Software Insider Index™ (SII): 2009 SII Top 35 Enterprise Business Apps Vendors™

Published on March 18, 2010 by R "Ray" Wang

2009 Results In Major Revenue Declines For On Premise And Officially The Year Of SaaS

A review of last year’s financial performance should erase any doubts about the viability of SaaS as a deployment option and a business model.   Traditional on-premise business apps vendors took the brunt of the beating earlier in the year but have slowly recovered.   This year’s Software Insider Index™ (SII) highlights two major themes:

  • Legacy On-Premise Vendors Retain Operating Margins But Lose Revenue Share. Almost every on-premise software vendor lost revenue on a year-over-year (YoY) basis in 2009 (see Figure 1).  IFS (3.87%) and SAS Institute (2.21%) grew in the midst of the financial onslaught.  SAP is still double the size of Oracle in apps revenue!  Vendors such as QAD (-31.42%) and Manhattan Associates (-26.84%)saw the worst YoY declines (see Figure 2).  Most vendors relied on their maintenance and support to bolster their revenues. For example, CDC, Epicor, Exact, Lawson, Manhattan, Oracle, QAD, and SAP exceeded a 1:2 ratio in new license to maintenance revenue.  Why?  Customers chose not to upgrade, purchase new licenses, and expand their footprint.   Despite the downturn, most vendors survived with operating margins between 10% an 50%, well above those achieved by SaaS vendors.   Traditional vendors clearly felt pressure from SaaS/Cloud.
  • SaaS Models Prove Themselves In 2009. Meanwhile, every SaaS vendor grew, from Ariba with the lowest YoY revenue growth (0.44%) to SuccessFactors with the highest (38.73%). Overall the SaaS vendors tracked in the 2009 SII grew 7.98% in YoY revenue. SaaS deployments expanded in all areas from CRM to HCM to spend management. Of note, Salesforce.com exceeded the $1.3B mark, a milestone for the SaaS industry.

Figure 1. Software Insider IndexTM (SII) Top 35 Enterprise Business Apps VendorsTM (Calendar Year Revenue)

screen-shot-2010-03-18-at-110717-am
Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

Figure 2. Software Insider IndexTM (SII) Top 35 Enterprise Business Apps VendorsTM (YOY Revenue Growth)

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Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

Your POV.

What’s your read on the market?  Do you feel the SaaS model has added pressure to your traditional vendors?  Will everyone have a  SaaS option in 2010?

Am I missing a vendor?  Got the numbers wrong? Feel free to post your comments here or send me an email at rwang0 at gmail dot com .

Disclaimers

* Not responsible for any math errors or erroneous revenue information.

1. Calendar year estimates based on the quarter nearest the calendar year.

2. Why these vendors than others?  Easy – because I cover them.

3. Exchange rates as of February 25th, 2010 for vendors who have not published quarterly conversions.  Not responsible for currency flux.

4. Estimates created for privately held vendors.

Not sure? Please read the quarterly filings yourself =)

Related resources and links

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2009 Calendar Year Q4

2009 Calendar Year Q3

2009 Calendar Year Q2

2009 Calendar Year Q1

Software Insider Index™ (SII): 2008Software Insider IndexTM (SII): SII Top 30 Enterprise Business Apps VendorsTM & SII Top SaaS Business Apps VendorsTM SII Top 30 Enterprise Business Apps Vendors™

2008 Calendar Year Q4

2008 Calendar Year Q3

2008 Calendar Year Q2

2008 Calendar Year Q1

Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

  • Charles – Thanks for your comment. On your first point you are correct if that figure is just at license revenue. However, Figure 2 looks at the total revenue for SAP which in 2008 was €11.6B vs €10.7B in 2009. On a license revenue basis the 28% decline number is generous, especially given the number of custom software development deals SAP conducted in 2009 which do not reflect packaged license revenue, though those two numbers appear to be co-mingled. Now for point 2 about SaaS, I would say that b/c Figure 2 is considering all revenue, that we should be comparing mostly Fuji apples to Red Delicious? What do you think? – Ray

