THINK IT Services

A series of announcements over the past week clearly indicates that Software-as-a-Service (SaaS) financial management and enterprise resource management (ERP) solutions are taking hold among organizations of all sizes worldwide.

The first was Intacct’s announcement that it had grown its customer subscription base 68% in 2010 and added more than 800 new client organizations. The company also reported 94.2% of clients surveyed indicated they would recommend Intacct to their colleagues, which is a perfect example of the customer-driven referral engine which is powering the overall growth of SaaS solutions. Intacct also said that 11 of the top 100 largest CPA firms in North America have joined the Intacct Accountants Program from CPA2Biz, showing that mainstream professional service firms are also adopting SaaS and recommending their clients take advantage of these solutions as well.

Plex Systems,  a provider of SaaS-based manufacturing ERP software, announced today its overall revenues grew 27% and its recurring revenue increased 26%. The company added 37 new customers in 2010. This may not seem like a lot, but Plex’s customers represent a cross-section of the most traditional of manufacturing companies who many would think are not likely candidates for SaaS or other Cloud-oriented solutions, but are increasingly interested in alternatives to legacy applications. Plex Systems also won its largest account in 2010, Invensys Controls, a London-based, technology company focused on industrial automation, rail transportation and controls. This illustrates the global growth of the SaaS market.

Today was capped off with NetSuite’s yearend results announcement which included 16% revenue growth overall and 18% in recurring revenues in 2010, and 21% year-to-year growth in the fourth quarter. It is also boasting a growing partner network and gaining momentum through its third-party channels.

These yearend results clearly show that CFOs and CEOs are increasingly adopting SaaS to run their back-office operations.

SAP’s renewed efforts to compete in the SaaS market with its latest version of BusinessByDesign will accelerate market growth because it will give it greater credibility and visibility. Oracle’s heightened emphasis on Cloud-based solutions will also lend further validation to SaaS-based, back-office solutions.

Since 2009 is coming to a close, I thought it would be a good time to review how I did with my predictions for the year regarding the Software-as-a-Service (SaaS) and cloud computing market.

1. On-Demand Services Move From Why To How

According to a Sandhill.com/McKinsey survey of over 850 enterprise customers at the end of 2008, 74% were already favorably disposed to adopting SaaS platforms. As a result, Gartner estimates the SaaS market will have reached approximately $8 billion at the end of 2009, a 21.9% rise from $6.6 billion in 2008. Looks like folks have moved past “why” SaaS to “how” to get the most out of their SaaS deployments.

2. New Hybrid Models

The idea of hybrid SaaS and cloud computing models has been abhorred by industry purists, but the reality is that nearly every business will rely on a combination of on-premise and on-demand resources. In 2009, the concept of “location independence” became bi-directional. It not only means that businesses can move their software and systems to the cloud, but they can now also deploy SaaS and cloud computing solutions behind their firewalls via appliances or ‘applets’. This will enable them to meet their business requirements and satisfy their psychological biases. More importantly, it will exponentially expand the addressable market for SaaS solutions and cloud computing services.

3. Short-Term Slowdown, Long-Term Growth

This is not an easy one to quantify because many SaaS/cloud computing businesses are privately held or operate within bigger companies. However, the publicly-traded SaaS players saw continued albeit slower growth. As the VCs like to say, “flat is the new up!”

4. VC/PE Retrenchment

The VCs were also very concerned in 2009 about how they spent their “dry powder”. As a result, they invested in fewer start-ups and only “topped off” a handful of existing SaaS/cloud computing portfolio companies who they believe hold the greatest promise of a solid exit. The most notorious casualty of this strategy in 2009 was LucidEra, who pioneered the SaaS business intelligence (BI) market, but was not able to generate enough sales to win a new round of funding.

5. Industry Shake-Out and Consolidation

There were many other examples of company failures and acquisitions to illustrate the consolidation and shake-out of the SaaS and cloud computing industry. For instance, Xactly acquired Centiveand Makana Solutions disappeared in the sales compensation segment of the market. NetSuite also acquired and merged together OpenAir and QuickArrow in the professional services automation (PSA) market. 

