Bridging the SaaS Continuum

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In the current economic environment it is difficult to build a successful software business based on what worked in the '90's.  The rules have changed and you need to run your software business differently today in order to be successful and generate profits.

The new term is Software-as-a-Service but what does it really mean to your business?
 
Montclair Advisors and OPEXEngine offered this webinar on how some of the best software companies in the industry have "Bridged the SaaS Continuum", including SaaS poster children like Salesforce.com, Taleo, Concur and Omniture.

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Bridging the SaaS Continuum

  1. 1. Bridging the SaaS Continuum Presented by Montclair Advisors and OPEXEngine July 2009 © 2009 Montclair Advisors, LLC Confidential Information
  2. 2. What’s Different about a SaaS Business? 1. Cash flows 2. Contracts 3. Customer relationships and satisfaction 4. Trackable metrics 5. Management objectives 6. SaaS selling vs. Enterprise selling 7. Sales compensation 8. Internet marketing and social networking 9. R&D management and product development 10. Hosting management © 2009 Montclair Advisors, LLC Confidential Information
  3. 3. Non-Profit Education Pharma CPG SCM HCM © 2009 Montclair Advisors, LLC Confidential Information Marketing PSA SaaS Market Landscape SPM CRM ERP Financials Collaboration Office Products Security Integration Infrastructure Source: Montclair Advisors, 2009
  4. 4. The SaaS Poster Children SaaS Continuum © 2009 Montclair Advisors, LLC Confidential Information
  5. 5. The SaaS Continuum On-Premise Hosted ASP SaaS Stage 1 Stage 2 Stage 3 Stage 4 Development Releases Annually Annually Semi-Annually Quarterly Upgrades Major Major Minor On-Going Architecture Single Tenant Single Tenant Mixed or Virtualization Multi Tenant Deployment Implementation Customization Customization Some Customization Configuration Fastest Time Months Months Weeks Hours or Minutes Team Systems Integrator Systems Integrator Boutique Minimal, Self Service Delivery On-Premise Internet, In-house Internet, Co-Lo Internet, Cloud Complexity High High Medium Low Marketing Product Launch Major, Annually Major, Annually Moderate Minor, Quarterly Lead Generation Tradeshows, Email Tradeshows, Email Webinars, Email Social Networking Communications PR Agency PR Agency PR Agency Viral, Social Networks Sales Organization Enterprise, Channel Enterprise, Channel Enterprise, Telesales Telesales, Channel Approach High Touch High Touch Mixed Low Touch Perpetual, PS and Perpetual, PS, Subscription, PS, Pricing Subscription, Set Up Maintenance Hosting, Maintenance Hosting Trials No No Very Limited Yes Source: Montclair Advisors, 2009 © 2009 Montclair Advisors, LLC Confidential Information
  6. 6. Bridging to SaaS Sales Partnerships Model Pricing Integration Development Data Center & Upgrades Software Management Delivery Marketing Comp Strategies Cash Flow Plans © 2009 Montclair Advisors, LLC Confidential Information
