RightNow Files for IPO
ASP market showing maturity as IPO trend continues.
Another ASP is heading to Wall Street, with on-demand customer relationship management (CRM) provider RightNow Technologies filing with the Securities and Exchange Commission for an initial public offering of its common stock.
The Bozeman, Mont.-based provider of customer service, support and call center software hopes to raise $60 million, according to its Form S-1 registration statement with the SEC, filed Monday. RightNow's move is the latest positive sign for an industry that has seen its share of ups and downs.
"This on-demand/ASP/hosted/software service business is really the direction that corporate customers are going," RightNow CEO Greg Gianforte told ASPnews. "We've always offered our solutions as both hosted and non-hosted. Four years ago, about half our customers chose to host with us. Now, more than 85 percent of our customers host with us."
According to Gianforte, there isn't a correlation between hosting and size of company, showing that the model is being accepted by companies of all sizes, from small businesses up to large enterprises. "It's just the preferred way of consuming enterprise applications. It removes all the headaches of infrastructure, and a significant portion of the costs associated with infrastructure. It's really nice to see this model that's so much better for customers come of age," he said.
Part of the problem with the first generation of ASPs was that most of them were not built on a multi-tenant architecture. They tried to take a single-tenant architecture and host it, which added some value to the application, but did not provide the economies of scale that an application that can handle multiple customers on the same instance is able to do.
"There are still some people who don't get it," Gianforte said. "Salesforce has done a good job. Siebel has started, although most of their weight is still in the other camp. People like Oracle and PeopleSoft are using the first-generation model, where they still have single-tenant applications in hosted facilities. They're trying to grab onto the coattails of the companies that actually have growth. It's still a mixed bag. It's easier for younger companies to embrace this model, because they're not encumbered by all the complexity and customer commitments that come from having a large installed base."
RightNow shares will trade on NASDAQ under the ticker symbol RNOW; the company hasn't priced the shares or determined the number to be sold. Morgan Stanley & Co. will act as sole book runner for the offering; Thomas Weisel Partners will act as co-lead manager; Adams, Harkness & Hill and D.A. Davidson & Co. will be co-managers.
RightNow's filing follows on the heels of the December 2003 IPO filing of on-demand CRM provider salesforce.com, which at first expected to raise about $115 million, and now projects that number to be up to $850 million. According to its prospectus, Salesforce.com will offer 10 million shares at a price range of $7.50 to $8.50.
Salesforce plans to trade on the New York Stock Exchange under the ticker symbol CRM. Morgan Stanley is also the sole book runner for Salesforce.com, with Deutsche Bank Securities, UBS Securities, Wachovia Capital Markets and William Blair & Co. pitching in.
The Salesforce.com IPO is being closely watched as a test case for how On-Demand software companies will be received -- and valued. Renewed interest in the industry can be seen from Merrill Lynch, for one, which has just launched a new On-Demand Index that is designed to help ASPs to test the markets. On-demand software companies that appear poised to follow in the footsteps of Salesforce and RightNow include Salesnet, NetLedger and WebSideStory, to name a few.
The "MLODI," though not an investable or tradable index, "is designed to help investors better track, measure, and understand the transformation of the software industry to the On-Demand model. Very simply put, On-Demand practices will change the way customers buy, vendors sell, and investors invest."
The index is another sign that investors, and the software industry as a whole, are realizing that software revenues are increasingly being recognized in bits and pieces, utility-style -- rather than as up-front lump payments typical under traditional licensing models.
RightNow has shown some very attractive numbers financially. The first quarter of 2004 was its 25th consecutive quarter of growth, as well as its first profitable quarter. The company has been cash-flow positive for 8 consecutive quarters. RightNow continues to see growth, having recognized nearly $36 million in GAAP revenue in 2003, up 33% over 2002.
"We're very fortunate in that we've got a solution that makes a real difference for our customers, and we've got tremendous customers who give us lots of support. Last year, about 60 percent of our business came from existing customers, which is a sign that we're doing some things right," Gianforte said.