NEW YORK--(BUSINESS WIRE)--June 29, 2006--Technology acquirers (including telecommunications and Internet-sector companies) spent nearly a quarter-trillion dollars on acquisitions in the first half of 2006, setting what is a four-year spending high. These findings were reported by The 451 Group, an independent technology industry analyst company focused on the business of enterprise IT innovation. While the period was marked by a surge in large telecommunications transactions, it also saw a steep drop-off in enterprise IT spending as major acquirers such as Oracle shunned big-ticket acquisitions in favor of a flurry of smaller transactions. The 451 Group based these findings on data from the 451 M&A KnowledgeBase, a transactions database service that tracks acquisitions for more than 300 sectors in the IT telecommunications and Internet industries (with data current though June 28, 2006).

HIGHLIGHTS OF FIRST-HALF 2006 M&A ACTIVITY

-- Both total spending and number of transactions for the six-month period set highs not seen since The 451 Group began tracking technology-related M&A in 2002.

-- The telecommunications sector accounted for 75% of the spending in the first half as equipment providers joined the consolidation trend initiated in previous years by the large carriers they serve.

-- After spending $52bn in a two-year frenzy of consolidation, the top 10 enterprise IT acquirers turned to smaller 'tuck in' deals, spending the smallest amount of acquisition currency since the second half of 2003, while announcing a record high number of deals.

-- Emerging technologies continue to drive a number of deals. The rapidly evolving software-as-a-service (SaaS) sector saw its first significant transactions.

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As Software-as-a-Service (SaaS) rapidly gains mainstream interest and adoption, various SaaS providers are repositioning themselves to expand their sphere of influence in the market by morphing their core products into integration and development platforms. Just as the SaaS movement has been spearheaded by Salesforce.com, the shift toward a platform orientation has been sparked by the broadbased acceptance of the company's AppExchange within the SaaS industry and among user organizations. For the unindoctrinated, AppExchange is Salesforce.com's integration and development platform based on the tremendous success of its CRM and SFA applications. The AppExchange enables third-party software developers and independent software vendors (ISVs) to more easily build SaaS solutions, and integrate their applications and tools to Salesforce.com's core applications and those of its vast partner network.

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When salesforce.com roared onto the application scene in 1999, the model for delivering/licensing CRM applications changed dramatically.A Although subscription pricing and hosted applications existed in other application segments, most notably HCM, salesforce.com became the poster child for the new software as a service (SaaS) model.

After this, many other vendors, including some traditional ERP vendors, were forced to rethink their delivery models and change the way they charged for these applications. Examples include Oracleas recent acquisition of Siebel and SAPas and Microsoftas unveiling of CRM on demand.

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With software-as-a-service (SaaS) and on-demand delivery models gaining a lot of attention, we wanted to assess any preferences customers might have in procuring software for business intelligence (BI) and performance management (PM) products.

As part of our annual performance management spending survey of 300-plus companies (see aTrends in Performance Management Spending, 2006a), we discovered the following:

• Anywhere from 17% to 23% of companies, depending on the PM investment area, would prefer a SaaS or on-demand purchase option.
• Service-based companies preferred this model significantly more than manufacturers.
• Difference in demand is insignificant for BI/PM SaaS based on company size.

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CRM and call-centre firm Kana Software is building up its software-as-a-service capabilities to challenge the likes of RightNow Technologies.

