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SaaS: On-Demand goes Public
Three years ago SaaS leader Salesforce.com went public. In early July of this year, Netsuite , provider of on-demand ERP software, also filed papers to go public. The IPO NetSuite plans to be done using the Dutch Auction technique that Google pioneered in August 2004. NetSuite hopes to raise $75 million.
While Netsuite was founded in 1998, it wasn’t until the last three years that it really has gone into growth mode. Revenue grew from $17.7 million to $36.4 million to $67.2 million from 2004 to 2006 fiscal years.
But while revenues at NetSuite are up, operating costs have consistently exceeded revenues. For example, sales and marketing costs alone were $43.9 million in 2006, 53% of revenue. InformationWeek makes the interesting comparison between the ratio of sales and marketing costs to revenues for SaaS and those of traditional software vendors. Salesforce has reported numbers in the 50-70% range while traditional software vendors are closer to 20-25%.
What’s really interesting about this story though centers around Oracle’s CEO, Larry Ellison. NetSuite and Salesforce.com are two of the most successful SaaS ventures, and Larry Ellison is involved in both.
Ellison is co-founder of NetSuite and owns 61% of the shares, and a trust set up for his adult children control another 13%. He also helped start Salesforce.com and currently controls about 4.5 million shares of Salesforce.
Some investors are complaining that NetSuite and Salesforce companies present a conflict of interest for Ellison. Both NetSuite and Salesforce have significant overlap with some of Oracle products, although Oracle itself has been slow in making its own products available on-Demand.
