THINK IT Services

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.

Last year, I predicted that 2009 would be the year of the channel in the Software-as-a-Service (SaaS) market and a growing number of SaaS industry leaders have obliged me by expanding their sales efforts in this direction.

The latest is Salesforce.com which announced today that it is launching a new value-added reseller (VAR) program to encourage third-party companies to build on its Force.com platform and extend the reach of its AppExchange into new market segments.

Salesforce.com’s announcement comes on the heels of NetSuite’s recent enhancements to its VAR program aimed at strengthening its position in the market.

Because of Salesforce.com’s greater prominence in the marketplace, its new initiative is bound to bring even more attention to the rapidly evolving role of channel companies in the SaaS market. In Salesforce.com’s case, there move represents an important milestone in the company’s evolution and that of the SaaS movement as a whole.

Until now, the company has placed all of its sales efforts on selling directly to end-users. Although it was also well-aware of the importance of encouraging third-party developers to build applications that enhanced its core applications via the AppExchange and ultimately the Force.com platform, it readily admitted in the past that it didn’t see much opportunity to build channel partners into its go-to-market strategies. As a result, the company aggressively recruited enterprise salespeople instead to attack the mid- and large-scale enterprise market.

In my view, the following forces have combined to change Salesforce.com’s attitude toward VARs in the SaaS market,

1. Today’s economic environment has made it more difficult to penetrate new accounts. With the cost of sales escalating, SaaS vendors must find more economical ways to win new business instead of relying on high-priced sales executives. (Salesforce.com recently recruited Doug Dennerline from Cisco’s Collaboration/WebEx unit to become its new Executive VP for enterprise sales in the Americas to reinvigorate its direct sales efforts.) 
2. VARs are a natural target for sales expansion. Although customers are fed up with their legacy applications, they are still wedded to their ‘trusted’ suppliers, and are reluctant to move to new products or technologies without the help of their current suppliers. These ‘trusted’ suppliers tend to be their local and/or industry-specific VARs.
3. Enlightened VARs are increasingly recognizing that they must migrate to a SaaS orientation in order to survive and thrive in the future. Traditional VARs have been fearful and resistent to SaaS solutions because they threatened their fundamental value proposition (complexity) and potentially undercut their relationship with the customer (account control). Now, they are willing to explore ways to build SaaS into their business model.  
4. Technological advancements are also facilitating third-party development and delivery of SaaS applications. Today’s Platform-as-a-Service (PaaS) offerings, such as Force.com, make it possible for VARs to develop and deliver industry-specific solutions.
5. Maturing SaaS vendors are identifying new revenue-sharing opportunities in the SaaS supply/value-chain that can permit them to enlist VARs, and other channnel partners, without seriously hurting their operating margins.

In addition to these market forces, Salesforce.com’s VAR program is built on its own history of success working with companies, such as Veeva Systems (formerly, Verticals OnDemand), who have been configuring its basic apps into industry-specific solutions for years. I suspect that more companies of this nature will emerge as a result of Salesforce.com’s new program.

At the same time, a new generation of professional services/system integrator is also arising. This new breed is typified by Appirio which not only helps customers build unique apps on top of PaaS offerings, but they also retain the marketing rights to these custom apps so they can be resold via AppExchange and other online outlets. In so doing, these new PS/SI companies are blurring the line of demarcation between their role and that of the traditional VAR.

A case in point is Appirio’s latest professional services automation (PSA) offering, which escalates its growing competition with NetSuite’s PSA suite built on the combined resources of OpenAir and QuickArrow.

All of this adds up to an exciting new dimension of third-party activity surrounding the rapidly evolving SaaS and cloud computing world.

PS: In addition to reporting and consulting on these topics on an ongoing basis, I’m pleased to be participating in the following industry events which will also examine the implications of these trends: Cloud Futures and the SIIA’s OnDemand Conference.

Contact me at info@thinkstrategies.com if you’d like to discuss these trends further or need help addressing these issues.

Yesterday’s announcement that NetSuite is acquiring QuickArrow and merging it with OpenAir is the most recent example of a consolidation process in the Software-as-a-Service (SaaS) industry which I predicted would accelerate at the beginning of the year.

This particular transaction is very similar to Xactly’s acquisition of Centive in January. Rather than combining functional capabilities to create a more robust solution, the companies are combining forces to create greater scale.

In both cases, the transactions eliminate head-to-head competitors who looked too much alike to be able to clearly differentiate themselves from one another. Their similarities made it harder to compete for customers and VC funding, especially in today’s tough economy.

Merging, with the help of NetSuite’s deeper pockets, allows the two companies to focus on new customer acquisition, channel relationships and geographic expansion.

This acquisition is the latest indication that the SaaS market is entering a new stage in which the winners will be those companies that can demonstrate their long-term viability as strategic sources, rather than best-of-breed niche players whose long-term survival is suspect.

Merging QuickArrow and OpenAir with NetSuite’s broader capabilities should make IT and business decision-makers more comfortable doing business with the combined entity. It also prevents QuickArrow from falling into the hands of a NetSuite competitor.

The acquisition also strengthens NetSuite’s hand against Salesforce.com’s growing initiatives in the service automation arena. Earlier this year, Salesforce.com unveiled its Service Cloud offer. It has also supported the professional services automation solution developed by Appirio.

Knowing the principals at both OpenAir and QuickArrow, as well as the executives at NetSuite, I think this is a good ‘outcome’ for all of the parties involved. I also think their mutual customers and channel partners can benefit from this transaction.

I also expect other lookalike SaaS companies in other segments of the industry to experience similar exits in the months to come.

THINKstrategies announced today that OpenAir, Inc. has been named the latest winner of the Best of SaaS Showplace (BoSS) Awards program, which is aimed at promoting the measurable business benefits being delivered by today’s Software-as-a-Service (SaaS) solutions.

The BoSS Awards program is the latest initiative by THINKstrategies to bring attention to SaaS and cloud computing companies which are producing tangible business benefits for specific user organizations. These benefits include increased sales, lower costs, higher customer satisfaction, faster operations, and greater profitability.

OpenAir, a NetSuite Inc. company, is a leading provider of SaaS-based services automation software, including professional services automation (PSA) and project portfolio management (PPM) solutions.

Click here to read about how OpenAir’s SaaS solution helped Bluewolf Group and Metricstream better manage their professional service operations so they could achieve their business objectives.

Click here to read more about the BoSS Awards and to nominate a company for an award.