Annual Evaluation On SaaS Satisfaction Begins This Fall

The Software Insider Insights™ solution evaluation and buyer comparison tool will launch this Fall.  The first report focuses on Customer Centric Cloud Agreements – Software-as-a-Service (SaaS).  This evaluation will:

• Identify the leading seller/vendors delivering SaaS based applications that adhere to the spirit of the cloud
• Evaluate seller/vendors performance against the latest provisions in the Customer Bill of Rights: Software as a Service (see Figure 1)
• Recognize seller/vendors who deliver a customer centric approach to SaaS solutions.

Invited Vendors Represent Today’s SaaS Leaders

The 2010 Customer Centric Cloud Agreements- SaaS evaluation ranks the most popular vendors by inquiry and contract frequency.  The invited participants also qualified based on overall total number of subscribers.  The current list of evaluated vendors will include:

• Ariba
• Concur
• Epicor Lite
• FinancialForce
• Intacct
• Microsoft Dynamics CRM OnDemand
• NetSuite
• Oracle Siebel OnDemand
• Plex Systems
• RightNow Technologies
• Salesforce.com
• SAP ByD
• SuccessFactors
• Taleo
• Ultimate Software

Your POV: Your Input Makes The Difference

As part of the Insider Insights evaluation process, input from users will be incorporated into the evaluation process.  Please take the time to complete this short 10 question survey.  As an added incentive, 5 respondents will be randomly chosen on September 30th to win a free 30 minute advisory call with R “Ray” Wang to be used by 2010.

Share with us your input here:

Resources And Related Research:

20100810 A Software Insider’s POV – R “Ray” Wang – “Tuesday’s Tip: 10 SaaS/Cloud Strategies For Legacy Apps Environments”

20100809 A Software Insider’s POV – R “Ray” Wang – “Research Report: The Upcoming Battle For The Largest Share Of The Tech Budget (Part 2) – Cloud Computing”

20100621 A Software Insider’s POV – R “Ray” Wang – “Research Report: How SaaS Adoption Trends Show New Shifts In Technology Purchasing Power”

20100322 A Software Insider’s POV – R “Ray” Wang -”Understanding The Many Flavors Of Cloud Computing/SaaS”

20091222 A Software Insider’s POV – R “Ray” Wang “Tuesday’s Tip: 10 Cloud And SaaS Apps Strategies For 2010″

20091208 A Software Insider’s POV – R “Ray” Wang – “Tuesday’s Tip: 2010 Apps Strategies Should Start With Business Value”

20091012 A Software Insider’s POV – R “Ray” Wang – “Research Report: Customer Bill of Rights – Software-as-a Service”

20090714 Sandhill.com – R “Ray” Wang – “Opinion: Moving to a SaaS Offensive”

20090602 A Software Insider’s POV – R “Ray” Wang ” Tuesday’s Tip: Now’s The Time To Consider SaaS Software Escrows”

20081028 A Software Insider’s POV – R “Ray” Wang “Tuesday’s Tip: SaaS Integration Advice”

Reprints

Reprints can be purchased through the Software Insider brand.  To request official reprints in PDF format, please contact r@softwareinsider.org.

Disclosure

Although we work closely with many mega software vendors, we want you to trust us.  Epicor, Microsoft, Oracle, RightNow, SAP, and Ultimate our currently clients of Altimeter Group but not Insider Associates.  For the full disclosure policy please refer here.

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

The majority of 22 publicly traded software vendors demonstrated solid year-over-year (YoY) quarterly growth from Q2 2009 (see Figure 1).   Every SaaS vendor in the Software Insider Index® drove 14% to 26% growth (see Figure 2) despite the pick up in on-premises license sales.  Highlights for the 2010 CY Q2 2010 results:

On-Premises Trends

• JDA Software (59.19%) and Manhattan Associates (32.93%) continue to ride the CPG, retail, and supply chain investment wave.  Manhattan solidified a significant turnaround in 2 quarters of growth.
• Large mega vendor bellwethers Oracle (12.95%) and SAP (12.34%) showed significant double digit growth.  SAP’s license gains of 17.31% demonstrate a turnaround in the sales team.  All indications point to BOBJ and the non-EMEA regions driving sales growth.
• The SMB vendors shared mixed results with Epicor (8.68%), Lawson (5.81%), and CDC Software (3.92%) continuing to grow key license revenues.  While IFS total revenue gains were low in the 1.40%, IFS grew license revenue by a whopping 19.77%.
• Unfortunately, other SMB vendors Exact (-4.99%) and Deltek (-7.07%) showed negative revenue momentum.  These vendors not only lost ground in license revenue but also saw declines in traditionally stable maintenance revenue.
• Maintenance fee growth remains healthy for most vendors as new programs to show value to customers gain traction.

