Serena Software's dash to SaaS

Serena Software's private equity backers have given its new management team just a few short years to make a success of its SaaS strategy, which is being funded from the vendor's legacy software revenues.
Written by Phil Wainewright, Contributor

Two years ago, private equity firm Silver Lake Partners paid $1.2 billion to take formerly Nasdaq-listed Serena Software private. Last year, a new management team took the reins and forged an ambitious plan to transform the software tools company into a SaaS powerhouse. But they'll have to be quick. "When you go through an LBO [a leveraged buy-out like the one performed by Silver Lake] you have 4-5 years to treble your value," explained René Bonvanie, senior VP of worldwide marketing, when I met him earlier this year. "We have to run fast."

Serena — which acquired its UK-based rival Merant in 2004 — has a strong cash flow of around $100 million a year from its established products, which are mostly used to keep mainframe applications up-to-date. The plan is to use that cashflow to fund investments in its new SaaS product lines and thus drive rapid growth of an all-new SaaS business.

Today the company launches release 2 of its first SaaS product, the on-demand project and portfolio management (PPM) tool Serena Mariner. As befits a SaaS product, Mariner is now on a quarterly release cycle, having first launched in April. There are two other products in Serena's SaaS portfolio: its Mashup Composer, which empowers business users to connect up applications and data sources, is currently in beta and will go to general availability in September; while at the end of the year Serena will bring out an application lifecycle management tool based on the Scrum agile development methodology (John Scumniotales, one of the originators of Scrum, is Serena's VP of product management).

Key to today's PPM release is an upgraded user interface designed to be more user friendly, which is essential to reach the broader market Serena is now targeting with its SaaS offerings. Last week CEO Jeremy Burton told me that, in its previous on-premise guise, the application had acquired 90 customers in four years. In the 90 days since launch of the SaaS application, it has gained 10 net new customers and there are 1,200 trials in progress. "My expectation is we'll exceed that four-year customer count in the first year," he told me.

But Serena still aims to attract larger enterprise deals as well as smaller teams of up to 30 developers. "Those ten customers have all been pulled in through telesales but as we ramp the business so we're going to be dealing with larger implementations," said Burton. "Larger customers are going to go SaaS — that is going to be an enterprise-value sale that's going to have to take place." In other words, telesales will have to work alongside outbound sales staff in those larger deals.

Burton emphasized the benefits of Serena making its transition to SaaS away from the scrutiny of the public markets. "The biggest problem for conventional software vendors — and probably why [Burton's former employer] Oracle isn't going SaaS — is that initially a big hole appears," he said, referring to the financial gap that opens up when moving from upfront perpetual licensing to a pay-as-you-go model. "It's very difficult for a public company." That's why very few established software companies are moving to SaaS, he said — even if, like Serena, they have strong cashflow from their existing products. "People shy away from putting that cash to work in building a SaaS business because of the effect it'll have on the stock price."

For more about Serena's shift to SaaS, read René Bonvanie's article for SandHill.com last September, The Power of Going Private, as well as Dominique Trempont's two-part article for Sramana Mitra, Private Equity on Steroids. The Register's Gavin Clarke last week published an informative write-up of Serena's plans for its agile tool and earlier in the month ZDNet's Dana Gardner wrote about a Serena mashup that manages mainframe release schedules. Yesterday Dana posted an item about StrikeIron bringing its on-demand services into the Serena Mashup Exchange.

Not only is Serena shifting its products to SaaS; Bonvanie told me it is shifting its internal IT infrastructure to on-demand and hosted solutions, too. Its breathless enthusiasm for all things SaaS is electrifying. I hope it has the stamina to complete its sprint successfully.

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