This week, enterprise software developer Cognos Incorporated (NASDAQ: COGN) agreed to pay $339 million for Applix, Inc. (NASDAQ: APLX), which develops financial performance management software. It's a red-hot area, with dealmaking from biggies like Oracle Corporation (NASDAQ: ORCL) and SAP AG (ADR) (NYSE: SAP).
Another player in the space is Adaptive Planning. I had a chance to interview the company's CEO, William A. Soward.
Can you provide some background on Adaptive Planning?
A: Adaptive Planning makes it easy for midsized companies and divisions of large corporations to automate their key financial processes, including budgeting, forecasting, monthly and quarterly reporting, and ad hoc "what if?" analyses.
We present a new alternative that "bridges the gap" between spreadsheets and traditional enterprise software. Adaptive Planning is optimized for companies that have outgrown Excel but lack the personnel, time, or capital required to deploy complex and costly enterprise BPM or business intelligence applications. By automating their planning and reporting processes, companies are able to save time and money and make better, more informed business decisions-ultimately improving competitiveness.
Adaptive Planning is also optimized for the way small and midsized companies do business. We provide pre-defined templates to help small companies jumpstart the planning process, and deliver the powerful modeling and key features that mid-sized and larger companies need. And, whether customers choose to deploy their solution on-demand or on-site, they receive new product features on a quarterly basis.
Finally, Adaptive Planning is committed to being an excellent business partner for mid-sized companies. We have annual renewal rates of over 90 percent, and ranked among the top four vendors for customer satisfaction in a recent industry-wide survey by industry analyst firm BPM Partners.
What are some important keys to success for SaaS companies targeting the SMB (small and medium-size business) market?
A: Running a successful SaaS business targeting mid-market companies is quite different from running a traditional enterprise software company. The fundamental difference is between developing and selling products vs. providing an ongoing service.
First, there must be a multi-tenant solution. By developing a single hosted application that is offered to multiple clients, SaaS companies can achieve great development leverage-on-demand customers are immediately upgraded to the latest release of the software.
Next, there is lots of opportunity for extensive "test drive" programs. This allows prospects to experience and become comfortable with the software during their evaluation cycles-and also removes some of the educational responsibility from the Sales organization. At Adaptive Planning, we not only provide free trials for our full-featured version, but also give free on-demand (and on-premise) access to an entry-level version. These initiatives have been extremely successful-approximately 75% of our customers participate in a test drive program.
Look for high customer renewal rates. Given the cost of customer acquisition, coupled with annual subscription-based revenues, high renewal rates are absolutely essential for the success of the business.
Of course, it's critical to have high customer satisfaction. They need to continually develop new features to meet their customers' needs, and to provide outstanding ongoing support to ensure that their customers are getting value. This profoundly different from the traditional enterprise software business-it's all about openness and creating long-term joint success between the vendor and its customers. This is not just talk, it's a very real difference-at Adaptive Planning we hear from clients that we're "in the top 1% of vendors that we work with."
What's your perspective on Cognos' acquisition of Applix?
A: This acquisition illustrates continued consolidation in the BPM and BI space. This year, the large enterprise vendors have made large acquisitions in the performance management space. First, Oracle bought Hyperion, then SAP bought OutlookSoft, and then Business Objects S.A. (ADR) (Nasdaq: BOBJ) bought Cartesis. Given these past transactions, it's not surprising that Cognos is now buying Applix.
What's behind this? In short, the performance management space is hot, and lucrative. These large vendors all see that there is significant value in moving up-market from BI tools to performance management applications that are focused on solving business problems-in particular, budgeting, forecasting, and reporting. They want to be able to get access to the office of finance, but they need to be able to "walk the walk" and "talk the talk." These acquisitions help them do that.
We're delighted by the announcement. As a performance management vendor that's focused on the mid-market-companies from approximately $20 million in revenues to $1 billion in revenues, each of the acquisitions has removed a potential competitor. The acquirers -- Oracle, Hyperion, Business Objects, and Cognos -- will need to spend time digesting the acquisitions, and will be fighting pitched battles to win ever more competitive enterprise deals. They will be distracted from the mid-market. The net result of all of this is that the mid-market is completely wide open, and Adaptive Planning is ideally positioned to capture the opportunity. We're growing at a record pace right now, and expect that to accelerate.
Bottom line, it's great news-it validates that performance management is a hot space, and it removes competitors, leaving the mid-market opportunity wide open for Adaptive Planning.
Tom Taulli is the author of various books, including The Complete M&A Handbook