SaaS Trends

• SaaS vendors continue to grow in mid to high double digit growth rates for subscription revenue. SuccessFactors (26.81%), Salesforce.com (24.78%), and Concur (20.49%) moved past 20% year over year quarterly growth.
• Ariba ($93.2M) nears the $100M per quarter revenue benchmark as Blackboard ($101.5M) continues to grow from this achievement in Q1 2010.
• RightNow (19.58%), NetSuite (16.83%), Ultimate Software (15.67%), and Taleo (14.63%) all showed solid quarters of growth, though these growth percentages show slight declines.

Figure 1.  Software Insider Index® On Premise Vendors: Q2 CY 2010

(Right click to view full image)

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

Figure 2. Software Insider Index® SaaS Vendors: Q2 CY 2010

Despite the rocky recovery and potential for double digit recession, pent up demand drives the current on-premises vendor revenue growth.  Organizations continue to invest in technology despite the lack of job creation.  However, on-premises vendor gains have not impacted SaaS vendor growth.  In fact, most organizations continue to adopt Scenarios 1 to 3 in their Cloud/SaaS strategies. As hybrid models reach tipping points, successful apps strategies must focus on SaaS integration, SOA adoption, and information governance.

The majority of 21 publicly traded software vendors managed to show year-over-year (YoY) gains over the dismal beating from calendar year (CY) Q1 2009.  SaaS vendor maintained their double digit gains while on-premise vendors mostly showed positive traction (see Figure 1) and (see Figure 2).  Highlights for the 2010 CY Q1 2010 results:

• Big gains in YoY license revenue for on-premise vendors such as Manhattan Associates (188.64%) and  JDA (87.43%) reflect the investments being made in retail and supply chain.  Manhattan’s gains are the greatest across the board as they demonstrate a turnaround from last year.
• Meanwhile, SMB bell-weathers Lawson (28.10%), Deltek (24.75%), and Epicor (23.21%) signal return of key license sales in on-premise.  Concurrently, Oracle (20.45%) and SAP (11.oo%) demonstrate a strong recovery in enterprise license revenue growth in on-premise.
• Maintenance fee growth for on-premise vendors hold steady with mostly single digit YoY gains except JDA Software (32.71%) and SAP (11.34%).
• SaaS vendors kept steady growth in the double digits for subscription revenue. UltimateSoftware (27.80%), RightNow (26.80%), Salesforce.com (24.47%), and SuccessFactors (24.29%) led the charge.
• Overall growth rates on a YoY revenue basis have stabilized for most SaaS vendors at the mid teens to twenties.
• Of interesting note, professional services fees for on-premise vendors match or double the license revenue. SaaS vendor professional services revenue are well below 1x license revenues, closer to 10% or less.

Figure 1.  Software Insider Index® On Premise Vendors: Q1 CY 2010*

(Right click to view full image)

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

Figure 2. Software Insider Index® SaaS Vendors: Q1 CY 2010*

Good news – new license sales indicate a recovery!  Bad news – recovery will mean less discounting in non-competitive renewals.  Recent deals indicate that competitive deals in both Enterprise and SMB show that vendors will continue to compete for business.  Pricing pressures from the SaaS vendors drive most of the discounting in renewal deals.  However, should the recovery continue, expect less concessions in maintenance fee discounts, financing options, maintenance fee price increases, and flexibility in contract policies.

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 Index^TM (SII) Top 35 Enterprise Business Apps Vendors^TM (Calendar Year Revenue)

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

Figure 2. Software Insider Index^TM (SII) Top 35 Enterprise Business Apps Vendors^TM (YOY Revenue Growth)

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

Take the new and improved survey on 3rd party maintenance

2009 Calendar Year Q4

2009 Calendar Year Q3

2009 Calendar Year Q2

2009 Calendar Year Q1

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

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 =)

Related resources and links

Take the new and improved survey on 3rd party maintenance

2009 Calendar Year Q3

2009 Calendar Year Q2

2009 Calendar Year Q1

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.

Purchasing in Q3 reflected both economic downturn and summer doldrums.  While on-premise vendors continued massive double digit declines in year-over-year new license revenue, SaaS vendors faced some pressures in keeping up with tremendous growth.  However, long term economic outlook still favor SaaS players and early indications on Q4 budget flush indicate that SaaS and Cloud are top of mind.  Major themes in the 2009 Calendar Year Q3 include:

• On the SaaS front, Salesforce.com (19.55%) continues to lead the pack followed by Blackboard (18.44%) and Concur at (12.94%) (see Figure 1).  While SaaS vendors still experienced growth, Concur (12.94%), Ultimate Software (9.76%), and Taleo (8.77%), NetSuite (3.22%) experienced drops in rate of growth.  Taleo and NetSuite faced the biggest drops in Q3.
• Tracked publicly traded SaaS vendors represented $756.2M in Q3 software revenues.
• On-premise vendors showing gains in EPS despite revenue drops (see Figure 2).
• Specialty on-premise vendors JDA Software (-2.63%) and IFS (-5.07%) reversed license growth and lost year-over-year quarterly gains.
• Lawson Software reversed a license free fall showing growth in Q3 (22.77%). Healthcare and HCM continued to bolster its license growth and come back.
• Maintenance revenues continue to float losses in license revenue for on-premise vendors.  Growth in maintenance continues to slow.