Kana, a one-time darling of the dot-coms, began piloting a service with some customers earlier this year and plans a full launch in the autumn. The service, charged monthly per user, will complement rather than replace Kanaas on-premises offerings.

aItas about offering flexibility of choice and customers being able to acquire software on the business model that works best for them and then be able to move from one model to another,a said Michael Fields, Kanaas chief executive officer. aWe intend to be the leading on-demand player in the market. We think that [rival] solutions today are functionally lightweight and lack scalability. I donat know a mid-market company that doesnat think itas going to be a big company one day.a

Kana saw its fortunes slide on the bursting of the dot-com bubble. However, the company recently returned to profitability and expects to return to a full stock market listing.
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Software-as-a-service applications from Google, Yahoo, and Salesforce.com are driving change in architecture, appearance and business model of enterprise applications, turning the sector from a niche into a multi-billion dollar market. But the business model isn't without its challenges. Calling the trend a "disruptive phenomenon," Merrill Lynch & Co. analyst Kash Rangan said in a report released Friday that upstarts, such as Salesforce.com, WebEx, RightNow, Taleo, Blackboard and NetSuite, will benefit most, compared with traditional software players Microsoft, SAP and Oracle attempting to move into the space. Part of the disruption will come from the method in which traditional software companies recognize revenue from SaaS sales, according to AMR Research Inc. senior vice president Jim Shepherd. "If SAP sells a system today for $1 million, they recognize the million dollars on the day they sell it and it goes into the revenue for that quarter," he said. "If they were to sell that same system as a software as a service, they may get $US20,000 per month for the next 10 years."

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Software-as-a-service (SaaS) is gaining ground among small businesses (SB:1-99 employees) and medium businesses (MB:100-999 employees) in Japan. Total spending on the hosted applications among Japan SMBs will increase from $112 million in 2005 to $138 million in 2006, up by 23%. On the adoption base, Japan SMBs using at least one type of application via SaaS model will grow by 20%, from 13% of PC SMBs to 15%.

These findings were released today by New York-based Access Markets International (AMI) Partners, Inc. The growth of SaaS spending is roughly twice as high as that of overall software investment of 11%. The rapid deployment of CRM as a service is the major driver for the overall growth of SaaS spending. Where ERP and all other application services spending will grow by 18% and 21%, respectively, CRM service spending is expected to increase by 29% in 2006.

The expected growth rate of SaaS spending among Japan SMBs (23%) is higher than their counterparts in the North America (19%). "Better broadband infrastructure, lower software application penetration and greater legal requirements for security management are contributing factors behind the higher SaaS spending growth among Japan SMBs," says Yuki Uehara, New York-based research analyst at AMI-Partners.

First, in 2006, broadband usage will reach 85% of all SMBs in Japan, while that figure is 78% for their US counterparts. Where DSL, T1 and cable modems are the leading data lines among the US SMBs, fiber optics which offer 20 times or higher data-transmit speed than those leading lines, is rapidly gaining popularity among Japan SMBs. The proliferation of fiber optics better enables application usage over the Internet in Japan than in the U.S.

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Via PRNewsWire: B&L Associates, Inc., a leader in data center operation support software, today announced the release of VaultLedger(TM) OnDemand, a remote hosting option for VaultLedger tape management software.
VaultLedger helps manage all the removable media in an enterprise including tape storage cases and containers-both on-site and off. It also creates a complete audit trail to help comply with regulations like HIPAA, the Gramm-Leach-Bliley Act (GLBA) and Sarbanes-Oxley.A And now with VaultLedger OnDemand, users receive all the robust
functionality of VaultLedger with none of the maintenance and updating responsibilities.
"VaultLedger was already the easiest to use tape management software on the market," said Michael Kramer, Vice President of Sales. "With VaultLedger OnDemand, we've made the choice to try it even easier because there are no installation or maintenance issues to worry about."
VaultLedger OnDemand provides users with 24/7-access to their database from virtually any computer with an Internet connection. It's also hosted in a Tier 1 facility with redundant network connections to multiple Tier 1+ transit services. This ensures VaultLedger OnDemand is always available for users.

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BRIDGEWERX, a specialist in application integration, announced the availability of the next generation SaaS-delivered (Software as a Service) SOA (Service Oriented Architecture) and integration solution, providing a complete integration stack delivered as a subscription service over the Internet.

