Social Networking: A Major Trend in SaaS CRM

Last week Salesforce.com (NYSE:CRM), the pioneer of SaaS customer relationship management (CRM) with annual revenue of $1.3 billion, reported strong results that beat estimates. Earlier this month, Salesforce.com settled its legal dispute with Microsoft. RightNow (NASDAQ:RNOW), another SaaS CRM vendor, also reported strong results this quarter. Let’s take a closer look.

In May, Microsoft sued Salesforce.com for infringing on nine of Microsoft’s patents on back-end and user interface features. In June, Salesforce.com countersued Microsoft, alleging that Microsoft’s .NET and SharePoint platforms infringe on its patents. The dispute recently ended with Salesforce.com and Microsoft signing an agreement under which both companies with have broad patent coverage of each other’s patents. Microsoft is being compensated by Salesorce.com, but it is not clear if Salesforce.com is also being paid for its patents.

Salesforce.com recently reported second quarter revenue of $394 million, up 25% and EPS of $0.11, down 35%. Non-GAAP EPS was flat year-over-year at $0.29. Analysts expected earnings of $0.27 on revenue of $384.8 million. The company ended the quarter with $1.9 billion in cash. Q1 coverage is available here.

Subscription and support revenue was $369 million, up 26%, while professional services and other revenue was up 12% to $25 million. Salesforce added 5,100 customers, including 500 customers from its recent acquisition of Jigsaw. Its total customer count is now 82,400, up 30% or 19,200 from last year.

For the third quarter, Salesorce.com expects EPS of $0.14 to $0.15 on revenue of $408 million to $410 million. It raised its fiscal 2011 revenue guidance to a range of $1.595 billion to $1.6 billion from its earlier guidance of $1.545 billion to $1.555 billion. Full-year EPS is expected to range from $0.43 to $0.45. The stock is trading around $112 with market cap of about $15 billion. It hit a 52-week high of $114.15 on August 24

Salesforce.com released its collaboration and application platform, Chatter, in June. Chatter includes a social networking feature à la Facebook, and about one-fourth of Salesforce.com’s customers, or 20,000 companies have already started using it. Using Chatter, employees can follow their colleagues, projects, and documents and information relating to them. For example, a sales representative could follow a pending deal and get updates whenever details on the transaction are updated. Read more in Ina Fried of ZDNet’s review.

Salesforce.com expects Chatter to be a big draw and plans to build three new data centers and hire more people to support its growth. The company added 340 employees in the quarter and expects to accelerate hiring through December.

Martin Schneider of CRM Outsiders says that Chatter is simply a tool for internal collaboration and there is nothing unique about it. For a business to truly become customer-centric, there is a need to transcend the firewall between the “customer” as an individual and the CRM system. Salesforce’s Chatter has this gap. But RightNow’s Social Solution does make an attempt to use social networking for a B2C CRM while maintaining the B2B focus.

RightNow, with annual revenue of $152.7 million, has opted to go the acquisition route to embrace social networking. It acquired social networking company HiveLive for $5.9 million last year and since then has been enhancing its Social Solution. Social Solution allows a company to monitor discussion threads on social networks like Facebook, and analyze the discussions for positive or negative sentiments. Its social offering also helps in responding to discussions on such social networks.

In July, RightNow reported second quarter revenue of $43.5 million, up 20%. Net income was $1.4 million or $0.04 per share versus $36,000 or $0.0 per share last year. RightNow signed thirty-eight new customers in the quarter. It had eleven deals over $1 million, 106 deals between $100,000 and $1 million, and 436 deals less than $100,000. The company ended the quarter with about $100 million in cash. Q1 coverage is available here.

For the third quarter, RightNow expects revenue to be about $45 million and EPS $0.05. For the full year 2010, RightNow expects revenue in the range of $175 million to $180 million and EPS in the range of $0.18 to $0.22. The stock is trading around $16 with market cap of $530 million. It hit a 52-week high of $19.39 on April 12.

The SaaS market had worldwide revenues of $13.1 billion in 2009 and IDC expects it to reach $40.5 billion by 2014. According to Gartner, SaaS accounted for nearly 24% of total CRM market revenue in 2009. SaaS is forecast to account for 26% of CRM market total revenue in 2010.

Both Salesforce.com and RightNow could consider InsideView for their next acquisition. My interview with CEO Umberto Milletti is available here. The company raised $7.5 million in its Series A funding in 2007, and early in the year it raised $11.5 million in its second round of funding.