Figure 1. SaaS Vendors Face Q3 Headwinds And Growth Slows Vs Q2

2009 Q3 Calendar Year SaaS Revenues

2009 Q3 Calendar Year SaaS Revenues - Copyright © 2009 R Wang and Insider Associates, LLC. All rights reserved.

2009 Q2 Calendar Year SaaS Revenues

2009 Q2 Calendar Year SaaS Revenues - Copyright © 2009 R Wang and Insider Associates, LLC. All rights reserved.

Figure 2.  On-premise Vendors Face Continued Market Brutality

2009 Q3 Calendar Year On-Premise Revenues - Copyright © 2009 R Wang and Insider Associates, LLC. All rights reserved.

The Bottom Line For Users – Expect Continued Discounts in Q4

A poor Q3 will bring good news to buyers in Q4 as vendors will continue to heavily discount licenses and professional services while delivering more value to retain maintenance margins.  Conversations with 41 CIO’s indicate that a Q4 budget flush is in the works.  The conditions favor end users as poor economic conditions, realization by vendors, and need to invest will yield a great buying season.

The Bottom Line For Vendors – Start The Subscription Revenue Model Shift

It’s time to go on a SaaS offensive.  The train has left, but its not too late.  Expect hardware vendors, telecom providers, and other companies looking to gain software multiples to enter the market via SaaS.  2010 will bring significant acquisitions in this space as well as more proliferation of SaaS offerings and PaaS delivery models.  Best of breed solutions delivered via SaaS will cut into on-premise market share.  Cloud computing will not be an end all be all.  Hybrid deployment will continue to be the norm.

Your POV.

Ready for some great renewal conversations in Q4?  Feel free to post your comments here or send me an email at rwang0 at gmail dot com for any assistance in contract negotiations with your vendor or the development of a software licensing and pricing strategy for 2010.

* 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 November 189th, 2009.  Not responsible for currency flux.  Please read the quarterly filings yourself =)

Most on-premise vendor continue to slip into significant YoY losses in license revenue and overall revenues.  Meanwhile, economic conditions continue to favor SaaS, best-of-breeds, and purpose built solutions. Major themes in the 2009 Calendar Year Q2 include:

• Economic conditions drive demand for best of breed and point solutions delivered by SaaS deployment.  Consequently, SaaS vendors posted spectacular double digit YoY gains.  Taleo (29.78%) led the pack followed by Blackboard (21.92%), and SalesForce (20.14%).
• Despite subscription gains for SaaS, professional service revenues dropped as client demand for rapid implementation and discounts in delivery cut deployment costs.  Many vendors reported shorter deployment times.
• Specialty on-premise vendors JDA Software (8.38%) and IFS (6.00%) delivered significant gains as their purpose built solutions reflect the demand for deeply verticalized software offerings.
• On-premise vendors continue to rely on maintenance revenues to stabilize or offset huge losses in YoY license revenues.  Customers are nearing a flash point over the high cost for maintenance.  Vendors will need to quickly demonstrate value or take a hit in maintenance renewals.

Software Insider Index® Q2 CY 2009 SaaS Vendors

Software Insider Index® Q2 CY 2009 On Premise Vendors

The Bottom Line – Worsening Economic Conditions Favor Purpose Built Solutions

Continued economic pressures force customers to choose best of breed and purpose built solutions.  SaaS vendors appear to be the beneficiary as the overall business model aligns with client pain points.  On-premise vendors will also win as they reduce the cost of entry and provide effective price points for purpose built solution modules in demand by clients.  With very little hope for a recovery in 2009, vendors will have to adjust their go-to-market strategies to deal with waning deal sizes.  It’ll take more than a hat trick in 2009 to stabilize revenues.  With 4 months to go, vendors should rethink their 2010 strategies to address price points, financing options, and module availability.

Your POV.

As an end user, have you found the deal process to have tipped in favor of the buyer?  Do you continue SaaS solutions with the same level of comfort as on-premise.  As a software vendor, do you feel you have the right go-to-market strategy for 2010?  Feel free to post your comments here or send me an email at rwang0 at gmail dot com for any assistance in contract negotiations with your vendor or the development of a software licensing and pricing strategy for 2010.

