Is SaaS Just A Step On The Convergence Path Towards Fully Outsourced Solutions?

Since Clearsight’s inception, we have been evangelizing the convergence of software, services and data. While this most often manifests itself in professional services businesses that have developed proprietary intellectual property or tech-enabled services to outsource a specific function such as revenue cycle management, we are starting to see convergence at another level incorporating leading technology vendors with deep domain consulting expertise. The seismic shift from client server to SaaS has rightfully gained significant attention in the marketplace. Recurring revenue business models, less onerous implementations, seamless upgrades, limited infrastructure requirements – the benefits, from an investor perspective, are clear and warrant the jump in revenue multiples from 3x 10 years ago to +7x today.

SaaS, while delivered on an as-needed basis, and paid for similarly, isn’t delivered as a comprehensive service. The next stage in the evolution is the complete convergence of software, services and data in the form of fully outsourced services. Last week Capgemini, the French IT Consulting firm announced its “Virtual Company” offering in partnership with leading SMB SaaS vendor, Netsuite. This solution takes Software as a Service one step further to create Function as a Service. The entire HR and Finance functions are provided as a service combining Capgemini functional expertise with NetSuite’s technology platform. Capgemini is calling it “Back Office in the Cloud.” While the concept is not entirely new, ADP has been offering payroll as a service for decades, we do believe corporations will continue to demand more comprehensive solutions as opposed to being forced to combine best of breed technology, services and data.

We have seen an increase in recent deal activity between product, services and data companies in the deals we have advised on including Teradata’s acquisition of Think Big Analytics (product firm acquiring services firm) and Truven’s acquisition of Simpler (data firm acquiring services). Private equity firms also embrace this theme as reflected in Halyard’s investment in OneSource Virtual and OFS Management’s investment in NeoSystems. We expect this trend to be a significant driver of deal activity into 2015 and beyond.