In the past two months, Oracle has agreed to purchase RightNow Technologies for $1.4 billion, SAP has taken SuccessFactors for $3.4 billion, and IBM is buying DemandTec for $440 million.
What do all three of these deals have in common? An established enterprise technology vendor is buying a Software-as-a-Service (SaaS) vendor to broaden its own product portfolio and bolster sagging sales.
SaaS is one form of cloud computing. More and more, businesses and institutions are turning to cloud computing as a way to manage massive stores of data while at the same time reducing their computer hardware and software costs. In the SaaS model, a software application and its data is kept on the service provider’s central server. Users access the application and their data over the Internet using a secure login.
SaaS has become a common delivery model for most business applications, including accounting, collaboration, customer relationship management and enterprise resource planning. Enterprise cloud services, including SaaS, are expected to generate $22.3 billion in revenue worldwide in 2014 and to have experienced a compound annual growth rate of 30 percent between 2010 and 2014.
The team at Host Analytics is no stranger to SaaS. In fact, this maker of corporate performance management (CPM) software – a category of software for finance departments that includes budgeting, planning, and consolidation – has taken advantage of the shift in favour of SaaS to boost its market share and move up the food chain to larger enterprise customers. In this two-part post, we will explore how Host Analytics has grown from a startup positioning itself as a cheaper and faster alternative to the “big guys,” into a substantial contender with a far more unique value proposition.
In the beginning
Host Analytics was founded in 2000 by a team that included alumni of CPM software vendor Hyperion Solutions Corp. By the time it was acquired by Oracle for US$3.3 billion in 2007, Hyperion had grown through a series of its own acquisitions to annual revenues of about US$765 million.
When Host Analytics commenced operations in 2000, it adopted a SaaS model at a time when SaaS was still very much in its infancy and held only a marginal share of the enterprise market. At the time, it saw an obvious niche and marketed itself as being “like Hyperion, but since we are a SaaS vendor, we are faster and cheaper,” said Ken Rosen, a corporate strategy and marketing consultant with Performance Works who has worked with the Host Analytics team since early 2009.
“While that was the perfect message to secure initial customers, once the company achieved critical mass and was ready to become a leader in a new generation of systems, this message not longer focused on what made them different and valuable to customers,” Rosen said.
Time for a frank chat with the market
The tipping point came in 2008.
The team had come to realize that a new direction, and a new image, was needed to better communicate how Host Analytics was different from its competitors. SaaS had also taken hold as an increasingly popular delivery model for enterprise software applications, including among finance professionals. The challenge was how to rebrand the company in a manner that would allow it to capitalize on this market trend and more clearly express its differentiation.
Host Analytics engaged with Rosen to help define the company’s new marketing strategy. From his perspective, the company had all of the right ingredients. It just needed to understand how better to package and present its value proposition in a way that spoke to the pain points of its target market.
As Rosen’s colleague, Ron Weissman, noted in his recent guest post on this blog, it was a matter of positioning the company as doing something important instead of just positioning the features of its products against those from the competition.
Of course, the only way to understand what is important to prospective customers in your target market is to talk to them.
Time to toss old assumptions
When Rosen engaged with Host Analytics, the first thing he did was carry out a quick, informal survey of about 100 decision makers in Host Analytics’ target markets to identify any outstanding trends. He found that, while many executives and senior finance personnel didn’t really know what CPM was, they knew they needed budgeting and improved decision making. This initial market research led Rosen, Jon Kondo, president and CEO of Host Analytics, and Keri Brooke, VP of marketing, to realize they would have to start with a clean slate. Both Kondo and Brooke were alumni of Oracle and Hyperion who knew the industry cold and understood that customers were looking for a new perspective on solving their problems.
“We realized we couldn’t rely on old market assumptions that had come out of these other vendors because they were likely out of sync with current market conditions,” Rosen said.
As a result, Host Analytics committed to an extensive strategic marketing exercise with Rosen, with the entire company poised to pivot on the outcome. Host Analytics embarked on in-depth conversations with dozens of customers and potential customers and a formal survey of 30,000 decision makers to better understand what truly mattered to its market. The outcome redirected its product development, sales and marketing efforts.
Next, we will get into the details of this process and how the efforts have paid off.
This is the fourth article in a continuing series that will feature case studies and anecdotal stories from entrepreneurs, consultants and veteran marketers about their efforts to develop, implement and measure marketing programs to bring technology to market and grow market share. We invite your feedback.