NetSuite's IPO is very significant because it shows how the SaaS model has evolved in the minds of customers. In the early days of SaaS, customers were reluctant to entrust their most important and sensitive systems to service providers like Intacct and NetSuite, but now we're past the tipping point. We've proven that we can provide security and availability better than any one customer can set-up on its own. The faster implementation times, lower costs, and ease of management afforded by an on-demand model has customers quickly gravitating to these solutions, which are grabbing share from the old client/server on-premises model at amazing speed. Investors see the customer demand and growth, and are hungry to get on board.

Q: NetSuite is touting the all-in-one suite concept as a differentiator from larger SaaS players like salesforce.com, Inc. (NYSE: CRM). What are your thoughts on this?

A: It is certainly a differentiator for them and there is obviously a market for their offering, but I see it as about 90% marketing hype. First, their suite is missing a whole bunch of essential business management systems for many companies. Things like HR and manufacturing aren't included. Second, the internet and the SaaS model make the concept of an all-in-one suite as outdated as the client/server computing model that spawned it in the early '90s. In that era, customers were responsible for installing, operating, and integrating their own business systems. There were no standards. So, the vendors began assembling suites to take the integration burden from customers and help justify their enormous upfront costs. In the 21st century, the Internet's technology standards and SaaS delivery model have made integration a snap and moved the burden from the customer to the vendors.

Customers can now do what comes naturally, evaluate the best solutions for their business as they identify a specific need, with the confidence that the solutions will work together as soon as they are deployed. There have always been large markets for both "best-of-breed" players and "suite" players. However, SaaS changes the balance of power in favor of "best-of-breed" players like salesforce.com, Intacct, and SuccessFactors.

Q: As we look forward to 2008, what do you see as some of the key trends in the SaaS market?

A: I see three big ones. First, 2008 is going to be the year of the channel in the SaaS market. The traditional mid-market Value-Added Resellers (VARs) and System Integrators are going to wake up and realize their world is changing. Demand for SaaS applications is roaring and taking share from the traditional products they sell and install. New competitors are emerging to perform this role for SaaS companies. They've learned how to work in the new world and thousands of existing VARs are going to be trying to figure it out. Second, we're going to see a lot of action around companies with a targeted vertical focus. For example, RealPage is a major SaaS player that is focused specifically on the property management world. They offer a complete array of solutions to owners of multi-family housing projects, built on top of Intacct's financial system of record. Finally, 2008 is going to see a broadening of demand for SaaS into new industry sectors. The SaaS model is not just better, faster, and cheaper for customers; it is also practically hassle free. With increased SaaS awareness, more and more customers are going to start asking traditional vendors, "You want me to actually buy hardware and software upfront and run this stuff myself? Why would I want to do that when someone will do it for me, for less money?" I expect 2008 to be an exciting year and fruitful year in the SaaS market.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.