I’ve been predicting for over a year, that despite the rapid growth of the Software-as-a-Service (SaaS) market many aspiring best-of-breed vendors will not survive an industry shakeout or the short attention spans of their venture funding sources.

The latest case in point is Helpstream which discontinued operations this past month. I first reported on the company in 2008 when it originally launched as Pathworks Software and caught my attention because of the way it promised to leverage the Open Source pricing model and community building orientation.

In essence, Helpstream was one of the first SaaS companies in the helpdesk market to recognize the powerful potential of a social networking capability embedded into an enterprise app.

Since then, saleforce.com has picked up the baton and is very quickly demonstrating the tangible benefits which can be derived from merging a Facebook-like capability into its CRM/SFA solution with its Chatter offering.

All it takes is a couple of minutes watching a demo or talking to a current beta user to see how this ‘nice to have’ feature can quickly become a ‘must have’ functionality, just like many people discovered when instant messaging penetrated the workplace.

The net result is that Chatter is going to create new expectations among customers and set a new standard for software vendors about how enterprise applications are architected and designed. This is going to raise the bar and compound the challenges facing the established players.

Unfortunately, Helpstream won’t be able to capitalize on this exciting and disruptive market opportunity. Although it is rumored to have had about 50 customers and $1 million in revenues, and even won a Best of SaaS Showplace Award, Helpstream wasn’t growing fast enough to satisfy its backers and couldn’t secure another round of funding. A common end to a promising company.

In the same way that LucidEra was ahead of its time in the SaaS business intelligence (BI) sector and succumbed to a sad demise last year, Helpstream is the latest poster-child for the perils of today’s SaaS start-ups.

So, now various competitors like Parature are vying for Helpstream’s customers and other vendors are assessing Helpstream’s remaining assets to determine if they are worth acquiring.

Potential acquirers recognize that building a successful social networking capability internally is a long-shot. Even salesforce.com has made a series of unannounced acquisitions to create Chatter, including GroupSwim.

However, any vendor considering a big purchase in this space should pay attention to AOL’s ill-fated acquisition of Bebo two years ago which failed to match Facebook’s success and is now worth pennies on the dollar in a potential divestiture.

AOL Bebo Chatter Facebook Helpstream LucidERA Pathworks Software SaaS Salesforce.com Software-as-a-Service