SaaS skips the Great Recession

By Mark Everett Hall
May 26, 2009 10:40 AM EDT

Let's face it, entrepreneurs want to get rich. And the people who bankroll them -- angel investors, venture capitalists and, yes, even banks -- want to get even richer. But what's a money-hungry capitalist to do in times like these? Weep? Wail? Wish for the good ol' IPO days?

No. Go SaaS.

OpenTable, the clever online reservation software as a service for consumers and business, just had a successful initial public offering, jumping 59% on its first day as a listed stock. And it's not gone unnoticed.

Christopher Cabrera, CEO of Xactly Corp. in San Jose, remarked to me that OpenTable was "on our path" to go public. He said Xactly's time table is 18 to 24 months down the road. But he was definitely pleased with OpenTable's IPO. It gave him even more hope.

With the economy continuing to remain on its knees, the traditional Silicon Valley pattern to wealth and power has been curtailed. "Going public" is no longer the mantra repeated by every startup's optimistic CEO. "Staying alive" is the new prayer for the desperate bosses.

Unless, of course, they happen to be in the SaaS business. For them, the old mantra continues to ring true.

I chat with a handful of SaaS executives every week. And, with precious few exceptions, they all tell me they're doing well. Extremely well.

Xactly, for example, has had 300% growth each of the past three years. Cabrera expects similar growth figures this coming year.

Mark Symonds, CEO of Plex Systems Inc., an Auburn Hills, Mich.-based SaaS provider of ERP services to manufacturing companies, tells me his Q1 2009 saw a 25% growth over the previous year and his company grew 33% overall in 2008.

Even in Europe SaaS is doing well. Kristian Raue, CEO of Jedox AG in Freiberg, Germany, tells me the combination of open source technology and SaaS delivery technology is fueling 50% growth this year for the six-year old business.

Hey, I thought we were in the Great Recession. Companies aren't supposed to grow like that in times like these.

Of course, this is not to say all or any of these companies will thrive, go public or even be acquired. But it does underscore an unmistakable trend. With few exceptions, traditional  on-premises software companies are struggling, even blue chip firms like Microsoft. But the SaaS business model fits our new, tough times like a glove.

Since CIOs like to be partners with companies that are doing well as a way of protecting their IT investments, that means more business will go to SaaS companies because they are outperforming their on-premises competition. This feeds the trend. So SaaS firms will continue to do better because they are already doing well.

That means entrepreneurs can still get rich. They just need to be running a SaaS company.