Business Strategy for Software Executives
July 10, 2006
The Bottom Line on SaaS
As vendors scramble to provide on-demand offerings, an in-depth analysis of the numbers behind one SaaS business show a superior economic model.
By Scott Bolick, George Gilbert and Rahul Sood, Tech Strategy Partners
Software-as-a-Service (SaaS) is a top-of-mind consideration for most software company leaders today. The idea is hot but the reality is challenging (as Ray Lane wrote earlier this year) leaving many vendors on the sidelines. Although there are several intuitive arguments in favor of the model, there is still disagreement on how and why the SaaS model is superior to the traditional perpetual licensing model.
Few thorough analyses are available on the long-term impact of the SaaS business model. After a careful examination, it was determined that the best way to delve into the strength of the SaaS economic model would be to use SalesForce.com’s (SFDC) quarterly figures and analyze them to uncover the company’s true profitability.
The numbers told a compelling story: SaaS is not just a superior economic model, but it also has several strategic advantages over the traditional licensing model. Normalizing SFDC’s income statement expands operating margins to an implied 29 to 35 percent, up from a currently reported 6 percent. SaaS is economically more efficient for the customers too, as it minimizes their spending on IT infrastructure and services. SaaS also allows vendors to shrink their product innovation cycles and drive innovation across a wider cross section of their customers than the traditional model.
Eight Degrees of Enterprise Applications
The portfolio for software buyers is getting ever larger. Erik Keller of Wapiti explains that vendors must now understand where the business process need is coming from in order to compete effectively. Read more in this week’s post to his SandHill.com Blog, The Software Critic.
Ready for the Open Source Earthquake?
Journalists and analysts like to talk about all of the seismic shifts that are shaking the software industry. This week, Guy Smith of Silicon Strategies Marketing points to a new analogy – the open source faultline. See which vendors are taking which positions in this week’s post to the SandHill.com Blog on Open Source – and brace for the aftershocks(!)
The Customer is Always Right – Even About M&A
The impact of a big merger can be significant on software customers. Yet their concerns are rarely taken into account when a merger is announced. Steve W. Martin provides an interesting look into how one big software merger impacted its customers in this week’s post to the SandHill.com Blog on Merger Mania. The results might surprise you!
Publish Your Perspective!
The SandHill.com Blog wants your opinions. Send your thoughts on the enterprise software industry to firstname.lastname@example.org and we’ll publish them in our blog.
Poll: Commodotization Ahead?
Last week, SandHill.com readers gave their opinions on whether EMC can make the storage-security play work with its acquisition of RSA Security.
More at SandHill.com:
The Valley really, really wants open source to matter.
Constant Contact receives $15 million.
Adobe buys Pixmantec
Adesso Systems names John Van Siclen as CEO.
Send us your feedback on this newsletter and the SandHill.com site.
“Explaining the unknown by means of the unobservable is always a perilous business.”
Courtesy of Malcolm Kusher, The Kushner Group
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