I still believe — strongly — in software as a service (SaaS). But it’s critically important to keep SaaS market realities in perspective. Is SaaS really that hot? Or is the market lukewarm? The answer varies from company to company. But here are some important clues from NetSuite, one of the most successful publicly held SaaS software providers.

NetSuite announced Q2 results on July 30. At first glance, the numbers seem pretty reasonable: Revenues were $40.3 miullion, a 10% increase over Q2 2008. Plus, CEO Zach Nelson says NetSuite’s average sale price increased during Q2. In this economy, I bet plenty of managed service providers would welcome (A) 10 percent revenue growth and (B) rising sale prices.

Plus, NetSuite is working with a growing list of channel partners, and satisfied customers include SMB Nation — an organization that serves a range of channel partners.

Now the Bad News

Still, NetSuite’s Q2 financial performance wasn’t good enough to please Wall Street. Based on the quarterly results, NetSuite’s stock is down about 14.40% during mid-morning trading on July 31. And Wedbush Morgan is the latest research firm to downgrade NetSuite’s shares.

So let’s all keep the SaaS market in perspective. Yes, there are real growth opportunities with SaaS. But there are also challenges that SaaS providers (and their channel partners) will need to address. SaaS can impact everything about your business — you margins, your brand, your customer relationships.

Generally speaking, SaaS stocks have climbed dramatically during most of 2009, according to our own SaaS 20 Stock Index. But so has the Dow Jones Industrial Average.

So don’t believe the hype about SaaS. The rising SaaS tide won’t lift all boats. But do sort out a SaaS strategy. I suspect a large number of your customers want to leverage a range of SaaS services — with our without your help.

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