NetSuite is to acquire on-demand professional services automation developer OpenAir in what could be an early sign of consolidation in the software-as-a-service (SaaS) sector.
The deal will bring NetSuite deeper domain expertise in the services sector and will answer criticisms over the lack of a second datacentre for scalability and failover as OpenAir's east coast US facility will complement NetSuite’s west coast plant.
The $26m agreement remains a rarity in the fast-growing space but with the market for floats of technology companies seemingly dormant and a downturn widely predicted, more of the same is likely. Those in the sector that have already gone public such as Salesforce.com, RightNow Technologies and NetSuite are the obvious buyers, although spendthrift enterprise giants such as IBM and Oracle could also get involved.
“I think there will be more mergers because more and more vendors realising that the business delivery model is changing and that taking a mature app and converting it doesn’t work,” said David Bradshaw, an analyst at IDC.
“Companies would need at least two years to build on-demand applications and they might not want to wait that long. But Salesforce is very open about its plans and they’re still growing CRM.”
So far, the big SaaS players have made only low-key moves. Salesforce has picked up a few small companies such as Sendia for mobile technology and Koral for document management, while RightNow acquired sales automation firm Salesnet in 2006. Perhaps the most active acquirer in SaaS has been Google, which has hovered up several startups in a bid to be a force in web-based applications.
However, NetSuite vice president of product marketing Mini Peiris played down the possibility of a spending spree.
“[Going] on an M&A rampage is something we wouldn’t comment on. We’ll look at it where it makes sense but everything has to align and we’re not exactly an Oracle yet.”
In terms of scale, that is certainly true although Oracle CEO Larry Ellison has funded NetSuite out of his own pocket.Peiris said NetSuite will integrate elements of OpenAir technology in its own OneWorld service as well as maintaining a separate service.
“Services people are spread all over the place and are on the road a lot so it really helps to have a service where you can just log in,” she added.