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.

A combination of work, travel and summertime distractions have prevented me from commenting on a series of small, yet significant announcements and activities over the past couple of weeks in the Software-as-a-Service (SaaS) and cloud computing market.

My latest travels started last week at Pacific Crest’s 11th Annual Technology Leadership Forum in Vail, CO, where I met with a series of the investment firm’s ‘buy-side’ clients as a part of its Mosaic program, and interacted with a variety of cloud computing executives and VCs in a SaaS workshop.

Nearly all of Pacific Crest’s clients are concerned about the financial implications of the cloud computing movement on their large-cap investments in companies such as Microsoft, Oracle and SAP on the software side, and IBM, HP, EMC, Dell and other systems vendors on the hardware side. They are also curious about whether Amazon, Google, Salesforce.com, SuccessFactors and other upstart SaaS/cloud companies can sustain their onslaught against the established players. My response to their inquiries echoed the commentary which I published in E-Commerce Times last month, the SaaS/cloud computing movement is already fundamentally changing the the technology industry but doesn’t necessarily mean the demise of the established players. Those legacy players who can adjust their business models to respond to changing customer demands can survive the industry tranformation.

The discussion during the SaaS workshop at the PacCrest forum also reflected the rapidly changing realities of today’s marketplace. While the CXOs and VCs in attendance during the session confirmed that demand for SaaS and cloud computing solutions is accelerating, they also acknowledged that tightening corporate budgets and growing confusion due to vendor proliferation were combining to make it more difficult to succeed and survive. As a result, PacCrest’s staff and the attendees agreed with my prediction that the SaaS/cloud computing industry will see more company failures and greater M&A activity in the latter half of the 2009 and first half of 2010.

Despite these concerns, customer interest and adoption of SaaS and cloud computing alternatives continues to grow. A reflection of the growing interest was last week’s first Cloud World conference in San Francisco which I had the privilege to chair. The event was co-located with IDG World Expo’s OpenSource World and Next Generation Data Center conference. Despite the event happening in a down economy and dead of August, it attracted approximately 2000 attendees.

I chaired a terrific keynote roundtable session entitled, “Assessing the Real Market Opportunities and Obstacles for Making Cloud Computing Mainstream”,  at the end of the first day of the event which included Joe Weinman of AT&T Business Solutions, Sam Charrington of Appistry, James Urquhart of Cisco Systems and the CNET Blog Network, and Timothy Chou of Ming Holdings. The second morning of the conference, I also had a chance to introduce Lew Tucker, vice president and CTO of cloud computing at Sun Microsystems.

Cloud Bursts: Here are a few other news items which crossed my radar-screen over the past two weeks which are worth noting:

• Coupa Offers Its On-Demand Procurement Solution to the Government for Free. Salesforce.com has had a lot of success giving its on-demand customer relationship management (CRM) solutions to non-profit agencies for free. This altruistic move also produces huge benefits to Salesforce.com because it not only generates good PR and goodwill, but also exposes the members of the board and other volunteers who come from the corporate world to the power of Salesforce.com’s solutions. If Coupa can convince the government to take it up on its offer, it could get a tremendous bounce by exposing corporate contractors and others to its on-demand procurement capabilities.
• Fujitsu Consulting Teams with NetSuite to Offer On-Demand ERP Solutions to Mid-Size Enterprises in Japan. NetSuite’s latest partner deal clearly illustrates how rapidly the SaaS market has evolved. This is not your typical, joint press release agreement. Instead, it specifically states, “The plan calls for 500 new customers within three years.” This bold statement wasn’t necessary to bring attention to the alliance, but proves that SaaS is taking hold in the back-office and gaining acceptance worldwide, even in relatively conservative regions such as Japan.
• i2 Looks to Spur Sales with SaaS. Another indication of the rapid growth of SaaS and the disruption it is causing traditional, legacy application vendors is the recent strategy move by i2 Technologies to add SaaS solutions to its portfolio. Like many legacy software vendors, i2 has seen a significant slowdown in sales and sees SaaS as an essential element in resuscitating its business. The success of Plex Systems and other SaaS vendors in the manufacturing sector has proven that companies in this industry are ready to acquire SaaS alternatives to meet today’s tough challenges.
• Microsoft Acquires Office.com URL. Microsoft continues to take a variety of steps to fortify its defenses against the growing competitive threat of Google Apps and other on-demand office productivity solutions. Grabbing the Office.com URL will certainly strengthen its search engine optimization (SEO) and branding efforts. But, Microsoft still has a long way to go to deliver a coherent message and compelling SaaS/cloud computing solutions.

THINKstrategies announced today that Plex Systems has been named the latest winner of the Best of SaaS Showplace (BoSS) Awards program.

The BoSS Awards program was announced in January 2009 as 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.

Plex Systems, the developer of the Plex Online SaaS solution for the manufacturing sector, has been selected as the latest winner of the BoSS Award because of the quantifiable business benefits its solution has generated for a wide array of companies.

Click here to read about the specific customer case examples of Plex Systems’ business benefits which led to the company winning a BoSS Award.

Click here to learn more about the BoSS Awards.

Google’s latest service outage this past week generated a new round of attention and debate regarding the viability of the ‘cloud computing’ movement.

