SaaS, or software as a service companies are software application that are hosted by a third party over the internet.    The benefit of hosted applications is that they are easy to implement and deploy company wide, don’t need to be integrated with current legacy systems, and require no IT resources to get started in house.   These benefits seem to be keeping the leading SaaS companies above water and even thrive during the economic slump .

The sector which appears to be relatively recession proof is best confirmed by looking at a few prominent companies within the SaaS space.

The first company to look at is SuccessFactors, Inc.  This leading SaaS company is focused on performance and talent management solutions.  The company performance has been quite good, showing a strong third quarter in 2008 with a 77% increase in revenue from prior year.  The same results are anticipated for Q4 of 2008 and full year revenues are expected to surpass previous guidance forecasts.

The next company to look at is Omniture Inc. Revenues for the third quarter of 2008 fell in line with expectations while generating record operating cash flow.

Another strong SaaS company, RightNow Technlologies announced Q3 revenues grew 24% year over year with a dramatic increase in profitability over the prior year.  Although RightNow is a direct competitor to Salesforce.com and is facing fierce competition, it is holding its ground well in both the competitive and current economic climate.

One final SaaS company worth mentioning is Citrix Systems which is the leading application delivery infrastructure solution. Citrix also saw a strong third quarter for 2008 and is expected to beat analyst expectation for full year 2008.

SaaS solutions offer very powerful tools to smaller sized companies, which has been a market sector missing from “big” enterprise software solutions.  Take a smaller sized accounting firm, for example. You will find that the firm’s largest expense next to salaries and headcount are software costs which include installation, maintenance, upkeep and training.  The lower cost, high impact effect of SaaS solutions and the subsequent high payback and ROI are making SaaS solutions a win decision for company decision makers.  The fast installation and deployment, along with the significantly lower costs to run and maintain which is virtually zero in many cases makes SaaS solutions a low risk high reward decision which is critical in today’s market climate.

The results in the last quarter of 2008 are a good indication that these solutions will hold their own in 2009, and on a relative perspective peform respectably in 2009.

Written by :

rich