Latest SaaS Entrants and Exits Fuelling Faster Growth

Last week, NetSuite announced that it was finally ready to enter the public market with an Initial Public Offering (IPO), and this week two other Software-as-a-Service (SaaS) oriented players found a private exit via acquisitions.

The NetSuite acquisition had been highly anticipated and is another indication of the growing support of the SaaS model within the investment community. NetSuite’s S-1 shows that the company is experiencing strong growth while also reducing the proportion of its revenues being spent on software development, sales and marketing. Although NetSuite isn’t a rocket-ship like, it has established a broad enough customer base and is gaining sufficient momentum to disprove any lingering misconceptions that SaaS can’t satisfy businesses’ back-office or financial management needs.

A successful IPO by NetSuite, combined with growing receptivity to IPOs in general within the investment community, will widen the door for other SaaS vendors to follow this same path.

Google’s acquisition of Postini is another indication that the SaaS market is becoming more serious. Postini is a leading provider of security and archiving services aimed primarily at email but expanding into instant messaging (IM) as well. Its on-demand solutions will enable Google to compete more effectively in the enterprise market by strengthening the security and compliance capabilities of Google’s desktop, email and other web-based applications. Postini’s capabilities will also fit nicely with Google’s recent acquisition of Grand Central Communications, a VOIP phone aggregation solution provider.

Another acquisition on July 9 was overshadowed by the Google/Postini deal. Unica–a leading provider of traditional, on-premise enterprise marketing management (EMM) software–purchased Marketing Central, a rapidly growing on-demand marketing resource management ( MRM) solution provider.

The transaction clearly demonstrates the rising level of interest and demand Unica is seeing among its customers and prospects for on-demand alternatives and add-ons to its traditional on-premise solutions. Although it will take some time to fully integrate the companies’ capabilities, this transaction enables Unica to quickly add an on-demand option to its on-premise portfolio.

This isn’t the first transaction of this type. Another example is Business Objects’ acquisition of Nsite. You can be sure that many SaaS providers are aggressively seeking a similar exit. And, there are plenty of legacy application vendors, integrators and outsourcers, and a variety of business services companies who are trolling for good SaaS acquisitions.

Consolidation within the SaaS community is also accelerating. For example, Silverpop recently acquired Vtrenz to broaden its portfolio of on-demand marketing solutions. (Click here to obtain THINKstrategies’ profile of Vtrenz just prior to this acquisition.)

I’m pleased to be a contributor to TripleTree’s most recent research report concerning these trends entitled, “Sales, Marketing and Service Convergence: How SaaS Ecosystems and Collaboration Tools are Redefining CRM.” I recommend you download a copy.

I expect the volume of IPOs, mergers and acquisitions within the SaaS market to accelerate dramatically over the next 6-12 months. As Microsoft’s CEO, Steve Ballmer, proclaimed at the company’s Worldwide Partner Conference in Denver on Tuesday,

“This fundamental transformation to software and service is upon us. It will affect us all, and I guarantee you Microsoft will lead in driving this next generation of computing and user-interface models just as we have the last couple of generations.”

With companies like Microsoft, Google and leading the way, and private equity monies freely flowing along with public equity opportunities, the SaaS market is primed to be the center of attention for the remainder of 2007 and beyond.

More importantly, customers are becoming very comfortable with the idea of leveraging online/on-demand applications to meet their achieve their business objectives. This expanding customer receptivity will be the fundamental catalyst of sustained SaaS growth.

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