  7. 7. Best Practice Considerations Montclair’s Top 10 Best Practices When Moving to SaaS 10. Understand Your True Hosting Costs 9. Be Able to Calculate Your Customer Acquisition Costs 8. Know Your Company’s Actual Customer Retention Rate 7. Model What Subscription Pricing Will Do To Your Cash Flow 6. Define Your New Compensation Plan for SaaS Sales 5. Write a Reasonable Customer Service Level Agreement 4. Figure Out How Quickly You Can Deploy Your Software 3. Be Committed to the Software-as-a-Service Model 2. Do You Have the Right Team to Transition Your Company to SaaS? 1. Make Sure You Have Management and Board Support Before Moving © 2009 Montclair Advisors, LLC Confidential Information
  8. 8. Why is the SaaS Business Model Different? Bessemer’s Top 10 Laws of SaaS 1. Key monthly business metrics: CMRR, Churn and Cash flow 2. Customer Acquisition Costs (CAC) and Customer LifeTime Value (CLTV) are best indicators of long term value creation 3. Tune Before You Scale. 4. Separate ‘Hunters’ and ‘Farmers’. 5. Focus Your Business Development Efforts on Business Service Channels. 6. Savvy Online Marketing is a Core Competence. 7. Stay Local - Prove Your Business in North America First. 8. Single Instance, Multi-Tenant, Single Datacenter. 9. The Most Important part of Software-as-a-Service isn’t ‘Software’ It’s ‘Service’. 10. Be Prepared to Cross the Desert. Source: Byron Deeter and Philippe Botteri, Bessemer Venture Partners © 2009 Montclair Advisors, LLC Confidential Information
  9. 9. Key SaaS Metrics Tracked by OPEXEngine • Contracted Monthly Recurring Revenue (CMRR) • Net new customers for full year 2008 and first half 2009 • Cost per customer to acquire new customer • Cost per customer to maintain a customer per month • Average contract value per customer • Average increase in number of seats per customer for 2008 and for first half 2009 • Average up-sell in dollar value per customer for 2008 and for first half 2009 • Customer renewal rate during 2008 (as a percent of customers up for renewal during 2008) • Dollar renewal rate during 2008 (as a percent of total $ value up for renewal during 2008) © 2009 Montclair Advisors, LLC Confidential Information
  10. 10. SaaS Continuum Benchmarks – Revenue Growth Confidential Benchmarking 2007 vs. 2006 Profit Leaders Perpetual SaaS License Total Recognized Revenue 26.0% 4.3% 70.9% Growth Total Recognized Product 22.0% 2.1% 70.7% Revenue Growth Total Recognized Service 23.6% 4.4% 43.8% Growth Average Recognized Revenue $101,476,187 $110,134,500 $70,719,442 2007 © 2009 Montclair Advisors, LLC Confidential Information
  11. 11. Taleo: 3 Year Comparison - Part 1 OPEXEngine FINANCIAL DASHBOARD TLEO TLEO TLEO 01/01/06- 01/01/07- 01/01/08- Period Start Date and End Date 12/31/06 12/31/07 12/31/08 $000s Market Cap (priced as of the period end date) $273,824 $856,979 $215,865 Recognized Revenue $94,980 $128,070 $168,419 Product Revenue $79,116 $105,032 $138,628 Services Revenue $15,864 $23,038 $29,791 Product Revenue as % of Recognized Revenue 83.3% 82.0% 82.3% Services Revenue as % of Recognized Revenue 16.7% 18.0% 17.7% Recognized Revenue (Prior Period) $78,410 $94,980 $128,070 Revenue Growth / Prior Period 21.1% 34.8% 31.5% 3 Year Revenue CAGR na 29.7% 29.0% Short-Term Deferred Revenue (This Period) $18,547 $45,866 $70,642 Deferred Revenue as a % of Recognized Revenue 19.5% 35.8% 41.9% Total Cost of Revenue $32,158 $40,582 $57,573 Cost of Revenue: Product $19,351 $22,577 $32,390 Cost of Revenue: Services $12,807 $18,005 $25,183 Total Cost of Revenue as a % of Recognized Revenue 33.9% 31.7% 34.2% © 2009 Montclair Advisors, LLC Confidential Information
