Software Pulse

Business Strategy for Software Executives

July 10, 2006

Scott Bolick, George Gilbert and Rahul Sood

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’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.


Last Chance for “Next Big Thing” Companies!

Enterprise 2006 is just around the corner! The ninth annual invitation-only gathering of software CEOs and investors will take place in Pebble Beach, Calif. on October 8-10, 2006. One of the eventís most popular sessions allows a select-group of fast-growth software CEOs to present why their company will be the next Microsoft, SAP or Oracle. Click here to nominate your company for this prestigious opportunity and visit the Enterprise 2006 site to find out more about the conference. Act now - the deadline for nominations is July 15!

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 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 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 Blog on Merger Mania. The results might surprise you!

Publish Your Perspective!

The Blog wants your opinions. Send your thoughts on the enterprise software industry to and we’ll publish them in our blog.

Back to the Future

Analysts ask us to look ahead to increased enterprise software commoditization and a vendor roadbloack to the SOA vision; plus, VCs bet on on-demand, Oracle aims to hedge its bets, and EMC pushes its luck.  Read these stories and more news of the week in the weekly news summary.

Poll: Commodotization Ahead?

Forrester reiterated the predictions of several critics which predicts commoditization in enterprise software. If and when will commoditization take hold?    
Take our Pulse Poll >>

Last week, readers gave their opinions on whether EMC can make the storage-security play work with its acquisition of RSA Security.
Share your opinion and see the results >>

More at

The Valley really, really wants open source to matter.
Read the most important enterprise software industry news of the week >>

Constant Contact receives $15 million.
Monitor the latest software venture capital deals >>

Adobe buys Pixmantec
Size up last week's software M&A deals >>

Adesso Systems names John Van Siclen as CEO.
See who's made it to the top in our list of recent software executive appointments >>

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Parting Thought

“Explaining the unknown by means of the unobservable is always a perilous business.”
– Anonymous

Courtesy of Malcolm Kusher, The Kushner Group