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Consolidation Looms For SaaS Sramana Mitra, 05.15.09, 06:00 AM EDT Oracle, SAP and others likely will acquire some SaaS players. Is this a desirable outcome? Sramana Mitra More By This Author
The global recession, which has forced companies to cut operating costs and streamline information technology operations, has been something of a boon for the software-as-a-service sector, with major companies turning to cloud computing. Thus, I expect to see acquisitions in the SaaS space this year. SaaS companies like NetSuite, SuccessFactors and Citrix, which all recently reported solid quarters, are likely targets. Let's take a closer look.
On May 4, NetSuite, a leading SaaS vendor of business management software with annual revenue of $152.5 million, reported a strong first quarter. First-quarter revenue was up 22% to $41.6 million, and the company's net loss narrowed 16% to $3.7 million, or 6 cents per share. NetSuite's stock is currently trading around $11 with a market cap of about $670 million. It hit a 52-week high of $13.97 on April 29.
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Yahoo! BuzzNetSuite's suitors will include Oracle ( ORCL - news - people ), SAP ( SAP - news - people ) and possibly IBM ( IBM - news - people ) and Hewlett-Packard ( HPQ - news - people ), if they decide to change their current infrastructure software-oriented strategy to include applications, in which case, they'd need to look at SaaS.
On Apr. 30, SuccessFactors, a leader in on-demand performance and talent management solutions with annual revenue of $111.9 million, reported a strong first quarter that beat estimates. Revenue for the quarter grew 50% year-over-year. Net loss was $5.68 million, or 10 cents per share, vs. a loss of $19.29 million, or 37 cents per share in the same period a year ago.
Gross margin was 77%, up from 71% last quarter and 53% when it went public six quarters ago. The company generated $2.7 million of cash from operating activities, a 286% sequential increase. Total cash, cash equivalents and marketable securities at the end of the quarter was $105.5 million.
Real-Time Quotes 05/15/2009 10:23AM ET ORCL$18.600.76%SAP$39.68-2.15%IBM$102.591.52%HPQ$35.361.23%SLRY$2.190.00%Get Quote BATS Real-Time Market Data by XigniteOracle is rumored to have tried to acquire SuccessFactors earlier this year. I also feel that SuccessFactors would be an excellent company for one of the Indian outsourcing vendors to acquire and build a comprehensive SaaS-enabled business process outsourcing practice around. On the other hand, SuccessFactors, with its strong leadership, can also roll up other companies such as Salary.com, whose CEO I interviewed last year. My preference is for some of the smaller SaaS companies rolling up, rather than their getting acquired by the giants.
On April 29, Citrix Systems ( CTXS - news - people ), a leader in application delivery infrastructure with annual revenue of $1.58 billion, reported its first-quarter results. Revenue was down 2% to $369 million due to declining product license sales. Net income declined 80% to $7 million, or 4 cents per share, due to restructuring charges. Adjusted earnings per share was 32 cents, beating analyst estimates by a penny.
While product license revenue decreased 24%, revenue from license updates grew 11% and technical services revenue grew 8%. With the company's increased focus on SaaS, online services revenue also grew 16% to $72 million.
Related Stories The Great Software Showdown Cybercriminals In The Cloud Why IBM Wants Sun Now A Cloud In Every Garage Virtualization Across The Enterprise Related Videos Ford Falls; Winn Dixie Soars Street Loses CEO Spotlight: Symantec Friday Rally, Oil Gains Reforming A Market Standard StoriesVideos Citrix's stock is currently trading around $27 with a market cap of about $5 billion. Citrix could be an acquisition target for bigger companies such as Oracle, SAP, Microsoft and IBM. IBM, with its anti-Cisco strategy, could be an especially good fit, as would HP.
My concern remains that we may be moving towards yet another "too big to fail" industry structure. If HP, IBM, Cisco, Microsoft and Oracle go around acquiring everybody and their mother, we're in for stagnation in innovation, a precarious concentration of industry power and leverage at the very tip of the pyramid, and an overall undesirable structural evolution.
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Visit The Forbes.com Digg ChannelSaaS is an opportunity for smaller companies to accumulate their own muscle, roll up their own smaller kingdoms and create an alternative power structure. I would much rather see that happen, than an accumulation of everything that matters into one of the five largest players!
Sramana Mitra is a technology entrepreneur and strategy consultant in Silicon Valley. She has founded three companies and writes a business blog, Sramana Mitra on Strategy. She has a master's degree in electrical engineering and computer science from the Massachusetts Institute of Technology. Her first book, Entrepreneur Journeys (Volume One), is available from Amazon.com. Her second book, Bootstrapping, Weapon Of Mass Reconstruction, is |