SaaS Acquisitions: It's About Money and Genes

Another week, another software-as-a-service (SaaS) acquisition.

To be more accurate, it's really "another week, another four SaaS acquisitions." Software Equity Group reports that in the first quarter of 2012, 64 SaaS companies were acquired.

Among the more prominent purchases, Oracle bought Vitrue, following its acquisitions of Taleo and RightNow.

Keeping pace, SAP purchased Ariba for $4.3 billion, while it's still digesting its earlier multi-billion acquisition of SuccessFactors.

Besides the usual suspects - CRM and talent management solutions - the purchased companies offer anything from cloud-based education and engineering solutions to security and web analytics.

What are they buying?

When they purchase SaaS companies, part of what the buyer gets is a revenue stream. Better yet, it's a consistent revenue stream, driven by subscriptions. It's one of the more attractive features of the SaaS business model.

Buying DNA

In addition to the revenue stream, though, the acquiring companies are getting an infusion of SaaS experience and knowledge. They're buying a different perspective on how to run a software company. They're getting the benefit of people who understand how the SaaS business differs from the on-premise model... people with "SaaS genes."

This SaaS DNA applies across every function of the business:

Development: People with SaaS genes know how to run a product development group that delivers frequent enhancements to the solution. They understand the need for a solution that's easy to learn and easy to use.

Operations: People with SaaS genes know how to run an operation that ensures that the solution is secure and reliable, capable of supporting many users with heavy usage at peak hours.

Customer support: They know that customer support goes beyond providing help; It's critical to renewals, upsets and retention. (See "Customer Support is Actually Marketing")

Marketing: These people in the acquired company understand the unique challenges of marketing a SaaS solution - the faster pace, the different target markets and messages, and the need for ultra-efficiency. (See "SaaS Marketing Essentials")

Finance and Legal: People with SaaS genes understand the particular financial and legal requirements of the SaaS model. (See "Getting Deals Unstuck from Legal and Procurement.")

As traditional on-premise software application providers move toward offering a SaaS solution, they will need an infusion of these SaaS genes. They will need to quickly absorb the notion that SaaS requires a new approach across the entire business, and they need people who know how to think and act like SaaS people.