By Allan Maurer
MCLEAN, VA–Duke Chung, CEO of Parature, a company selling hosted, on-demand online support desk software, says Software-as-a-Service (SaaS) still sells largely to small and medium-sized businesses, but is increasingly accepted by buyers.
Chung is one of more than 40 top Internet experts who will speak or appear on panels at TechJournal South’s Internet Summit Nov. 19 in Chapel Hill, NC. (For more information about the Summit see: www.internetsummitevent.com).
“Back when we started, eight years ago,” says Chung, “the way we delivered our software over the Web was unique.” In those days at the beginning of the century, companies selling hosted software were called application service providers (ASPs).
“A lot of the ASPs were successful and the largest were acquired,” he notes. Chung says he believes Salesforce.com, as it grew, was the first to coin the term SaaS in about 2003 or 2004.
“It was different then,” says Chung. “We would get to the end of a sales meeting and the prospect would say, ‘Ok, install the software.’ We would tell them, no, we sell it this way (as a hosted, on demand product).
Some buyers, particularly larger ones, had security issues with hosted software in some cases, a factor that persists in limiting penetration into high-end sales for some SaaS companies still, Chung notes.
Other buyers, particularly older ones steeped in the licensed, installed software model, didn’t seem eager to jump to the hosted solution model.
Staying focused helped
“About 50 percent of the time, we lost sales because we didn’t have an installed version of the software. We had multiple very lucrative opportunities from companies that said, ‘Hey, we’ll buy this and pay $1 million, come and install it, but we walked away from those deals.”
Chung says that Parature resolutely stayed focused on its SaaS model, however. “In our experience, staying focused on doing one thing very well” paid off, he says. The company now has 700 customers, including Office Depot, NASCAR, and many universities such as the Wharton School of Business and the University of Florida.
A major advantage of the SaaS model, especially for small and medium-sized businesses is that buying on a subscription model is much easier for them than paying a large, one-time fee and installation costs. It is also faster to implement, a matter of weeks rather than the months often necessary for installed software.
Potential buyers can even test drive it to see if it meets their needs, Chung says, something just not possible with large on premises installations.
Parature closed its $16 million Series B round in May, led by Accel Partners with previous investors, Sierra Ventures and Valhalla Partners participating. “ The company has raised a total of about $28 million in venture backing.
Harder to start SaaS firms now
The company closed the B round quickly, Chung says. About 12 to 15 percent of the companies Accel had invested in had already purchased Parature’s software,” he says. “So we had a good reputation with them.”
Investor acceptance of SaaS has “Come around quite a bit,” says Chung. Both Sierra and Accel have previous experience with the sector and understand the SaaS space, he notes.
Chung says one trend he sees evolving in the SaaS space is companies providing interfaces for outside developers, encouraging them to build other applications and functions on top of the proprietary platforms. It’s part of a discussion going on in the SaaS space about selling the “platform as a service, Chung adds. The advantage, he says, “Is that you get more dependence on your application from the community.”
The potential disadvantage is that developers may ask if they really want to build their products on top of a proprietary platform. Still, Chung says, “It’s a vision some companies are going toward.”
Chung says it’s harder for start ups to enter the SaaS space now because buyers are more educated and the “obstacles are a little higher.” In SaaS, notes Chung, “You have to invest ahead of time in the infrastructure to support a traffic load and it’s harder for a start up to do that.”
“We bootstrapped this company and built it slowly. That went great, but at this point, a company needs experience to deliver the SaaS model.”
In Parature’s specific space of online help software, Chung says that social networks have impacted how people get support. Nowadays they look for forums and communities, he says. Live chat is seeing a resurgence, although for a time people wanted more self service support platforms. “Now that’s changed again,” says Chung.
Chung notes that while he thinks about the ramifications of the current economic downturn “every night,” it thus far has not affected Parature much. “We haven’t seen significant changes in our sales pipeline,” he says. He adds that he does worry about some of the company’s smaller clients.
“We may see more effects as our customers see market churn,” he says.
On the Web: www.parature.com
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