The Year Of SaaS Shows… And Yes, In This Economy.
The recession continued to take its toll on software sales with a slight impact to the SaaS vendors. Growth rates have come down from the high 30′s to the low 20′s. But with “flat” the new growth metric in this down economy, SaaS vendor results remain impressive. On the other hand, traditional on-premises vendors see some light at the end of the tunnel. License revenues have started to stabilize on a year-over-year basis. Major events in the 2009 Calendar Year (CY) Q4 include:
- In YoY quarterly revenue growth, Taleo (23.29%) led the pack followed by SalesForce (22.26%), and Blackboard (17.66%) (see Figure 1).
- Salesforce.com achieves $1.4B in revenues for CY 2009. As the biggest SaaS vendor in the market, Salesforce.com is bigger than Microsoft Dynamics, Lawson, and Unit 4 (Agresso). To put this in perspective, Salesforce.com’s revenue alone is at the size of all the other public SaaS vendors listed in the Software Insider Index.
- Most on-premises vendors stabilized declines in new license revenue (see Figure 2). Keep in mind that on-premises vendors have remained profitable in this downturn. Maintenance continues to provide a cash cushion for most on-premises vendors.
- License revenues versus maintenance revenues for some vendors such as Deltek, Epicor, Exact, JDA Software, Lawson Software, Manhattan Associates, and Oracle reach or exceed 1:2 ratios. The result – lagging growth in acquiring new customers on latest releases.
- IFS leads with a (21.38%) gain on YoY license revenue with Manhattan (3.21%), Epicor (2.32%), and Oracle (1.92%) following with positive license revenue for calendar year Q4
Figure 1. Most SaaS Vendors Continue Break Neck Growth
Figure 2. Many On Premises Vendors Rely On Maintenance To Bolster Sagging License Revenues
The Bottom Line – Clients Now Expect On-Premises Vendors To Have A “SaaS” Option
As we tally up the winners and losers for 2009, SaaS vendors have shown to the industry what’s required for success in today’s tough economic condition. The secret to their success transcends subscription pricing, cloud services, rapid levels of innovation, and point solutions. In fact, the success in SaaS comes from the attention to the relationship and the willingness to take a customer friendly stance. On-premises vendors who have delivered on a partnership with their customers have known this for years. However, they risk being consumed by the new business models of SaaS and Cloud. Customers expect their vendors to deliver hybrid options; and private and public clouds. Expect on-premises vendors without a Cloud deployment option to fade away in this decade as they become the legacy vendors they replaced in the client/server and Internet eras.
Your POV.
As an end user, have you seen the pace of SaaS adoption increase in your organization? Do you continue SaaS solutions with the same level of comfort as on-premises. As a software vendor, do you feel you have the right go-to-market cloud strategy for 2010? Please let us know if you need help with your enterprise apps strategy by:
- Develop your SaaS apps strategy
- Assist with SaaS contract strategies and the Customer Bill of Rights: SaaS
- Improving innovation via SaaS and other deployment options
You can post or send on to rwang0 at gmail dot com or r at softwaresinsider dot org and we’ll keep your anonymity.
* Not responsible for any math errors or erroneous revenue information. Calendar year estimates based on the quarter nearest the calendar year. Exchange rates as of February 24th, 2010. Not responsible for currency flux. Please read the quarterly filings yourself =)
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8 Comments »
Hi Ray -
Profitability is another story. Most of the on-prem vendors are still profitable, despite revenue drop-offs, while only a few of the SaaS vendors are GAAP profitable, even with double-digit growth. Why? On-prem vendors generate higher operating margins with software licensing and support, as compared to SaaS subscriptions. Larry Ellison knows this (hence Oracle’s reluctance to embrace SaaS as a business model).
Paul, great points. On-premise vendors remain quite profitable. A groundswell of upset customers on maintenance continue to be leading activities to combat high maintenance fees. Expect to see some action from the media as well as user groups in the next 12 to 18 months.
Ray – I always enjoy your Quarterly Financial Tracker. To echo Paul H.’s comments, most recent year Operating Income / Revenue at SAP (24.5%) and Oracle (35.8%) was much higher than Salesforce (5.9%), Blackboard (5%), and even Concur (15.8%). I agree that the difference is the highly profitable maintenance revenue stream enjoyed by SAP and Oracle. On the other hand, the subscription revenue SaaS vendors can earn over a 5 year period is typically higher than a perpetual license arrangement. So, (outside of Salesforce unusually high SG&A), why aren’t SaaS vendors demonstrating higher operating income?
Eric – you and Paul make great comments. The younger SaaS vendors have great bookings but not recognized numbers, not yet. That will take time to stack up. Salesforce.com should have higher OM’s but has been investing a ton in sales channels and marketing. They tend to have higher sales and marketing costs. I believe over time, they will achieve higher operating incomes and more stable revenue streams. Look forward to your future comments!
Ray
I find this post interesting on two levels. Perhaps the SAP’s of the world have seen this coming and, as a result, made their recent maintenance-related moves. Same thing applies to Oracle’s recent 3PM moves.
Second, along the same lines, you can see why some vendors are trying to play up SaaS- and cloud-based concerns among (prospective) clients thinking about making the switch. I actually touch upon this in the first chapter of my next book, which I have now made available:
http://www.philsimonsystems.com/blog/technology/enterprise-2-0/nwot-ch1/
(Shameless plug, I know, but I’m hoping that others might find it relevant to the topic.)
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