Our growth-based valuation approach to Software as a Service (SaaS) companies has received significant industry recognition and use. Five public SaaS acquisitions confirmed our SaaS valuation model last published in March of 2011. During 2011 and 1Q2012, SaaS companies maintained and even expanded the valuation premium gap to the rest of the software sector. Even though acceptance of SaaS among business and IT buyers has grown meaningfully in 2011 and Q12012, production use indicates a very early stage of adoption. As the market matures, revenue growth remains the dominant valuation factor. Other SaaS valuation variables such as cash flow growth, expansion in GAAP profitability, and a premium for dominant market share are likely to gain prominence by 2014-2015. This Research Note provides updated valuation benchmarks and a revised SaaS valuation formula. It reviews key operating data, risks to SaaS valuations, equity market performance, and MGI’s outlook for SaaS M&A. Key issues include:
MGI Latest Research
MGI Research coverage enables IT executives, users and investors to make more informed, timely and critical go/no-go decisions on issues that directly affect valuations, market entry and exit, major investments, acquisitions and divestitures. MGI core quantitative research helps technology vendors and investors to more accurately assess and benchmark company operating performance and strategy and identify ways for improvement in growth, gains in market share and valuation multiples. MGI core quant data underpins MGI Advisory Services and Benchmarking engagements. Research themes focus on the major non-linear industry trends such as virtualization, cloud computing, SaaS, emerging mobile platforms, 4G, social media and Agile and their impact on the user, vendor and investor strategies. Access to MGI research materials is available by Subscription. Select research notes are available in our Research Store. Subscribers get priority access to all published research as well as analyst consultation. Among companies covered are Salesforce.com, Oracle, Google, Microsoft, SAP, IBM, HP, CA, BMC and others.
The Future of Mobile Apps – One on One with a Market Leader
2011 was a landmark year in which more apps were developed for mobile devices than for all other platforms combined. Enterprise demand for building mobile apps is hot – and hasn’t gone unnoticed by the major software companies. SAP’s recently acquired Syclo, and Symantec announced two mobile software deals in March. Sam Lakkundi, the head of strategy at Kony Solutions, a leading provider of mobile enterprise application platform (MEAP) offers his views on the future of mobile apps, the opportunities and risks associated with HTML5, and what leading financial services companies are doing to differentiate themselves with mobile apps.
SaaS Procurement: 20 Questions with the CEO of Coupa Rob Bernshteyn
The CIO’s Role in IT Negotiations - 15 Best Practices
With formal IT spending consuming anywhere from one to fifteen percent of revenues, CIOs, CFOs and CEOs often ask: "What specific actions should every CIO be taking to improve the outcome of IT negotiations?". In response to these client requests, the MGI analytic team collaborated with our Senior Adviser Joe Galuszka to create a set of actionable CIO best practice for IT negotiation. This report details the top 15 actions that every CIO can take to ensure maximum negotiation leverage and effectiveness. Employing these best practices has enabled clients to improve negotiated results by 10-25%+, - resulting in hundreds of thousands, and even millions of dollars in net savings – not to mention significantly improved contract terms and conditions and improved vendor relationships.
Using Force.com in Higher Ed - Interview with the CEO of Enrollment Rx
Mobile Enterprise Application Platforms (MEAPs): A Buyer’s Guide
Mobility is becoming the mainstream platform for application access and for on-line transactions. This research report aims to help companies optimize their mobile development strategies and make more intelligent choices with regard to mobile app development tools. We examine the various strategies for automating mobile apps development and specifically look at the applicability and requirements for Mobile Enterprise Application Platforms (MEAPs) - software development environments that can automate creation of mobile applications for many mobile environments from a single code base. The report focuses on how organizations can transition their mobile application strategies from disposable to reusable, from artisanal to industrial, what tools are appropriate for which types of mobile apps and how to evaluate such tools. The research contained in the report blends and balances both the LOB and marketing views of mobile choices with those emanating from within the IT organizations. To view a PDF version of this Buyer's Guide Summary please, click here.
Trusted Cloud - Market Size Estimates
We estimate the size of the Trusted Cloud services market at slightly over $2 Billion in 2016 up from less than $500 Million in 2012. We see it as a specialized, high-growth opportunity significantly shaped by demand for cloud computing services from US federal, state and local government.
In a cloud computing context, Information Security is consistently one of the top concerns of business and IT executives. Despite vendor assurances of tight security controls within the cloud and statistically a relatively low rate of security incidents, most potential and actual cloud services buyers see the cloud as essentially a black box and its security as something they are asked to take on faith. Cloud suppliers like Amazon Web Services, Rackspace, Salesforce.com and others point out the miniscule current number of service disruptions due to security issues and the large ongoing investment into increased security controls. Many cloud suppliers have gone to great lengths to hire top security talent and obtain security certifications from government and industry bodies. Still, there continues to be a lingering fear and doubt about how secure the digital assets placed into the cloud are. Is security holding back the rate of cloud adoption? Would the adoption accelerate dramatically if the cloud was perceived to be more secure? What do vendors have to do to make users feel that the cloud can be trusted? Would customers be willing to pay extra for an additional layer of security and does that translate into a business opportunity? In this research report we assess the probability for at a potential new market that we term as Certified Trusted Cloud or CTC, address its evolution scenarios and estimate its market size. The report is focused on the US, non-consumer sector.
20 Questions with Rootstock Software CEO Pat Garrehy
Until recently, successful SaaS companies have excluded core manufacturing functionality, and focused on departmental and/or horizontal functionality far from the plant floor. That’s about to change. Rootstock Software, founded by a team of experienced manufacturing ERP experts, is creating a new generation of manufacturing applications based in the cloud. In this 20 Questions session with Rootstock Software CEO Pat Garrehy we explore the following key issues:
- The feasibility of using a SaaS model for manufacturing apps
- How to leverage cloud platforms like Force.com and NetSuite for complex applications and
- The experience of selling and deploying SaaS manufacturing apps into customer environments of different sizes, locations and industries
Pat Garrehy is singularly qualified to share his views on these topics. Prior to his role as the CEO of Rootstock, Pat has served for over 20 years as the CEO of Relevant Business Systems, a full-suite ERP solution for defense and aerospace industries. Simillarly, Rootstock is unique amongst manufacturing-focused SaaS vendors to run in both the NetSuite and Salesforce (Force.com) clouds.
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