Although Google’s service disruption raises legitimate concerns about the reliability of today’s web-based solutions, the extent of the press coverage also demonstrated how pervasive the cloud computing movement has become.

The incident was not only reported and analyzed in the IT trade pubs, but in all the major business journals as well. This level of coverage clearly shows that SaaS and cloud computing are no longer peripheral trends, but have become popular alternatives to legacy software and traditional systems.

Another indication of this trend is the latest market forecast from Gartner, who I like to call a ‘lagging indicator’, which predicted last week that the SaaS market will equal $9.6 billion by the end of 2009, a 21.9 percent jump over 2008 revenue of $6.6 billion. Gartner forecasts that the SaaS market for the enterprise application markets will total $16 billion in 2013.

These forecasts come even as Gartner estimates that overall IT spending will decline 3.7 percent in 2009, and spending on IT hardware, including client computing (PCs), servers, storage and printing systems will drop 14.9 percent this year.

Gartner’s rationale for its SaaS predictions echo what THINKstrategies has been reporting for a long time. Yet, they are still hedging their bets when it comes to SaaS adoption in backoffice areas, such as ERP, despite the recent financial results of companies like NetSuite and Plex Systems.

Nonetheless, the latest outage at Google raises a new round of concerns among IT and business decision-makers who remain uncomfortable relying on third-parties for their day-to-day enterprise application or computing requirements.

In my view, these are legitimate concerns but should not prevent organizations of all sizes from ultimately adopting SaaS solutions and cloud computing services. McKinsey has produced an interesting comparative analysis of the total cost of ownership (TCO) or inhouse data centers versus SaaS and cloud computing alternatives.

I remain convinced that an honest self-assessment by IT and business decision-makers will lead to the realization that their data center reliability, security and performance palls in comparison to today’s leading cloud computing vendors. In addition, a thorough evaluation of their time-to-market, flexibility, TCO and ROI would also clearly favor the rapidly evolving SaaS and cloud computing alternatives.

Google reported that its outage was caused by ‘human error’, which is often at the heart of corporate data center disruptions as well. IT and business decision-makers have to determine how often and how long their organizations have to withstand these problems when their inhouse staff is to blame, and are their remedies any better than they would be if they turned to an outside vendor via SaaS or cloud computing. As I’ve stated before, this becomes a quality of support rather than a reliability of service issue.

In response to concerns regarding the quality of cloud computing support, my sources tell me that Google is rapidly hiring additional support people and significantly enhancing its enterprise support capabilities. 

While the SaaS industry has gained broad-based acceptance because of its relatively mature ‘packaged’ applications, the cloud computing sector still has a long way to go to win an equal level of adherents among mainstream organizations.

I had the privilege of participating in Cloud Slam ‘09, a virtual conference, on the state of the cloud computing movement last month. Click here to see and listen to my views on the state of SaaS and cloud computing, and the steps to success in making these markets mainstream.

You can also learn more about the cloud computing market this August when I’ll be chairing CloudWorld, in conjunction with Open Source World and the Next Generation Data Center conference, in San Francisco.

This week, I’m off to Las Vegas for Interop where I’ll be attending the Enterprise Cloud Summit and chairing a panel session regarding “SaaS, PaaS, and More”. I hope to see you there.

While Microsoft’s recent announcement that it had experienced its first down quarter in terms of revenues and profits generated plenty of headlines in the business press, a surge in the sales of Software-as-a-Service (SaaS) solutions aimed at chief financial officers (CFOs) deserves even greater attention.

Two SaaS announcements from NetSuite and Plex Systems clearly illustrate this trend.

NetSuite announced yesterday that its total revenue for the first quarter of 2009 was $41.6 million, a 22% increase over the first quarter of 2008. In my view, NetSuite’s success is due to a combination of factors. The company has done a better job of packaging, pricing, positioning and promoting its solution to CFOs. It has made its offering more modular, which in turn has made the pricing more attractive. It has also more effectively targetted CFOs who are at a crossroads between starter kits like QuickBooks and complex systems like SAP. It is also working more closely with channel partners to meet the needs of its customers. But, most importantly it is finding a more receptive ear among CFOs who are growing increasingly impatient with the inflexibilities and hassles associated with traditional financial systems.

Plex Systems is also finding greater interest in its SaaS-based enterprise resource planning (ERP) solutions geared toward manufacturing companies. Despite being in one of the toughest industrial sectors and being located in one of the most economically devastated areas (Michigan), Plex Systems reported its revenues grew 33% in 2008, and it experienced a 25% jump in revenues during the first quarter of this year over the same period in 2008. Mark Symonds, the company’s President/CEO, told me that Plex Systems’ growth can be attributed, in part, to a rising number of CFOs within manufacturing companies who are trying to better manage their operations in response to the tough economic climate. These CFOs recognize that SaaS solutions, like Plex Systems, are easier and more economical to deploy, but even more importantly provide greater visibility across the organization and its extended supply chain.

As these CFOs experience the benefits of SaaS in meeting their financial management requirements, they will become important proponents for SaaS adoption across the enterprise, encouraging their business units and IT organizations to leverage SaaS as well.