6. Acquisitions/Alliances Accelerate

There were also a number of interesting alliances initiated in 2009. One of the most innovative was Intacct’s partnership with the American Institute of Certified Public Accountants (AICPA)and its subsidiary CPA2Biz who named Intacct as its preferred provider of financial applications. This alliance gives Intacct access to a vast network CPAs who can serve as referral agents. It also gave the SaaS and cloud computing movement an important endorsement among one of the most conservative yet influential professions.

7. Focus On The Channel

The AICPA/Intacct alliance was just one of many new channel arrangements in the SaaS and cloud computing market. A number of SaaS vendors also launched or expanded their VAR programs in 2009. The most newsworthy was Salesforce.com’s new VAR program aimed at broadening the company’s reach beyond its direct sales team.

8. The Google Generation Becomes Mainstream

Google intensified its focus on cultivating a new generation of office workers via its free Google Apps for educators and the government. It is also teaming with Verizon to offer Android-powered cellphones to capture a share of the market and compete against the iPhone tidalwave.

9. Software/Business/Information/Managed Services Convergence

The convergence of software, business and information services has been evolving for a while. The best example of how this process is manifesting itself is Thomson-Reuters’ use of Salesforce.com’s Force.com platform to create and deliver a new wealth management service to its customers. ConnectWise has also emerged as a major proponent for SaaS and cloud computing in the managed services arena to make it easier for IT workers to do their jobs.

10. Obama Policies Promote On-Demand Services

President Obama’s CIO, Vivek Kundra, told the Wall Street Journal in March 2009, “I’m all about the cloud computing notion. I look at my lifestyle, and I want access to information wherever I am. I am killing projects that don’t investigate SaaS first.” In September, Kundra followed through on his promise to foster the use of on-demand services in the federal government by launching a new online marketplace of SaaS applications and cloud computing services, www.apps.gov.

Looks like I did pretty well with my predictions. Of course, I wouldn’t be reviewing them if I knew I had done poorly!

With my past success now behind me, I’ll post my predictions for the new year and decade ahead soon. Stay tuned.

Salesforce.com has teamed with Unit 4 Agresso to create a new company, called FinancialForce.com, that will build upon the Coda 2go on-demand financial application.

This move is another indication that CFO receptivity toward SaaS-based accounting, financial management and enterprise resource planning (ERP) applications is rising.

The new joint venture will build on Coda’s original Force.com-based SaaS solution, and the growing momentum in the SaaS accounting and financial management applications market produced by NetSuite , Intacct and others in this area. (Disclosure: I’ve done work with all of these companies.)

This announcement is newsworthy because it is Salesforce.com’s first direct foray into the financial application market and its first joint venture.

There are probably an assortment of marketing and legal reasons why the two companies have formed this joint venture. However, the reality is that  few joint ventures in the tech and software industry have been successful because the partners often have differing priorities or can’t get their business processes to align.

In this case, the two companies are obviously confident they can overcome the shortcomings of typical joint ventures because Salesforce.com has been aggressively promoting Coda as a pioneer user of its Force.com Platform-as-a-Service (PaaS) for a while. By making this additional investment, it suggests one of two primary possibilities regarding Coda’s performance:

1. Either Coda is experiencing tremendous growth and Salesforce.com wants a larger part of the ‘action’.
2. Or, Coda is not getting enough traction and requires more capital to successfully compete in the market long-term.

In the same vein, it raises questions about how Coda’s SaaS capabilities fit into the company’s legacy software environment. Was the company experiencing internal tensions trying to balance its SaaS and legacy businesses? Or, is it simply trying to remove any barriers that the legacy business may pose so it can accelerate the growth of its SaaS business?

In either case, this venture is a mixed blessing to existing players in the SaaS financial apps market, software vendors developing SaaS apps on Force.com, and Salesforce.com’s AppExchange partners.

Salesforce.com’s entrance into this market clearly lends greater credibility and visibility to SaaS-based financial applications as a viable alternative to legacy, on-premise software. Its deep pockets and powerful marketing engine should significantly increase the amount of attention aimed at CFOs. This will certainly help all SaaS companies trying to educate CFOs and others in the executive suite about the business benefits of SaaS.

