I always look at the "net new customers" figure during quarterly earnings calls. While my only proof is anecdotal, I suspect that vendors selling a SaaS product add customers at least twice as fast as on premise vendors.
Consider these results:
In the third quarter ended October 31, salesforce.com added 4,100 "net paying customers" to bring its total to 51,800. The customer base has grown by 13,700 the past four quarters. That’s an increase of 36%. The customer base has nearly doubled in the last two years. By contrast, at the time of its acquisition by Oracle, Siebel had 4,000 customers.
In the fourth quarter ended September 30, Ariba added 224 new customers, with 185 opting for the software on demand. The company now has more than 1,000 customers.
In the third quarter ended September 30, Taleo added 232 new customers. It now has 3,800 total, thanks in part to the acquisition of Vurv Technology and it’s 1,700 custpmers last July. Archrival SuccessFactors added 220 customers in 3Q. It now has 2,360 customers, up 69% from 1,400 at the same period last year. Combined, the two companies have more HCM customers than PeopleSoft did at its peak.
In the third quarter ended September 30, NetSuite’s customer base grew by 330 new accounts. The company’s stated goal is to add 300-500 new customers each quarter. All told, NetSuite now has more than 6,000 customers. While not an apples-to-apples comparison, QAD has attracted 80-90 customers to its on demand offering in the nine months its been available.
While RightNow Technologies added a modest 68 new customers in the third quarter ended September 30, this was down from 74 new accounts in 2Q, but the company should be close to the 2,000 customer mark by the end of the year. It had more than 1,900 companies and government agencies at the end of the last quarter.
The nice thing about the SaaS business is that most companies will continue to grow without adding any new customers by a land-and-expand strategy of adding new sites, users, modules, and services. The key is high retention rates.
Cautious about the economy, but business doesn’t seem to be slowing
When asked during the calls about renewal rates or churn, the standard answer was somewhere in the 90% or higher range. In the transcript provided by Seeking Alpha, SuccessFactors’ Lars Dalgaard said, "Given this economy, SuccessFactors continues to maintain customer retention rates exceeding 90% and sees dollar renewal rates exceeding 100%." In the Seeking Alpha transcript of the salesforce.com call, CEO Marc Benioff described "an attrition rate that continues to be less than 1% per month, which to date has not been materially impacted by the challenging business climate."
The flip side of rapid customer acquisition can be seen in the high sales and marketing costs. As a result, most public and private SaaS vendors have been unable to achieve consistent profitability.
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