Global CIO: Surge Pushes SaaS Into Mainstream - InformationWeek

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Government // Enterprise Architecture
07:27 PM
Bob Evans
Bob Evans

Global CIO: Surge Pushes SaaS Into Mainstream

With sustained revenue growth and growing acceptance among larger customers, the SaaS community--led by moved confidently out of the margins and into the mainstream.

It doesn't really matter whether wants the label or not: it is the official poster child for the entire SaaS movement. As goes, so goes the perception of SaaS and its viability to pose a true, sustained, and enterprisewide threat to the traditional model of hosted software.

As the biggest player in the relatively young SaaS field, Salesforce's actions and results receive disproportionate scrutiny. With its whopping valuation, the company's highly visible. And due to its high-profile and candid CEO Marc Benioff, Salesforce always seems to be in the buzz.

And now it's got a surprisingly strong second quarter in the books, one in which Salesforce shook off the doldrums of the past couple of quarters and blew out expectations with solid revenue growth, reinvigorated new bookings, and earnings that beat expectations handily.

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But I think Salesforce achieved something even bigger—massively bigger—than that impressive company-specific quarterly performance. What Salesforce did was reassert convincingly and I think permanently that the SaaS model has hit the mainstream unconditionally and is being accepted as a truly legitimate enterprisewide platform.

I think Salesforce has lifted up the entire SaaS industry on its shoulders and carried it out up and away from the concerns about the weak economy, the doubts about the technology, the fears of security, the neuroses of not-invented-here, and the various strains of Fear, Uncertainty and Doubt that have dogged the company and the SaaS business for the past decade.

SaaS is here and it's not leaving. It's as mainstream as blade servers and smartphones, as battle-tested as outsourcing, and as proven as open source. SaaS is not a fad anymore.

SaaS is not a fad anymore.

SaaS. Is. Not. A. Fad. Anymore.

And the prime mover behind that has been Salesforce CEO Benioff. Bolstered by a strong upturn in new-customer bookings, revenue for the quarter ended July 31 rose 20% to $316.1 million, while net income jumped 112% to $21.2 million. And this breakdown of the company's results from Ockham Research underscores the dual burden Salesforce carries: its need to perform well for its own customers and shareholders, and its need to continue buttressing the broader SaaS community.

The earnings growth was actually driven by increased revenue, as opposed to so many companies right now who are beating estimates by trimming costs. For Salesforce . . . new customers signed were especially strong growing 32%. This is incredibly important to [Salesforce], who sells its services on a recurring or subscription basis. When a company can show this kind of growth, it shows they may be onto something special, especially when all other companies dependant on corporate IT spending are struggling mightily.

Salesforce is a pioneer in the Software as a Service industry or SaaS, which is an area that many analysts believe has huge growth potential. . . . The recent performance of Salesforce suggests that the SaaS model may be just a starting to take hold. Even though management refrained from predicting an improvement to business IT spending for the rest of the year, they did feel confident enough to slightly raise guidance for fiscal 2010 to EPS of 60 to 61 [cents] on revenue of $1.27 to $1.28 billion.

Ockham also notes that Piper Jaffray analysts have upgraded Salesforce stock to "overweight" while boosting their per-share target to $65 from $47. That confidence is pinned on those analysts' belief that Salesforce remains the best long-term play for "one of the largest-ever shifts in technology, from on-premise to Cloud-based On Demand systems."

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