Yesterday’s announcement that NetSuite (NYSE:N) is acquiring QuickArrow and merging it with OpenAir is the most recent example of a consolidation process in the Software-as-a-Service (SaaS) industry which I predicted would accelerate at the beginning of the year.
This particular transaction is very similar to Xactly’s acquisition of Centive in January. Rather than combining functional capabilities to create a more robust solution, the companies are combining forces to create greater scale.
In both cases, the transactions eliminate head-to-head competitors who looked too much alike to be able to clearly differentiate themselves from one another. Their similarities made it harder to compete for customers and VC funding, especially in today’s tough economy.
Merging, with the help of NetSuite’s deeper pockets, allows the two companies to focus on new customer acquisition, channel relationships and geographic expansion.
This acquisition is the latest indication that the SaaS market is entering a new stage in which the winners will be those companies that can demonstrate their long-term viability as strategic sources, rather than best-of-breed niche players whose long-term survival is suspect.
Merging QuickArrow and OpenAir with NetSuite’s broader capabilities should make IT and business decision-makers more comfortable doing business with the combined entity. It also prevents QuickArrow from falling into the hands of a NetSuite competitor.
The acquisition also strengthens NetSuite’s hand against Salesforce.com’s growing initiatives in the service automation arena. Earlier this year, Salesforce.com (NYSE:CRM) unveiled its Service Cloud offer. It has also supported the professional services automation solution developed by Appirio.
Knowing the principals at both OpenAir and QuickArrow, as well as the executives at NetSuite, I think this is a good ‘outcome’ for all of the parties involved. I also think their mutual customers and channel partners can benefit from this transaction.
I also expect other lookalike SaaS companies in other segments of the industry to experience similar exits in the months to come.