* 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 September 25th, 2009.  Not responsible for currency flux.  Please read the quarterly filings yourself =)

On-premise vendors still see SaaS as a loss leader due to huge ramp up and punishing revenue recognition rules

When it comes to the topic of SaaS, many on-premise vendors appear to be living in denial, hoping that SaaS fails, and/or creating confusion in the market place.  These tactics have merit as a shift to SaaS requires plenty of work with minimal return and a destruction – disruption of the current business model.  In conversations with 61 vendors and building off of SaaS evangelist Jeffrey Kaplan’s post (July 2, 2009, Seeking Alpha – “From the Vendor’s Point of View: Why SaaS Sucks”), vendors who have made this transition or have started the investment put in heavy lifting in these activities must:

• Re-architect apps
• Find balance between configuration and optimization of SaaS platform
• Design product road map and rollout strategy
• Determine SLA’s
• Identify a hosting strategy
• Craft pricing and licensing policies
• Harmonize SaaS pricing with On-premise and other models
• Create go to market strategy
• Alleviate channel conflict with partners, resellers, distributors

After all this work to be ready for SaaS deployments, vendors also discover that FASB SOP 97-2 software revenue recognition rules prohibit them from immediately recognizing multi-year contracts. Even worse, subscription revenue can only be recognized on a month-to-month basis – leading to a long road to profitability.  In fact, vendors such as Lawson, estimated a 7 to 10 year break even period for a full SaaS model.  No wonder Harry Debes was fired up on how SaaS could be a fad in his interview with Victoria Ho at ZD Net last year.  In private, most software executives also echo such sentiments and wholeheartedly agree with his comments about the business model challenges.

Yet, SaaS adoption moves beyond the Tipping Point in 2009

However, the confluence of recessionary forces, stalled innovation from many on-premise software vendors, and success of early SaaS pioneers such as SalesForce.com and NetSuite has put Software-as-a-Service into the mainstream.  Vendors can no longer resist the move to SaaS without negatively impacting their license sales and customer mind share.   Additional facts highlight the shift:

• Forrester State of Enterprise Software 2009 survey results confirm significant adoption rates from 2008 to 2009. Of 1000 IT executives and decision-makers, 24% were interested/considering, 11% implemented or planning to expand, and 5% piloting SaaS solutions (see Figure 1).
• Clients continue to vote with their budgets despite marketing FUD by many on-premise vendors on the perils of SaaS. Success Factors‘ win at Siemens for 420,000 employees, Workday‘s win at Flextronics for 240,000 employees, and Ultimate Software’s win at P.F. Chiang’s for 30,000 employees reinforces how SaaS is more than CRM and SMB.
• Concerns over SaaS have dropped significantly over the past year. Successful deployments mitigate concerns and highlight the attitudinal shift towards acceptance.  Major decreases include integration issues (43%), total cost (31%), lack of customization (31%), complicated pricing models (30%), performance (23%), can’t find the specific application (20%), security (17%), and lock in with existing vendor (17%) (see Figure 2).

Figure 1: Users expect to increase SaaS adoption in 2009

Source: Forrester

Figure 2.  Concerns over SaaS have dropped significantly over the past year

Source: Forrester

Defensive SaaS strategies by vendors miss the opportunity to take market share.

As customer’s continue to demand SaaS solutions for rapid deployment, pay-as-you-go pricing models, and timely innovation, traditional on-premise vendors without a SaaS offering must now explain, defend, or develop their own SaaS story.  Concerns about the impact of SaaS have many vendors in defensive mode.  Defensive strategies have included:

• Creating counter marketing about SaaS and the viability of the market
• Responding with hosting options and financing options
• Building SaaS options for a limited set of popular SaaS solutions such as sales force automation (29%), strategic HCM (29%), and customer service and support (27%) (See Figure 3.)

At first glance, mega vendors such as SAP and Oracle have started with the first two points and are evolving to the third.  They aim to counter the success of Ariba, SalesForce.com, Success Factors, Taleo, Workday, and Ultimate Software with their own offerings.  SAP’s OnDemand for LE release and John Wookey’s ComputerWorld UK interview by Mike Simons, confirms that the strategy will include “CRM on-demand and e-sourcing, with expense management set for a 2010 release.”  Wookey’s approach appears to first shore up areas where SAP customers have been defecting and then worrying about what’s next (see Note 1).  Meanwhile, discussions with Oracle product teams also hint that a release of 5 to 9 SaaS offerings to complement Oracle Siebel CRM OnDemand offerings could be announced soon.  This defensive strategy shores up competitive SaaS solutions such as incentive comp, procurement, and strategic HCM.

Figure 3.  Rate of adoption of key SaaS solutions show significant interest in CRM and other areas

Source: Forrester

The bottom line -SaaS gives software vendors and system integrators an opportunity to take market share.

Instead of playing defense, vendors should look at the opportunity to take market share through SaaS.  SaaS vendors and their investors have realized they can target any install base and win by providing compelling functionality.  Why shouldn’t on-premise vendors bite the bullet and go on the offense?  To make this work software vendors would want to take advantage of their partner ecosystems and customers to extend capabilities beyond what’s being delivered in on-premise.  Vendors must make an initial investment in a SaaS/PaaS platform, agile development methodologies, and integration technologies to support hybrid deployment options.  From there, white spaces in the product road map will provide direction into the future opportunities such as vertical and other pivot points that have not been well served.  SAP’s acquisition of Clear Standards for carbon compliance, NetSuite’s acquisition of OpenAir for project based solutions, and Intuit’s acquistion of Entellium for CRM highlights examples of going on the offensive with SaaS.  Of equal importance, system integrators can shift the balance of power and deliver new IP via SaaS solutions while reducing their dependency on the mega vendors.