The new initiative will also send shockwaves through Microsoft, Oracle or SAP, who are already facing serious challenges trying to respond to the rapid rise of customer interest in SaaS alternatives.

But, the joint venture will also raise concerns among many SaaS vendors who have been suscipious of Salesforce.com’s ulterior motives for a while. 

The joint venture is an obvious threat to direct competitors in this segment of the market. It also poses questions for other SaaS and traditional software vendors who may have been considering Salesforce.com’s Force.com PaaS.

Why should they build their applications on the Force.com platform if there is a chance that Salesforce.com might eventually compete with them? Especially, since this isn’t an isolated event.

Salesforce.com has made a series of acquisitions in other areas of the software landscape which have encroached on some of its AppExchange partners’ primary businesses, including content, knowledge and services management which have all led to new Salesforce.com offerings.

This move also puts into question Salesforce.com’s impartiality when it comes to its partner relationships and AppExchange marketplace. For instance, if you do a quick search on the AppExchange for accounting or financial applications, FinancialForce.com is at the top of the list based on “Keyword Relevance”, even though other players are ranked higher based on Popularity or Ratings.

I’m not suggesting that Salesforce.com doesn’t have plenty of good reasons to make this move, and it is certainly within its rights to take these actions. However, it will also create more anxieties and provocate more apprehension among current and aspiring SaaS vendors which could harm its existing and potential partner relationships.

This would be unfortunate since it comes at the same time Salesforce.com is trying to expand its partner ‘ecosystem’ and promoting its new VAR program.

Yet, if Salesforce.com helps to raise the visibility and legitimize the value of SaaS in the eyes of CFOs and other executive decision-makers, it will also create more opportunities for other SaaS vendors to capitalize upon. If this occurs, most SaaS vendors will be willing to put up with the potential tradeoffs.

Ever since my early days as an industry analyst at IDC in the 1980s, I’ve been convinced that one of the most potent, yet under-utilized resources in the IT market are the major trade associations.

When I first looked at these associations, I thought of them as targets for research purposes. Now, I view them as a terrific channel to market.

Intacct is putting my ideas to the test by entering into a new alliance with the American Institute of Certified Public Accountants (AICPA) and its CPA2Biz subsidiary to encourage the association’s 45,000 member CPA firms and their 350,000 small and mid-sized businesses (SMBs) to adopt Software-as-a-Service (SaaS) and “cloud computing” alternatives to traditional financial applications.

Under this agreement, Intacct and CPA2Biz will co-develop a new version of Intacct’s on-demand financial management and accounting applications to specifically address the needs of CPA firms and their clients. Intacct will also work with the AICPA to develop education programs and promote indutry best practices based on data accumulated from the Intacct services.

According to the company and association officials who briefed me about this announcement a week ago, the agreement was a year in the making.

Intacct has been working with a variety of accounting firms on a one-on-one basis for a number of years, convinced that they could be good referral agents for its SaaS solutions. However, it became clear to Intacct that building these relationships on a one-by-one basis was not cost-effective or scalable.

Meanwhile, the ACPA recognized that its members were feeling increasing competitive pressures from a widening array of web-based, economical accounting packages which undercut the value of its members’ traditional professional services.

This alliance is not only a straightforward attempt to respond to these member concerns. It is alao a bold statement by the association endorsing the value of SaaS solutions and viability of cloud computing services.

This is a watershed event because it shows how fast SaaS and cloud computing are becoming mainstream. There are few segments of the market that are more conservative than the accounting profession. The ACPA/CPA2Biz/Intacct alliance will not only help to educate CPA firms and their SMB customers about the viability and value of SaaS and cloud computing, it also promises to create new SaaS and cloud computing solutions to meet their specific needs.

I’ve been saying for months that 2009 would be the year of the channel for the SaaS industry and that a variety of new channel players would emerge to fill the void that traditional VARs and integrators won’t be able to address. This alliance will be an important test of the new kinds of channel strategies and relationships the SaaS/cloud computing marketplace needs.