  • The numbers for SAP are wrong in Figure 2. SAP’s license revenue in 2009 was 2.6b Euros, compared to $3.6b Euros in 2008 (US GAAP). That is a 28% decline. Figure number 2 should indicate that you are reporting Application license revenue for traditional On Premise vendors, not total Applications revenue. And thus you are comparing apples with oranges. Traditional On Premise vendors generate income from license as well as maintenance revenues, whilst SaaS vendors only account for subscription revenues, but SaaS vendors also have to maintain their applications. So the subscription revenues also contain a maintenance revenue component that you aren’t showing anywhere. The fact that SaaS vendors call it ‘subscription’ and don’t charge separately for maintenance doesn’t mean that there are no maintenance costs included in the monthly subscription that users pay.

  • Wayne – thanks for taking the time to comment. The chart shows more than traditional ERP players in there but I do understand your point. If you do take a best of breed vs best of breed approach as general categories, you’ll see a company like AspenTech (oil and gas) and Activant (Wholesale distribution) didn’t fare better or worse b/c of their offering. The deployment option seems to win out for YoY Revenue Growth. Now I don’t think All-in-One ERP has declined on its own. There’s proof points that companies like WorkDay, NetSuite, and Plex Systems have been doing gangbusters on revenues YoY and their growth can be attributed to their SaaS deployment model. ERP isn’t dead, just buying behaviours may be changing. In any case, I do appreciate your comments and hope this distinction makes sense. If not, drop me a line or call me. Happy to show you the finer details and get your Point of View!

    Ray

  • The problem with your graphs is that your comparing traditional ERP with what appear to be a large number of much smaller niche non-ERP players.

    For example – as far as I can read through the marketing hype – your #1,2,3 growth SaaS players are all either HR or Educational offerings – and not part of an enterprise ERP suite.

    I think I could just a validly lead with a headline that said:

    Economy drives growth of niche SaaS in HR and Education market
    Does 2010 market the growth decline of all-in-one ERP?

    You’ve made no distinction between one trick pony enterprise apps and those enterprise organizations that cover the full suite of ERP. It’s very deceiving because of course in an era where people are being fired and re-purposed you’re going to see much more reliance on HR and other people management type applications and those types of apps seem to lend themselves more naturally to SaaS than traditional ERP.

    I’m not buying that this is supporting your conclusion.

    Disclosure: I’m a VAR for a product on the list but a big supporter and believer in SaaS as the wave of the future.

  • John – very good point. SaaS allows anyone to invade your install base. Better have your SaaS app out for offense. I’d expect more hybrid deployment options and some vendors to take their full offering into the cloud when they can. What do you all think? – Ray

  • Ray,

    Interesting info. Does this mean the M&A guys from the on-premise vendors will be working overtime to bring new apps to their sales rep or are the on-premise R&D teams going to build from scratch…or a combination of both strategies…either way, they have to identify a strategy and execute, sooner rather than later…else the disrupters will start to invade their installed base

    Cheers

    John

  • Glenn – very valid points. Will dig into some of the financial analyst reports later this week to see if they are capturing this trend. It’s still amazing to see how SAP apps business is almost 2:1 Oracle’s. Ray

  • Ray, great post, but one question on the numbers: How much of the revenue growth of the SaaS players is simply the impact of full-year revenue from 2008 subscribers versus net subscriber/seat growth? It seems it that may have a bigger impact on the smaller companies (e.g. Success Factors), while the impact was probably negligible for a company like SFDC who has already hit rather significant scale.

    But overall I agree that SaaS is lining up well with customers’ buying preferences. But as to whether everyone has a SaaS option in 2010, that seems dubious, especially if you’re meaning for each product line. The big guys like Oracle have some SaaS offerings, but not on all platforms. I don’t expect to see wholesale changes across the board just yet.

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