce respectively. There entry clearly demonstrated how the SaaS market was quickly growing into a business services opportunity. It also showed that a new set of channel partners are primed to play a part in the SaaS movement.

More recently, other new entrants are also illustrating how a new array of channel opportunities can be fostered by the SaaS movement.

Yesterday, Business Objects and Thomson Financial announced an alliance to deliver financial information on-demand. Under this new agreement, Thomson Financial’s data will be delivered in pre-built, easy-to-use online reports via Business Objects’ Information OnDemand solution.

Last month, Verticals onDemand unveiled the first of a series of industry-specific customer relationship management (CRM) solutions built on the Salesforce.com platform. The company’s new VBioPharma on-demand solution is aimed specifically at the managed care requirements of U.S. pharmaceutical companies. Verticals onDemand promises to rollout other industry-specific SaaS solutions on the Salesforce.com platform.

Saaspoint is an Ireland-based integrator that has experienced the same success in Europe which Bluewolf Group has found in the U.S. Not satisfied with focusing on the European market only, Saaspoint has opened an office in Silicon Valley and plans to expand its operations across the U.S.

These examples are further proof that plenty of channel opportunities exist in the SaaS market and are ripe for the taking for those innovators who want to capitalize on this rapidly growing movement.

Last week, I had the opportunity to return to Dublin, Ireland, to participate in the second Software-as-a-Service (SaaS) Summit which I’ve helped Enterprise Ireland (EI), the country’s economic development agency, organize and moderate in the past nine months.

After a very successful launch of this symposium series in October with the first SaaS Summit, decided to host another round. The goal of our first session in the Fall was to educate Irish companies and entrepreneurs about the opportunities in the SaaS market. Our objective last week was to make them aware of the major challenges and offer steps to success, especially for those local companies seeking to penetrate the U.S. market.

In addition to identifying and recruiting each of the Summit speakers, I also had the privilege of kicking off the day with a keynote presentation summarizing the state of the SaaS market and identifying the key technical and business issues that aspiring SaaS vendors must overcome.

I was followed by Eugenio Pace, Microsoft’s SaaS Architecture Strategist, who discussed the technical considerations for building and hosting SaaS applications. Clint Oram, the GM of SugarCRM in Europe, how the SaaS and Open Source movements are interconnected. He also raised questions about whether SaaS can succeed in a pure on-line, on-demand form. John Maughan, the Director of Engineering of Cape Clear Technologies, then identified the integration requirements for SaaS applications. We concluded the morning with a Q & A session in which the Summit attendees asked the speakers to delve deeper into some of the issues they raised.

The afternoon began with a talk by Phil Wainewright, the well-known SaaS blogger for ZDNet, on the differences between the U.S. and European markets. In addition to identifying some of the reasons for these differences, Phil also identified some of the interesting European-based SaaS vendors who are becoming prominent players in the market.

Phil was followed by Christopher Gesell, the Director Product Marketing at Verizon Business, who outlined how aspiring SaaS vendors can leverage global infrastructure providers to optimize their service delivery capabilities. Conor Halpin, the founder and Chief Executive Officer of LeCayla Technologies, then demonstrated how SaaS vendors must escape the constraints of traditional business models by deftly untangling himself from a straitjacket during his presentation. Conor’s entertaining display was followed by an equally enlightening talk by Frank McCracken, the founder of Saaspoint, an Ireland-based professional services and development company that has experienced rapid growth by focusing on Salesforce.com’s AppExchange opportunities.

Of course, no gathering in Dublin is complete without capping it off with a few pints at the local Guinness brewery. The next morning, I had a series of fascinating one-on-one meetings with very interesting Ireland-based SaaS companies–CashCollector, OpenPlain, Iquate and NetTeam.

As I found during my first visit to Dublin, the country’s booming economy, broad-based technology sector, supportive government agencies and collaborative entrepreneur climate make it a perfect ecosystem for SaaS companies.

Keep an eye on the SaaS Summit website for copies of the presentations, and contact me if you’d like to get more perspective on SaaS activities in Ireland.