Back in the 1970s, an IBM rookie named Mike Braun earned kudos, commissions and bonuses on a team that sold the world's first automated...
SAN JOSE, Calif. — Back in the 1970s, an IBM rookie named Mike Braun earned kudos, commissions and bonuses on a team that sold the world’s first automated teller machines. To allay banks’ security fears, Braun would screen a video showing how those newfangled ATMs could resist crowbars, drills and explosives.
Security is always the first concern whenever companies try a radical new technology, says Braun, now chief executive of Intacct, a San Jose company that provides business-accounting services over the Web.
As society grows more confident with the security of the Web, Intacct is enjoying dramatic growth, with revenues up more than 50 percent from 2006 and the customer base growing nearly as fast, the company says.
Intacct — the name is short for “Internet accounting” — exemplifies a broad business trend on the Web often called SaaS — short for “software as a service” and pronounced “sass.”
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“What’s happening is a crossover,” said Jeff Kaplan, an analyst and consultant with THINKstrategies. “People have discovered the ease of use of Web-based services in their personal life, and it’s made them more comfortable with using these services in the corporate world.”
In a flashy “Web 2.0” era in which YouTube and Facebook have become pop sensations, SaaS might be summed up as Web 2.0 for the business class.
With Silicon Valley companies Salesforce.com and NetSuite recognized as the sector’s leaders, these subscription-based, “on demand” online services are retooling and streamlining back-office operations of thousands of businesses.
By Kaplan’s count, already more than 700 SaaS companies offer more than 3,000 distinct services, including accounting, human resources, storage and tracking systems.
Many companies, analysts say, are discovering that SaaS functions for accounting, human resources and tracking systems often represent a nimble and highly cost-effective alternative to “on premise” hardware, software and personnel.
“Initially there was skepticism — people thinking it was just another computer fad, just something for a software company to sell,” said Leslie Stretch, chief executive of Callidus Software. . “But it’s not a fad. It’s a fundamental shift in the way people get computer resources.”
The 12-year-old San Jose company, which helps a global array of companies manage and analyze the complexities of sales incentives, is in transition from on-premise to on-demand models.
Callidus is a publicly traded company that reported $109 million in revenues. It employs 450, including 170 in San Jose and others in Austin, Texas; New York; London; and Sydney.
The SaaS phenomenon is in its early stages, analysts say. The research firm ITC predicted that SaaS companies, which earned $3.6 billion in revenue in 2006, would earn $14.8 billion by 2011.
SaaS functions, which appeal to small and medium-size businesses, are making inroads into the big-business domains of Microsoft, SAP and Oracle. (Shed no tears for Oracle founder Larry Ellison. He owns 54 percent of NetSuite, whose initial public offering in December made Ellison $1 billion richer in a matter of hours.)
SaaS also factors into the drama surrounding Microsoft, Yahoo and Google.
One reason Microsoft is so keen on expanding its Internet offerings, analysts say, is the threat of Google. While best known for search and advertising, Google is also in the SaaS market, offering some basic office products like word-processing spreadsheets for free. Plus, Google has partnered with Salesforce to create the marketplace called AppExchange, which has been likened to “an eBay for business software.”
“Google loves nothing better than to hit Microsoft where it hurts,” said Brian Jacobs, of Emergence Capital Partners, a venture firm that specializes in the sector.
Coining a term
The term SaaS was first coined during the dot-com boom as investments flowed to all breeds of Internet-based startups. When the bubble burst, many early SaaS companies disappeared.
SaaS was considered such an unusual business model that Sand Hill Road venture capitalists shunned the startups, which relied instead on angel investors like Ellison, Jacobs said.
Sensing the opportunity, Jacobs and partners Jason Green and Gordon Ritter founded Emergence in 2002, initially pooling their own money to make a later-stage investment in Salesforce, the sector’s pioneer.
Salesforce, founded by former Oracle executive Marc Benioff, is credited with proving the SaaS model by taking on Siebel Systems, then the leader of customer-relationship management niche.
Siebel, as Jacobs recalled it, was initially dismissive of Salesforce and argued that companies were taking a security risk by moving data from office computers to the Web. But as Salesforce peeled away its customers and prospects, Siebel recorded 11 consecutive quarters of falling revenue.
Oracle acquired Siebel in 2005. Salesforce, meanwhile, is on a pace to become the first SaaS company to achieve $1 billion in annual revenues.
NetSuite, offering a broad package of services, is the lead rival to Salesforce and Intacct. Investors’ excitement over SaaS was illustrated Dec. 19 when NetSuite registered one of the strongest initial public offerings of the year.
Along with the market as a whole, NetSuite’s stock has since cooled dramatically. The IPO market is expecting to remain chilly for months to come, but the outlook for SaaS remains bullish. An IPO is on Intacct’s to-do list, Braun says.
Two years ago, Intacct was considered an underachiever, said Jacobs, who sits on the company’s board. While NetSuite and other SaaS companies were growing fast, Intacct was lagging.
And the market was huge, ranging from small companies that were outgrowing the capabilities of Intuit’s inexpensive QuickBooks to larger companies that wanted a cost-effective alternative to shrink-wrapped enterprise packages that cost upward of $100,000.
Intacct’s board decided the company needed a management overhaul and an infusion of capital.
It turned to a little headhunting outfit called the Interim CEO Network, whose founder and operator was so impressed with Intacct’s potential that he told Jacobs: “If I can’t find somebody in my network, I’ll do it.”
The headhunter was Mike Braun. He presented capable candidates, Jacobs said, but Intacct’s board simply felt none measured up to Braun: “We held him to his promise.”
Braun took Intacct’s helm in early 2007, bringing nearly 35 years of experience, including prominent management stints at IBM. In the 1990s, he led Kaleida Labs, a research collaboration between IBM and Apple. Later, he was CEO of Neuron Data and transformed it into Blaze Software, which went public in 2000.
Emergence, Sigma Partners and Sutter Hill Ventures plowed $14 million into Intacct in June 2007 and were joined by Bessemer in April on another round of $15 million.
Intacct’s new trajectory has outpaced the broader SaaS market. Over its first seven years, Intacct had 10,000 customers. In 2007 alone, it added 5,000 more subscribers — and its revenues soared by 59 percent, Braun said. So far in 2008, it has added 3,000 customers.
The company’s work force expanded by more than 40 percent in 2007, which required it to double its office space in downtown San Jose. Intacct has 110 employees, divided between San Jose and Bangalore, India.
Braun is hoping that Web-based business service may become as routine as ATMs.
Accounting “is not glamorous, but it’s a nice business to be in,” Braun said. “Everyone needs it.”