Recommendations: 7 best practices for crafting a SaaS strategy at an on-premise vendor

Imagine you could start from scratch and build a new software company.  That’s the question I posed to 61 software executives this year.  Most stated they would start with a SaaS deployment option for the scale and the business model.  Now what to do if you are an on-premise vendor?  Answer – build a separate SaaS software division within an on-premise software company.  This could be the next trend among the on-premise vendors for both investment and revenue recognition reasons.  What would be a good strategy:

1. Reuse similar business process parts as the on-premise product
2. Harmonize the data model and common objects
3. Build a brand new RIA based UI and UX
4. Assume that all data sources will be heterogenous
5. Design the product to run stand alone
6. Attack white spaces of new growth in a competitor’s install base
7. Keep a PaaS platform in mind to attract partners and customers to extend the solution

Your POV.

Totally turned off by SaaS? In the midst of a SaaS strategy? Ready to embark on a SaaS strategy?  If you need assistance, don’t hesitate to reach out?  Please post your point of view here or send me a private email to rwang0 at gmail dot com.

Note 1: The large enterprise (LE) SaaS platform will not come from NetWeaver or SAP’s SME Business by Design (ByD) technology, but come from the acquired Frictionless platform.  While this may leave some SAP customers concerned, Wookey and product super stars Kevin Nix and Peter Lim (of Siebel fame) counter by highlighting where SAP components will be reused and highlighting the home base integration advantage.

As also seen in the July 14th, 2009 SandHill.com”Moving to a SaaS Offensive”

Copyright © 2009 R Wang. All rights reserved.

Most software vendor license revenues took a beating this CY Q1 when compared to 2008.  SaaS vendors managed to post double digit gains while only a handful of on premise vendors eeked out a positive gain.  Major highlights in the 2009 Calendar Year Q1 include

• Big losses in YoY license revenue for on premise vendors such as Manhattan Associates (-73.12%), QAD (-54.37%), Deltek (33.99%), CDC Software (33.77%), and SAP (32.80%) signal significant long term weakness in attracting new business.
• Few winners in YoY license revenue for on premise vendors.  IFS (13.41%), Intuit Quick Books (5.23%), and Sungard (2.53%) showed positive traction amidst a morass of bad news.
• On premise vendors stabilized maintenance revenues from major losses.  Some vendors including Epicor (49.25%), Deltek (26.09%), and IFS (20.25%) managed to show significant gains.
• SaaS vendors cleaned house despite the challenging market.  Taleo (34.20%), Blackboard (26.25%), Concur (25.61%), Salesforce.com (23.14%), and NetSuite (21.83%), led the growth race in YoY total revenue.
• Growth rates on a YoY basis have slowed for most SaaS vendors, though when factoring the economic forces, these gains reflect truly substantial success.

Software Insider Index® Q1 CY 2009 On Premise Vendors

Software Insider Index® Q1 CY 2009 SaaS Vendors

The bottom line – SaaS goes mainstream in 2009 and on-premise vendors must offer hybrid deployment options

SaaS vendor growth continues to defy the ball and chain forces of the macro economy.  Though overall growth rates are less than the year before, the SaaS model gains favor with all sizes of enterprises and in all industries.   Rapid implementation, subscription pricing model, and constant innovation drive significant interest. This leaves on premise vendors in a precarious situation.  Without support for SaaS or other hybrid deployment options, expect customers to wall off their current vendors and pipe in new innovation around the edges with SaaS.

Your POV.

Do you find your vendor sales person becoming more aggressive with their sales tactics?  Have you held back on new purchases or upgrades?  Is this the year you go full out on SaaS? Feel free to post your comments here or send me an email at rwang0 at gmail dot com .

* 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 25th, 2009.  Not responsible for currency flux.  Please read the quarterly filings yourself =)

Now with most of the craziness of Q4 behind us, its time to unveil the Software Insider Indices:

1. SII Top 30 Enterprise Business Apps Vendors provides a snapshot of an ongoing vendor ranking by revenue.  Some vendors are private and of course not on this list, unless there’s a reasonable estimate.
2. SII Top 5 SaaS Business Apps Vendors. provides a snapshot of an ongoing vendor ranking by revenue.  Some vendors are private and of course not on this list, unless there’s a reasonable estimate.