  12. 12. Taleo: 3 Year Comparison - Part 2 OPEXEngine FINANCIAL DASHBOARD TLEO TLEO TLEO 01/01/06- 01/01/07- 01/01/08- Period Start Date and End Date 12/31/06 12/31/07 12/31/08 Total Operating Expense $70,497 $83,523 $119,262 S&M Expense as a % of Recognized Revenue 31.1% 28.8% 31.9% G&A Expense as a % of Recognized Revenue 22.1% 18.5% 19.4% SG&A Expense as a % of Recognized Revenue 53.2% 47.3% 51.3% R&D Expense as a % of Recognized Revenue 20.6% 17.9% 18.4% Total Operating Expense as % of Recognized Revenue 74.2% 65.2% 70.8% Total Operating Income/Loss ($7,675) $3,965 ($8,416) Total Operating Profit Margin -8.1% 3.1% -5.0% Total Net Margin -4.8% 3.0% -4.9% EBITDA ($3,161) $10,676 $7,885 Total Headcount (Year End) 585 656 878 Total Revenue Per Employee $162 $195 $192 Total Operating Expense per Employee $121 $127 $136 Total Operating Profit per Employee ($13) $6 ($10) EBITDA Per Employee ($5) $16 $9 © 2009 Montclair Advisors, LLC Confidential Information
  13. 13. Concur: 3 Year Comparison - Part 1 OPEXEngine FINANCIAL DASHBOARD CNQR CNQR CNQR 10/01/2007- 10/01/2006- 10/01/2005- Period Start Date and End Date 09/30/2008 09/30/2007 09/30/2006 ($000s) Market Cap (priced as of the period end date) $1,854,041 $1,293,360 $569,633 Recognized Revenue $215,491 $129,107 $97,145 Product Revenue $206,304 $115,996 $80,501 Subscription Fees $206,304 $115,996 $80,501 Services Revenue $9,187 $13,111 $16,644 Product Revenue as % of Recognized Revenue 95.7% 89.8% 82.9% Services Revenue as % of Recognized Revenue 4.3% 10.2% 17.1% Recognized Revenue (Prior Period) $129,107 $97,145 $71,831 Revenue Growth / Prior Period 66.9% 32.9% 35.2% 3 Year Revenue CAGR 44.2% 31.7% 19.6% Short-Term Deferred Revenue (This Period) $29,572 $21,560 $15,974 Deferred Revenue as a % of Recognized Rev 13.7% 16.7% 16.4% Mean Analyst Revenue Estimate (Current Year) $291,874 $291,874 $291,874 Total Cost of Revenue $68,378 $43,711 $37,846 Total Cost of Revenue as a % of Recognized Rev 31.7% 33.9% 39.0% © 2009 Montclair Advisors, LLC Confidential Information
  14. 14. Concur: 3 Year Comparison - Part 2 OPEXEngine FINANCIAL DASHBOARD CNQR CNQR CNQR 10/01/07- Period Start Date and End Date 09/30/08 10/01/06-09/30/07 10/01/05-09/30/06 Total Operating Expense $120,453 $71,744 $52,230 S&M Expense as a % of Recognized Revenue 27.8% 26.5% 23.6% G&A Expense as a % of Recognized Revenue 14.6% 14.5% 14.9% SG&A Expense as a % of Recognized Revenue 42.4% 41.0% 38.5% R&D Expense as a % of Recognized Revenue 10.7% 12.3% 12.8% Total Operating Expense as % of Recognized Revenue 55.9% 55.6% 53.8% EBITDA $47,936 $25,665 $14,805 Total Headcount (Year End) 932 575 500 Total Revenue Per Employee $231 $225 $194 Total Operating Expense per Employee $129 $125 $104 Total Operating Profit per Employee $29 $24 $14 EBITDA Per Employee $51 $45 $30 Cash and Cash equivalents $267,725 $168,835 $16,334 Cash Ratio 3.09 3.93 0.41 © 2009 Montclair Advisors, LLC Confidential Information
