Times Still Tough for Software Vendors, Though Less so for SaaS

Ann All

When I interviewed Saugatuck Technology CEO Bill McNee back in July, following the release of second-quarter financial results, most enterprise software vendors were suffering but on-premise vendors were feeling a far more severe pinch than their software-as-a-service counterparts. The numbers: top-line revenue growth of 3.7 percent and a contraction of 14.6 percent in new license revenues for on-premise players monitored by Saugatuck, vs. top-line growth of 25.2 percent and deferred revenue growth of 18 percent for SaaS companies.


The overall trends didn't change much in 2009's third quarter, based on Ray Wang's observations on his A Software Insider's Point of View blog. Now, as then when I spoke with McNee, maintenance revenues continue to help on-premise vendors deal with the loss of new-licenses revenues. While SaaS looks relatively strong as a category, some SaaS vendors saw declines in growth, with Wang offering Concur (12.94 percent), Ultimate Software (9.76 percent), Taleo (8.77 percent) and NetSuite (3.22 percent) as examples.


Despite this, the long-term economic outlook continues to favor SaaS, writes Wang. Gartner Research Director Sharon Mertz agrees with Wang, predicting that SaaS will enjoy consistent growth through 2013. In a recent report, Mertz writes that global SaaS revenue will reach $7.5 billion this year, up 17.7 percent from 2008.


The fourth quarter will be "a great buying season" for software customers, says Wang, with vendors discounting licenses and professional services. Like McNee (and lots of other market observers), Wang is also predicting "significant acquisitions" in the SaaS space next year, with hardware vendors, telecommunications providers and "other companies looking to gain software multiples" among the likely buyers.


Though it's a bit tricky for on-premise software providers as they don't want to cannibalize their existing solutions, many of them have the money and some of them may have the wherewithal to purchase SaaS vendors. I've also written before about the possibility of business process outsourcing providers purchasing SaaS companies, to help reduce their delivery costs and differentiate their service offerings.


Still, writes Wang, "hybrid deployment will continue to be the norm." Indeed, vendors including IBM and Microsoft are pitching hybrid models for collaboration software, and 95 percent of executives recently surveyed by services provider Avanade said they expect most companies will adopt a hybrid model of enterprise computing rather than a cloud-only model.

Add Comment      Leave a comment on this blog post
Nov 29, 2009 3:28 AM Cynthia West Cynthia West  says:

I agree that the model will be a hybrid. We find that some companies still prefer on premise solutions for a variety of reasons. Sometimes if the customer wants the database access of an on premise, but has an overloaded IT team, we can offer them a dedicated server option which has the benefits of SaaS and on premise. Another hybrid model.


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