On November 30, 2006, Business Objects announced its intention to acquire Nsite Software, Inc., a software-as-a-service (SaaS) provider of channel, quote and proposal management applications that has been shifting its focus towards developing a library of enabling tools for SaaS developers.

Like a growing number of SaaS providers, Nsite has been migrating from a product-centric to a platform orientation. This shift has been inspired by Salesforce.com’s success with its AppExchange initiative which has clearly shown a strong platform can also become a magnet for a potent partner ‘ecosystem’ that can exponentially expand a SaaS provider’s market reach.

Business Objects’ acquisition of Nsite enables the business intelligence software vendor to leverage Nsite’s on-demand application platform and engineers to accelerate its internal development efforts. It also gives Business Objects access to approximately 27,000 Nsite subscribers.

Like many established, publicly-traded independent software vendors (ISVs), Business Objects has been contending with numerous challenges as it attempts to join the SaaS movement. In order to become a successful SaaS provider Business Objects must rearchitect its existing applications and recast its workforce to become more service-oriented as it restructures its revenue recognition systems to accommodate the pay-as-you-go SaaS model. This is a steep climb for every major ISV.

In order to overcome these obstacles, a growing number of established ISVs will be following Business Objects and acquiring promising SaaS providers. The acquisitions will allow them to accelerate their development efforts and expand their customer base. In Business Objects’ case, the Nsite gives it tools and skills to enhance its broaden its on-demand business intelligence solutions beyond crystalreports.com. Nsite’s tools and relationships will also give Business Objects an opportunity to build an ecosystem that will strengthen its position as a business intelligence solution provider.

However, the IT industry’s track record of success isn’t very good when it comes to acquisitions. The most infamous example in the on-demand arena was Siebel’s failed acquisition of UpShot, Inc. As a veteran of more than one acquisition, I can talk from direct experience about how the conflicting egos and economics can get in the way of success when it comes to acquisitions. Ironically, the same dynamics which drove Business Objects to acquire Nsite to accelerate its on-demand business could just as easily conspire to deny it success.

(Ken Rudin, the founder and CEO of business intelligence SaaS provider LucidERA, can speak with even more authority about the specifics of the Siebel/UpShot debacle since he was in the middle of that transaction.)

On the positive side, the Business Objects acquisition represents another validation of the rising tide of the SaaS movement. The company has already made a significant commitment of marketing dollars to build a presence in the SaaS market, serving as a major sponsor at SIIA events and Salesforce.com’s Dreamforce conference. The challenge will be for Business Objects to nurture rather than smother its new Nsite assets. Regardless of the success of this specific acquisition, you can bet on more before year’s end and in 2007.