So drum roll please…

Software Insider Index: Top 30 Enterprise Business Apps Vendors™

The 2008 SII® Top 30 Enterprise Business Apps Vendors™*

1. SAP $14,689.9M (€11,567.0M)
2. Oracle (Apps Revenue Only) $8,418.3M (est.)
3. Computer Asssociates $3,248M
4. Amdocs $3,162M
5. Intuit $3,107M
   
6. Infor $2,200M (est.)
7. Sage Group (oct. fiscal year) $1,893.4M (£1,295.0)
8. Microsoft Dynamics $1,154.5M (est.)
9. SalesForce.com $1,076.8M
10. Lawson $843.2M
11. Agresso $500.4M (€ 393.5M)
12. Epicor Software $477.8M
13. Activant $432M (est.)
14. JDA Software $390.3M
15. IFS $383M (SKr 2,500M) (1USD = 6.58 SKr, average quarterly exchange rates)
16. Exact Software $337.4M (€265.4M)
17. Manhattan Associates $337.2M
18. Ariba $337.1M
19. Deltek $289.4M
20. QAD $279.4M
21. i2 $256.9M
22. Glovia (A Fujitsu Company) $246M (est.)
23. CDC Software $235M (est.)
24. IBS Software $229.6M (SKr 2035M)
25. Concur $220.4M
26. Cincom $178M (est.)
27. Taleo $167.7M
28. NetSuite $152.5M
29. RightNow $102.6M
30. SoftBrands $99.7M

The 2008 SII® Top 5 SaaS Business Apps Vendors™*

1. SalesForce.com $1,076.8M
2. Concur $220.4M
3. Ultimate Software $178.0M (added 2/26/2009 @ 17:17 GMT)
4. Taleo $167.7M
   
5. NetSuite $152.5M
6. RightNow $102.6M

Your POV.

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

* 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 25th, 2009 for vendors who have not published quarterly conversions.  Not responsible for currency flux.  Please read the quarterly filings yourself =)

Changes: March 12, 2009 converted IFS from $279.3 to $383M (SKr 2,500M)  using 1USD = 6.58 SKr, average quarterly exchange rates.  Ranking moved from 21 to 15.

The recession hit most vendors hard in the last quarter of 2008 as evidence by the dismal license revenue YoY comps.  Some exceptions include JDA (52.9%) with a strong presence in retail and Agresso with its growth in public sector (25.6%).  As vendors with perpetual license models hunker down for the pending drought, retention and possible growth of maintenance and service revenues is the key goal, though almost all vendors have put off any maintenance price increases as this would be in poor taste in a down economy.  Details below:

Major highlights in the 2008 Calendar Year  include:

• Big double digit gains in YoY annual license revenue winners include:  JDA (52.9%) and Agresso (27.5%), Oracle (13.3%), SAP (12.9%), Epicor (11.2%), and QAD (10.0%).
• Big gains in YoY subscription license revenue winners include: Concur (49.3%), SalesForce.com (43.8%), and NetSuite (40.5%), Taleo (31.1%), and Right Now (17.9%).

Major highlights in the Q4 Calendar Year of 2008 include:

• Big gains in YoY quarterly license revenue winners include: SoftBrands (124.9%), JDA (52.9%) and Agresso (25.6%)
• Double digit losses in YoY quarterly license revenue include: Epicor (-34.1%)Deltek (-27.2%), Manhattan (25.5%), Oracle (-15.2%), and Exact Software (-10.8%).
• Double digit maintenance revenue winners include: Agresso (29.5%), Epicor (17.2%), IFS (13.6%), SAP (12.3%), and Oracle (11.7%).
• Subscription revenue vendors (i.e. SaaS vendors and vendors with SaaS/OnDemand offerings and others with subscription services) continue to grow at breakneck paces with CA (55%), SAP -Subscription Revenue (39.6%), SalesForce.com (35.4%), Ariba (35.1%), Taleo (31.5%), NetSuite (30.5%), and Concur (21.5%), leading the charge in year over year quarterly revenue growth.

Enterprise Software Vendors with Perpetual License Revenues (YoY Q4 Calendar Year 2008 Comparisons)*