  15. 15. Omniture: 3 Year Comparison - Part 1 OPEXEngine FINANCIAL DASHBOARD OMTR OMTR OMTR Period Start Date and End Date 01/01/08-12/31/08 01/01/07-12/31/07 01/01/06-12/31/06 ($000s) Market Cap (priced as of the period end date) $760,313 $1,788,006 $427,075 Recognized Revenue $295,613 $143,127 $79,749 Product Revenue $265,686 $132,010 $74,580 Services Revenue $29,927 $11,117 $5,169 Product Revenue as % of Recognized Revenue 89.9% 92.2% 93.5% Services Revenue as % of Recognized Revenue 10.1% 7.8% 6.5% Recognized Revenue (Prior Period) $143,127 $79,749 $42,804 Revenue Growth / Prior Period 106.5% 79.5% 86.3% 3 Year Revenue CAGR 90.4% na na Short-Term Deferred Revenue (This Period) $101,728 $42,041 $21,885 Deferred Revenue as a % of Recognized Revenue 34.4% 29.4% 27.4% Mean Analyst Revenue Estimate (Current Year) $416,060 $416,060 $416,060 Total Cost of Revenue $125,940 $53,364 $31,826 Cost of Revenue: Product $110,786 $46,411 $28,827 Cost of Revenue: Services $15,154 $6,953 $2,999 Total Cost of Revenue as a % of Recognized Revenue 42.6% 37.3% 39.9% © 2009 Montclair Advisors, LLC Confidential Information
  16. 16. Omniture: 3 Year Comparison - Part 2 OPEXEngine FINANCIAL DASHBOARD OMTR OMTR OMTR 01/01/08- 01/01/07- 01/01/06- Period Start Date and End Date 12/31/08 12/31/07 12/31/06 Total Operating Expense $212,817 $103,085 $56,066 S&M Expense as a % of Recognized Revenue 43.9% 43.0% 44.2% G&A Expense as a % of Recognized Revenue 15.6% 16.9% 15.2% SG&A Expense as a % of Recognized Revenue 59.5% 60.0% 59.4% R&D Expense as a % of Recognized Revenue 12.5% 12.1% 10.9% Total Operating Expense as % of Recognized Revenue 72.0% 72.0% 70.3% Total Operating Expense as % of Rev Rec + Change in Def Rev 59.9% 63.1% 63.2% EBITDA ($30,112) $7,064 $48,433 Total Headcount (Year End) 1,189 713 353 Total Revenue Per Employee $249 $201 $226 Total Operating Expense per Employee $179 $145 $159 Total Operating Profit per Employee ($36) ($19) ($23) EBITDA Per Employee ($25) $10 $137 Cash and Cash equivalents $67,020 $77,765 $68,287 Cash Ratio 0.51 1.92 1.63 © 2009 Montclair Advisors, LLC Confidential Information
  17. 17. Where Are You On The SaaS Continuum? Metrics Stage 1 Stage 4 On-Premise SaaS % Spend on R&D 19-21% 33-35% % Spend on Sales 26% 39% % Spend on Marketing 6.5% 20% % Spend on G&A 15-18% 25-27% Gross Margin on Product 97% 65% Delivery On-site Over Internet Upgrades Major - Once or Twice a Ongoing Year Product Trials Not typically Yes Pricing Perpetual, payment Subscription, priced on a upfront monthly basis © 2009 Montclair Advisors, LLC Confidential Information
  18. 18. About Us Montclair Advisors provides personalized OPEXEngine delivers best-in-class, without exception, financial and operating benchmarks to Software-as-a-Service advisory services tech companies to drive profitability and revenue designed to help SaaS-based and non-SaaS- growth. OPEXEngine was founded by senior based software companies to optimize their operating executives with decades of experience business models, improve revenues, control building successful, high growth, profitable tech costs and deliver world-class software. companies. Visit us at www.montclairadvisors.com, check out Visit us at www.opexengine.com. our Smart SaaS blog at www.montclairadvisors.com/blog and follow us on Twitter @Montclairadvrs. Kevin Dobbs, Owner - Managing Partner Lauren Kelley, CEO Office: 510-336-0019 Office: 781-891-4149 Email: kevin@montclairadvisors.com Email: lauren@opexengine.com © 2009 Montclair Advisors, LLC Confidential Information
  19. 19. Thank You © 2009 Montclair Advisors, LLC Confidential Information

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