BRIDGEWERX is providing this technology through a select release program to companies leveraging SaaS technology, or any outside Web service whose architecture and requirements are a good fit for this approach.

aWe are adding a pure SaaS-delivered model to better meet the expanding needs of the marketplace, as well as enhancing service to our existing customers.a said David S. Linthicum, CEO and President of BRIDGEWERX. aUsing this new offering, all necessary integration functions are delivered over the Internet, including transformation, routing, services management, orchestration, governance, and security. In essence weare delivering most of the major features of SOA as a SaaS for a fraction of the prices of enterprise software customers must now purchase and configure within their enterprises.a

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JBoss, which is now the middleware division of Red Hat, has announced it is extending its certification program to software as a service (SaaS) providers. The Certified SaaS Program is designed to support companies that develop and deliver their products as services. The program helps software vendors and hosting providers build and deploy their hosted solutions using the JBoss Enterprise Middleware Suite (JEMS) as part of their SaaS infrastructures. With its open source approach, JEMS offers an ideal platform for enterprise web applications where scalability from one to many users is critical.The Certified SaaS Program provides industry-validated testing tools and a methodology for certifying optimum performance and interoperability. The Certified SaaS Partners will be able to access advanced management and monitoring capabilities through JBoss Operations Network (JBoss ON). Through JBoss ON, a partner can configure, monitor, update and provision their SaaS infrastructure, from operating system to JEMS-based applications, for maximum uptime and high availability. JEMS also provides a standards-based framework for SaaS applications that can be extended and customized through service-oriented architectures (SOA).

"SaaS is built on a revenue model that is focused on high quality service and value provided to customers," said Tom Cooper, vice president of worldwide channels, JBoss, a division of Red Hat. "Our partners have utilized JEMS to launch new certified products with speed and confidence. JBoss offers the flexibility, security and low cost required for companies to quickly launch service-based products in new markets."

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Via Techtarget:Microsoft managers described the company's' plans for delivering software as services, at the kickoff keynote to its yearly TechEd technical forum in Boston. Chief Technical Officer Ray Ozzie said a major era of technology change was ahead, one that he described as an era of "services disruption." Just last week, the company launched its Windows Live Dev site in beta mode at http://dev.live.com. The site is said to lower the barrier of entry to allow the greatest number of developers to participate. Windows Live is pledged to support multiple platforms and browsers, and support HTTP-based APIs. The site, in fact will serve in part as a so-called Web service mashup, using msdn.com to provide developer content. At TechEd Ozzie said he foresees a new era of "services disruption" as consumers and businesses use Web-borne applications to perform common tasks. According to Ozzie, "the services disruption will have significant impact on corporate IT and the way we think about both infrastructure and business solutions." Microsoft's services initiatives have rolled out as betas in the past year. A host of services under such names as Windows Live and Office Live are seen as Microsoft's hedge against Google and Yahoo, companies with large Web infrastructures that have begun to add browser-based software applications. With much still at stake in its desktop productivity businesses, Microsoft will have to carefully negotiate "software as a service" as it protects its strong position on the desktop. "We believe a blended client-server approach will help IT departments tackle these challenges," said Ozzie.

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EmployeaseA(R), a specialist in employee information management, today announced the availability of a flexible Web services offering called Employease Extend.
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Built using open standards and a Service-Oriented Architecture (SOA), Employease Extend enables customers and partners to connect and integrate employee data from the Employease Network with any system, portal, database, browser, application or device. By providing customers and partners with integration independence, Employease is empowering the innovation and transformation of any business process that depends on employee information.

Employease Extend combines ERP-like integration with the simplicity and flexibility of the on-demand model. The solution supports real-time provisioning and consumption of data as well as the execution of entire processes within the Employease Network. Employease Extend automates processes, eliminates errors and enables organizations to focus on their core business by integrating employee information with the rest of the enterprise. For example, companies can automatically communicate new hire information entered into the Employease Network to all internal systems that require information on new employees.

aEmployease Extend is part of the Employease vision to redefine how companies manage employee information and make extraordinary improvements to all business processes that depend on this information,a said Phil Fauver, chief executive officer of Employease.