• Agresso Software (2H 2008) – License up 25.6% to €37.7M/ Maintenance and support  up 29.5% to €84.7M/ Services up 31.6% to  €79.7M. 
  2008 Calendar Year End – up 27.5% to € 393.5M/ $500.4M (1 USD = 0.786468 EUR)
• CDC Software (2H 2008) – Awaiting Financial Reports.
  2008 Calendar Year End – Awaiting Financial Reports.
• Deltek (FY Q4) - License down 27.2% to $19.8M / Maintenance and support down 1.8% to $21.9M / Services up 9.27% to $30.0M
  2008 Calendar Year End - up 4.0% to $289.4M
• Epicor Software (FY Q4) - License down 34.1% to $25.2M /Maintenance and support up 17.2% to $48.5M / Services up 8.7% to $38.2M
  2008 Calendar Year End - up 11.2% to $477.8M
• Exact Software (2H 2008) - License down 10.8% to €38.1M /Maintenance and support up 7.5% to €67.4M / Services up 17.2% to €29.7M
  2008 Calendar Year End - up 5.3% to €265.4M/ $337.4M (1 USD = 0.786468 EUR)
• i2 (FY Q4)- License down 2.5% to $12.1M/ Maintenance and support up 6.3% to $30.9M / Services up 5.1% at $21.9M
  2008 Calendar Year End - flat at $256.9M
• IFS (FY Q4) - License down 2.0% to SKr 145M /Maintenance and support up 13.6% to SKr 200.0M / Services revenue up 10.8% to SKr 391.0M
  2008 Calendar Year End - up 7.0% to SKr 2,500M/ $279.3M ( 1 USD = 8.94953 SEK)
• Intuit (FY Q2) - Quick Books revenue up 5.4% to $1754.M
  2008 Calendar Year End - Quick Books revenue flat at $256.9M
• JDA Software (FY Q4) - License up 52.9% to $34.3M/ Maintenance and support down 6.4% to $44.0M / Services revenue down 3.9% to $25.1M
  2008 Calendar Year End - up 7.87% to $390.3M
• Lawson Software (FY Q2) – License down 8.9% to $30.1M/ Maintenance and support up 6.4% to $90.1M / Services revenue down 14.6% to $86.2M
  2008 Calendar Year End - up 4.1% to $843.2M
• Manhattan Associates (FY Q4) - License down 25.5% to $13.8M/ Maintenance and support down 5.7% to $53.8M / Services revenue down 14.6% to $8.0M
  2008 Calendar Year End - down 0.1% to $337.2M
• Oracle (Apps Estimate) (FY Q2) - License down 15.2% to $469.0M/ Maintenance and support up 11.7% to $1,095.0M / Services (factored as .33 of total services rev) up 13.17% to $189.0M
  2008 Calendar Year End - up 13.29% to $8,418.3M
• Progress Software (FY Q4) - License up 4.31% to $13.8M/ Maintenance and support up 7.4% to $72.4M / Services revenue down 13.0% to $13.6M
  2008 Calendar Year End - up 5.0% to $518.3M
• QAD (FY Q3) - License down 7% to $13.1M / Maintenance and support up 1.2% to $32.7M/ Services up 8.9% to $22M
  2008 Calendar Year End - up 10.0% to $279.4M
• SAP (FY Q4)- License down 6.5% to €1,323.0M /Maintenance and support up 12.3% to €1,129.0M / Services up 8.6% to €808.0M
  2008 Calendar Year End - up 12.9% to €11,567.0M/ $14,689.9M (1 USD = 0.786468 EUR)
• SoftBrands (FY Q3) - License up 124.9% to $6.7M / Maintenance and support down 4.57% to $12.9M/ Services down 0.4% to $4.9M
  2008 Calendar Year End - up 10.0% to $279.4M

Enterprise Software Vendors with Subscription Revenues (YoY Q4 Calendar Year Comparisions)*

• Ariba (FY Q4) – Subscriptions up 35.1% to $54.1M / Services down 13.4% to $32.0M. 
  2008 Calendar Year End - up 11.8% to $337.1M
• CA (FY Q3)- Subscriptions up 55% to $1.393B / Software fees down 30% to $15M / Services down 27% to $74M. 
  2008 Calendar Year End - up 1.75% to $3,248M
• Concur (FY Q1) - Subscriptions up 21.5% to $56.6M/ Services down 28.7% to $2.0M. 
  2008 Calendar Year End - up 49.3% to $220.4M
• NetSuite (FY Q4) - Subscriptions up 30.5% to $41.4M
  2008 Calendar Year End - up 40.5% to $152.5M
• Oracle (On Demand) (FY Q2) – Subscriptions up 13.2% to $189.0M
  2008 Calendar Year End - up 21.7% to $752.0M
• Right Now (FY Q4) - Subscriptions up 12.5% to $26.5M
  2008 Calendar Year End - up 17.9% to$102.6M
• SalesForce.com (FY Q4) - Subscriptions up 35.4% to $266.1M/ Services up 15.1% to $23.5M
  2008 Calendar Year End - up 43.8% to $1,076.8M
• SAP (Subscription Revenues) (FY Q4) - Subscriptions up 39.6% to €74M,
  2008 Calendar Year End - up 41.7% to €258M /$327.6M (1 USD = 0.786468 EUR)
• Taleo (FY Q4) - Awaiting Financial Restatement of Earnings Estimates – Subscriptions up 31.5% to $37.4M /Sevices down 40.8% to $3.6M
  2008 Calendar Year End - Awaiting Financial Restatement of Earnings Estimates – up 31.1% to $167.7M
  

The bottom line – on premise vendors will continue to be threatened by SaaS models in a recession

Despite fierce Q4 discounting for on-premise software, many prospects and existing customers continue to explore SaaS options.  The continued explosive growth demonstrates sustaining and growing interest in the SaaS model.  However, on premise vendors are not down for the count and can combat the effects of SaaS by offering hosting, vendor led financing, lower cost of ownership, increased flexibility, and right sized maintenance.  However, the current recession may be the catalyst to bring SaaS pricing and delivery models into the mainstream.

