In Niche SaaS, Acquisition Is the Way to Grow

Marketing and promotions software provider DemandTec is buying a niche advertising software provider for $13.7 million to enhance its software-as-a-service (SaaS) portfolio.

The all-cash acquisition of privately held Connect3 Systems will provide DemandTec’s (NASDAQ: DMAN) with a SaaS offering for cross-media budgeting and workflow management across retailers’ merchandising and advertising departments. DemandTec said the offering will be incorporated into its End-to-End Promotion Management platform, a SaaS service providing retailers with tools for using customer data in managing pricing and promotions.

“Our value proposition is quantifying consumer behavior and helping retailers drive the behavior they want, and Connect3’s product extends our solution,” Dan Fishback, DemandTec’s president and CEO, told

The news also illustrates that product and technology acquisition remains a growth strategy in a recessionary climate that has all but closed credit and lending avenues for many companies.

Fishback said DemandTec considered developing tools similar to Connect3’s solution, but he said the return on investment had been stronger in a “buy” rather than “build” approach.

DemandTec said it would add Connect3’s 50 employees to its 250-person employee base once the deal closes Feb. 28.

Strength in SaaS?

The acquisition also reinforces the notion that SaaS may be among the few tech segments still standing relatively strong amid shaky corporate budgets and pullback on IT and marketing spending. A 2008 Gartner report projected that 90 percent of e-commerce sites will use at least one SaaS product by 2013.

Fishback said DemandTec’s SaaS solution has wooed customers that include more than 140 retail and consumer product makers, including Best Buy, ConAgra Foods, General Mills and Sara Lee. Connect3’s own customer list includes The Home Depot, ACE Hardware and Office Depot.

DemandTec is certainly not alone in the area, however. Its top competitors include other players specializing in pricing optimization, such as Revionics, based in California, and U.K.-based KSS.

Enterprise software giants Oracle and SAP can also provide similar solutions, Fishback acknowledged.

[cob:Special_Report]”Their shadow darkens our door, now and then,” he said with a laugh.

“We’re not a big gorilla in that sense, but we’re a big gorilla in our field,” he added, noting that retail economic pressures is making retail pricing more critical than ever — which, in turn, he expects to further spur interest in SaaS solutions.

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