Leadership in Integration

Employease has been at the forefront of connectivity and integration since its inception 10 years ago. Today, more than 14 million transactions per month pass across 180 digital pipes connecting every important HR, benefits and payroll service provider to more than 1,500 Employease customers. These pre-integrated connections communicate and manage information regarding more than 900,000 employee records.

Employease Extend empowers Employease customers to move beyond securely exchanging employee and benefit data across the HR and benefits universe. It now opens possibilities for customers and partners to transform employee-centric processes beyond HR.

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Click Commerce, Inc. (Nasdaq:CKCM), a leading provider of on-demand supply chain management solutions, announced that Covad, a leading national provider of integrated voice and data communications, has upgraded its demand chain management solution and will move to a Software as a Service delivery model. Covad upgraded to the Click Commerce hosted solution to reduce software and hardware maintenance costs, improve delivery of enhancements, and ensure reliability and security for their partner communications.

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Software as a service" is a term for Web-based, hosted software--which can reduce ownership costs, implementation risks and IT resource needs.Kinaxis of Ottawa, Canada, delivers its RapidResponse management solution using this hosted-software model, and it is working with IBM's Global Services division to provide the on-demand environment.

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Google's new, web-based Spreadsheet is being viewed as a major challenge to Microsoft's Excel and the dominance of its Office suite. From my perspective, it is also a significant endorsement and will be another catalyst in the movement toward Software-as-a-Service (SaaS).

Google's move isn't a big surprise to anyone who follows the software industry and the escalating tensions between Google and Microsoft. But, it is still a milestone in the evolution of SaaS.

While the number of web-based alternatives to Microsoft Word, Excel, Powerpoint and Project has grown--check out THINKstrategies' SaaS Showplace for some examples--none had gained mass market attention and acceptance. Instead, they've been the playthings of Marc Benioff of Salesforce.com and techies who love to imagine a world without Microsoft.

Google's Spreadsheet has made news in the popular and business press, elevating the stature of SaaS and giving it greater credibility across a larger cross-section of potential customers, including corporate executives.

This will accelerate Microsoft's SaaS development and acquisition efforts. (See my previous blog.) It will also fuel a surge in venture funding of nascent SaaS developers, and intensify the efforts of eBay, Yahoo, AOL and other Internet companies seeking to position themselves as SaaS providers.

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Hosted by Dale Kutnick,
Gartner Sr. Vice President and Former CEO of META

Guest:
Michael Maoz, VP & Gartner Fellow

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Column2 Blog: Lots of interesting things swirling around about SaaS lately, including the relationship to shared services within an organization. James Governer posted about the convergence of shared services and business process outsourcing, but I have a bit of a problem with comparing an internal mandated service with an external service about which you have a choice. As I said in my comment on James' post, the problem with equating shared services within an organization and a true outsourced SaaS is that an enterprise is usually captive to its shared services, whereas they have a choice with an external SaaS.

Then Richard Veryard posted about "Open Sauce", which completely cracked me up, referring to an earlier Seth Godin post about Tabasco, and making a SaaS analogy:

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Jeff Kaplan: Since my last blog entry correctly predicted the pace of merger and acquisition activity in the Software-as-a-Service (SaaS) was primed to accelerate just three days before RightNow acquired SalesNet, I figure I'd test my prognostication skills again by predicting another important market trend in the SaaS and managed services sector.

This time I'm predicting that several SaaS and managed service providers are going to team with the major Internet companies and hardware vendors to dramatically expand their channels to market.

I've been suggesting this trend privately to my clients for the past six months. And, the series of joint ventures and strategic alliances announced between eBay, Yahoo, Google and Dell in the past week gives me even greater confidence that my prediction is about to come true.

Specifically, I expect eBay, Yahoo, Google and possibly AOL along with leading PC/server vendors to resell various SaaS and managed service offerings to consumers and SMBs (small- and mid-size businesses).

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