About this Video
SIIA Quarterly Software Industry Update with Jason Maynard are quarterly live Webcasts hosted and organized by the Software and Information Industry Association. To learn more, or sign up for the next live online event, please visit the SIIA.
Jason Maynard, Software Analyst at Credit Suisse, gives his quarterly live video webcast during the Software and Information Industry Association’s annual on-Demand Conference in San Jose.
We’ve been in a pretty good market environment for the past two years but will be in for rougher economic times for the next year or two. The economy will impact on-Demand customer’s willingness to spend money, so on-Demand companies will have to come up with even more compelling value propositions to keep their margins and growth rates.
In the traditional software business, Sales & Marketing and customer service as a percentage of revenue for the top 10 software vendors is less than for smaller players. Small traditional software companies competing with an Oracle or an SAP will find it difficult to stay competitive. New software companies have to create or find new playing fields and stay away from the traditional playing fields.
The market opportunity for small players is to follow the disruptive forces in the market: purpose-built, on-demand, SOA, open source, virtualization. Companies need to find an edge to overcome the structural disadvantages that exists in the traditional software market.
We’re entering a period of consolidation of the legacy and distuption of the new.
Upstarts should think about how to deliver traditional application as an appliance? Amazon, Citrix, and VM Ware are pushing the concept of software appliances.
In the on-Demand space we’re seeing a typical evolution from point solutions to establishing dominance in a category to integrated suites of multiple applications or platform solutions (SalesForce.com) to build applications. Chasing categories that are overfunded is not a good strategy. The companies that will stand out are the purpose build players (RealPage is an ERP system for the real estate apartment complex market).
The on-Demand market is $6-$7 billion in 2007, and $20 billion in 2011. It will take over a greater percentage of overall software sales.
The good news is that on-demand tends to garner a premium. They are valued at about 6-8x sales, high 20s cash flow multiples. Compared to traditional software vendors this is a 25-100% premium.
As customers change buying behavior, vendors have to change.
What can on-demand vendors do differently to retain and grow their customer base?
Software-as-an-Answer – selling actionable, analytical services based on aggregated, anonymized, and operationalized data delivered on demand as a service. Data analytics is going to separate winning companies from the losers. Helping customers make better decisions based on data by selling data as a service. Aggregated, timely data that can be mashed up with other sources can be delivered as an answer to a question.
Watch Jason’s presentation for more in-depth strategic and tactical analysis of the SaaA concept.