Your POV.

Are you ready to take the SaaS plunge this year?  Am I missing a vendor?  Feel free to post your comments here or send me an email at rwang0 at gmail dot com .

* 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 25th, 2009.  Not responsible for currency flux.  Please read the quarterly filings yourself =)

With 2020 hindsight and the best rear view mirror clarity (j/k), Q3 appears to be THE deflection point in where the economy began to impact the enterprise software vendors.  A flurry of continued lowered guidance on earnings by vendors reflects the general nervousness sweeping customers and prospects as we head into the most important quarter…Q4.

Major trends in Q3 include:

• Overall new license revenues down for most on-premise vendors except IFS, Intuit, JDA, and SAP, who have managed to buck the trend.  Continued drop in this leading indicator for long term growth is a troubling sign.
• Vendors continue to focus on cranking up maintenance and service revenues, though most vendors have put off any maintenance price increases.
• Vendors continue significant cost cutting with travel freezes and non-client facing expense elimination or reduction.
• Exceptions to the trend in on-premise apps license revenue decline include purpose built solutions or vendors with deep verticalization strategies.  For example, IFS’ is gaining traction with its focus on micro verticals and project based businesses.  Retail’s re-emergent focus on reinvesting in operations is bolstering JDA’s business.
• Subscription revenue vendors (i.e. SaaS vendors and vendors with SaaS/OnDemand offerings) continue to grow at breakneck paces with Ariba (73%), Concur(72%), CA (55%), and Taleo (49.4%), leading the charge in year over year quarterly revenue growth.

Here’s the break down of year over year quarterly new license sales numbers/recurring revenues:

Enterprise Software Vendors with Perpetual License Revenues (YoY)*

• CDC Software – License down 16% to $12.8M / Maintenance up 12% to $24M / Services down 15% to $21.1M
• Deltek - License down 13% to $18.5M / Maintenance up 12% to $29.3M / Services up 1% to $23.1M
• Epicor Software - License down 7% to$22.4M /Maintenance up 24.8% to $50.1M / Services up 27.1% to $41.6M
• i2- License up 0.4% to $10.6M/ Maintenance down 8.9% to $20.9M / Services flat at $33.4M
• IFS - License up 34% to SKr 142M ($17.9M) /Maintenance rose  SKr 175M ($22.1M) / Services revenue up 13.4% to SKr 287M ($36.2M)
• ILOG – License up 61% to 17.8M / Maintenance up 46% ‚
• Intuit - General revenues up 8% to $481M.  Quick Books Revenue up 6% to $152M, Payroll and payments revenue up 16% to $152M
• JDA Software - License up 48.4% to $23M/ Maintenance rose 5.9% to $46.4M / Services revenue down 18.6% to $29M
• Lawson Software - License down 17% to $21.1M/ Maintenance up 13% to $89.1M / Services down 3% to $80.7M
• Oracle (Apps) - Oracle reports Q2 FY2009 in December – will update later as they are the “first” in the cycle
• QAD - License down 7% to $13.1M / Maintenance up 1.2% to $32.7M/ Services up 8.9% to $22M
• SAP - License up 7% to 763M / Maintenance up 20% to 1.167B / Services up 11% to 748M

Enterprise Software Vendors with Subscription Revenues (YoY)*

• Ariba – Subscriptions up 73% from $18.8M to $32.6M
• CA - Subscriptions up 55% to $1.393B / Software fees down 30% to $15M / Services down 27% to $74M
• Concur - Subscriptions up 72% to $55.7M
• NetSuite - Up 44% to $40.4M
• Oracle (On Demand) – Oracle reports Q2 FY2009 in December – will update later
• Right Now - Subscriptions up 19% to $25.9M
• SAP - Subscriptions up 39% to $64M
• SalesForce.com - Subscriptions up 44% to $253.4
• Taleo - Subscriptions up 49.4% to $40.9M

The bottom line – the price wars in Q4 are real but the best deals may come in Q1.

Initial results show that SaaS vendors appear to be the main beneficiaries with customers seeking shorter term contracts (i.e. moving away from one year agreements back to the month to month model).  Try before you buy is definitely picking up.  However, early Q4 indicators from conversations with sales professionals and prospects indicate that Q4 discounting for on-premise software remains fierce and as competitive with SaaS pricing. Prospects and existing customers should take advantage of Q4 price wars but be cognizant that deals in Q1 2009 may be even better because most vendors will have exhausted their Q1 pipelines!

Your turn.

What’s the best deal you are getting?  Feel free to post your comments here or send me an email at rwang0@gmail.com .

* Not responsible for any math errors or erroneous revenue information.  Please read the quarterly filings yourself =)