As has been expected, NetSuite filed its IPO yesterday. The company – which is backed by Oracle's (NASDAQ: ORCL) Larry Ellison – is a leader in a new approach to software: on-demand. This uses the Internet as a way to deliver business applications.To get some insight on the IPO, I interviewed Chris Cabrera, who is the CEO and founder of Xactly (which is a venture-backed on-demand software company).
How are things going at Xactly?
Things at Xactly continue to go great. We have more than 70 customers, we are dominating the on-demand compensation space, we were recently recognized by the ABA (American Business Awards) as "Best New Company" and we just moved into 30k square feet of prime real estate in downtown San Jose to house our 100 employees.
Looking at NetSuite, any interesting takeaways?
I am impressed with their revenues and number of customers. They are an exciting company that will be yet another true SaaS vendor that will show the market the benefits of this model. Although there are a lot of companies that are SaaS (and even more who claim it!), there are relatively few who have gotten to the public markets. NetSuite has demonstrated great momentum and has signed up tons of customers who are enjoying the benefits of SaaS, primarily, no hardware, minimal implementations, no maintenance, and most importantly - - NO UPGRADES!
Many people I talk to are still struggling with understanding this model and the differences to traditional software companies. Investors can't look at SaaS companies through the same lenses they have used for years. When I talk to investors, I tell them to focus on two main differences: 1. Recognize that SaaS companies are built from the ground up around customer satisfaction. They understand that they must earn the customer every year, and often, every month. This focus is very different from the traditional software companies whose first priority is to get the next million dollar license deal in order to keep Wall Street happy.
The second major difference is that because there is no big million dollar license, the revenue trails traditional software companies. This is actually a great thing for investors - - it means that the revenue NetSuite is showing is not from a relatively few mega deals, it comes from hundreds and hundreds or happy customers. This revenue dynamic is also the reason SaaS companies are so much more predictable to Wall Street.
Expect more public offerings for on-demand players?
Absolutely. Due to the revenue phenomena described above, it takes a little longer for SaaS vendors to get ramped to the revenues that will justify an IPO. We have seen some as low as ~$25M ( Salary.com) and more that are like NetSuite (~$67M). The point is that there are many companies, like Xactly, who were started three or more years ago that have been amassing a great list of customers and watching their revenue ramp and ramp. These up-and-comers, combined with the success of companies like DemandTec, NetSuite, Salesforce.com (NASDAQ: CRM) and Salary.com will educate Wall Street that this is where to invest.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
I am impressed with their revenues and number of customers. They are an exciting company that will be yet another true SaaS vendor that will show the market the benefits of this model. Although there are a lot of companies that are SaaS (and even more who claim it!), there are relatively few who have gotten to the public markets. NetSuite has demonstrated great momentum and has signed up tons of customers who are enjoying the benefits of SaaS, primarily, no hardware, minimal implementations, no maintenance, and most importantly - - NO UPGRADES!
Many people I talk to are still struggling with understanding this model and the differences to traditional software companies. Investors can't look at SaaS companies through the same lenses they have used for years. When I talk to investors, I tell them to focus on two main differences: 1. Recognize that SaaS companies are built from the ground up around customer satisfaction. They understand that they must earn the customer every year, and often, every month. This focus is very different from the traditional software companies whose first priority is to get the next million dollar license deal in order to keep Wall Street happy.
The second major difference is that because there is no big million dollar license, the revenue trails traditional software companies. This is actually a great thing for investors - - it means that the revenue NetSuite is showing is not from a relatively few mega deals, it comes from hundreds and hundreds or happy customers. This revenue dynamic is also the reason SaaS companies are so much more predictable to Wall Street.
Expect more public offerings for on-demand players?
Absolutely. Due to the revenue phenomena described above, it takes a little longer for SaaS vendors to get ramped to the revenues that will justify an IPO. We have seen some as low as ~$25M ( Salary.com) and more that are like NetSuite (~$67M). The point is that there are many companies, like Xactly, who were started three or more years ago that have been amassing a great list of customers and watching their revenue ramp and ramp. These up-and-comers, combined with the success of companies like DemandTec, NetSuite, Salesforce.com (NASDAQ: CRM) and Salary.com will educate Wall Street that this is where to invest.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
Top growth fund manager sours on Apple, U.S. tech
New Facebook share structure hints at IPO
Before the bell: Futures higher ahead of housing, jobless data
