Monday, July 28, 2008

SaaS software's re-emergence

We believe that the resistance to adopting SaaS as a software solution is diminishing. In the FY 2007 Goldman Sachs technology Report, SaaS came in at #18 out of 30 investment priority areas by CIOs of large firms. In FY 2006's report, SaaS came in at #30 - dead last. In the SaaS category, the CRM/marketing & sales automation category commands the best valuation - both in IPOs and M&As. Broadly speaking, this category fetched almost twice as the average multiple for the entire SaaS category. Advancements in areas such as virtualization servers and cloud computing solutions are prompting start-up firms to design solutions for various verticals using the SaaS way. A note of caution is that many companies have still not figured out what the real costs of integration of SaaS with legacy systems are and therefore, in our opinion, valuation multiples will stay depressed for the overall SaaS category. Sensitive applications such as security software continue to be a no-no for deployment on SaaS platforms. The other risk factor is pricing. There is no set pattern of pricing in this industry and prices vary widely contributing to significant cash flow volatilities. On a review of their business plans, some small businesses are forecasting optimistic revenues per license/seat/user/subscriber and operating margins . We believe that conservative operating margins and average revenue per subscriber should be the norm in this industry . Visit to learn more about us.

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