THINK IT Services

Although announcements regarding new rounds of funding are relatively commonplace in the tech industry, whenever a Software-as-a-Service (SaaS) company is able to boast about their latest vote of confidence among investors it is worth noting in these tough economic times.

But, Xactly’s announcement this morning that it had garnered a new round of $12 million in funding was especially newsworthy because it also included a “strategic new investment” by Salesforce.com.

Speculating about who Salesforce.com is going to acquire next has become a popular parlor game in the SaaS industry over the past few years. The company has done an admirable job acquiring a variety of companies which have helped to extend its service delivery capabilities, as well as expand its application functionalities.

Some of its acquisitions, like Jigsaw, have been announced publicly. Others, like GroupSwim, have been done quietly.

While there has been speculation that Salesforce.com will move into a variety of new areas, there have been few instances when it has made strategic investments to stake a claim in a new market segment. The most notable example was its investment in FinancialForce.com last year.

Today’s announcement may be an indication that Salesforce.com is inching into the sales performance management (SPM) business. If this is the case, Xactly is a good candidate because it has seen significant growth over the past year, recently picking up Haliburton and Xerox, among others.  Steve Cakebread, a former senior executive at Salesforce.com, is also a senior business advisor at Xactly.

Whenever Salesforce.com makes an acquisition or strategic investment it runs the risk of stepping on the toes of other AppExchange partners. This investment in Xactly is no exception as it is sure to raise concerns among other Salesforce.com partners in the SPM business, most notably Callidus Software.

(Disclosure: Xactly, Salesforce.com and Callidus Software have been but are not currently THINKstrategies clients.)

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.

THINKstrategies announced today that Xactly Corporation has been named the latest winner of the new Best of SaaS Showplace (BoSS) Awards program, which was launched in January 2009 to promote the measurable business benefits being delivered by today’s Software-as-a-Service (SaaS) solutions.

Xactly Corporation is a leading provider of on-demand sales performance management solutions. The company’s flagship product, Xactly Incent, enables sales and finance executives to design, implement, manage, audit and optimize sales compensation management programs easily and affordably.

A case example of Xactly’s business benefits is Ingres Corporation, a leading provider of open source database management software and support services

Click here to read about the announcement which details the quantitative business benefits Xactly Incent generated for Ingres

Click here to learn more about the BoSS Awards or to submit a nomination for an award.

When I published my previous post questioning whether recent executive departures at salesforce.com were an indication of a slowdown in the company’s business, I debated whether to also leave the door open to the possibility that some of these individuals might be jumping to other job opportunities.

Sure enough, salesforce.com’s former president and chief strategy officer, Steve Cakebread, has resurfaced already at Xactly Corporation where it was announced this morning he will serve as the company’s new CFO, a role he also held at salesforce.com.

This hire gives Xactly even greater market validation and credibility after its recent acquisition of Centive.

The announcement also suggests my suspicions about potential problems at salesforce.com may have been premature. The company’s latest financial results are scheduled to be announced on February 25.

Meanwhile, NetSuite announced its financial results for 2008 yesterday. The company had a record year with revenues up 40.5% overall, reaching $152.5 million. Even its fourth quarter revenue of $41.4 million was up 30.5% over the fourth quarter of 2007. NetSuite added 350 new customers and ended the year with a quarterly profit. Pretty good for a company which is selling a mission-critical application to a tough buyer, the CFO.

So, the warming winter temperatures seem to have also brought some much needed good news regarding the state of the SaaS movement.

Xactly’s announcement today that it is acquiring Centive is another indication of the Software-as-a-Service (SaaS) industry shakeout and consolidation I predicted would occur in 2009.

Xactly and Centive have been fierce competitors in the sales performance management (SPM) market with both offering pure SaaS alternatives to traditional on-premise software applications.

While both companies were growing as a result of accelerating customer interest and adoption of SaaS, they also found themselves competing more with each other than the established players. Rather than continue to fight one another, they decided to combine forces to better position themselves and capitalize on growing customer demand.

This decision was especially timely given the challenges of today’s economic climate and intensifying competition.

While both companies offer solid solutions with compelling value-propositions, combining their technical capabilities and eliminating the costs of continued head-to-head competition can strengthen Xactly’s position as ‘legacy’ software players escalate their own SaaS efforts.

You can expect to see more mergers and acquisitions of head-to-head competitors in other segments of the SaaS market as these players recognize that they must combine forces to survive.