Altman Vilandrie & Company: SAAS Companies May be Overvalued
''The big question we asked was: Is there’s light at the end of the SaaS tunnel, or put differently, will SaaS financials start to get more attractive? The answer is a definite maybe,''' said Altman Vilandrie & Company Director Josh Zaretsky. ''While many of these SaaS firms have been operating within a bubble of unconditional love from investors, decelerating revenue growth will force them to adopt more traditional business tactics, like cost-cutting and price increases. However, we found that even those tactics are fraught with hazards in this disruptive market.''
For one part of the study, Altman Vilandrie & Company tracked eight publicly-traded software companies transitioning to SaaS and found that these firms boosted market capitalizations by an average of 300 percent in five years despite down or flat revenues over the same period. Added Zaretsky: ''Does it make sense that a software company transitioning customers from one method of consuming an application to another, SaaS, has in parallel increased its value by 300% in five years?''
The paper, which was developed through industry research and interactions with Altman Vilandrie & Company’s software, SaaS and IT services clients over the past year, also features a rigorous survey of 700 IT decisionmakers across 15 verticals. Altman Vilandrie & Company worked with survey respondents to determine the impact of price increases across a range of SaaS packages and vendors.
Of the 13 application and provider combinations tested, the survey reveals that only Oracle would not experience a market share reduction after raising prices. On the flipside of that, Salesforce was the only company to see a slight market share drop if it lowered its pricing. Other providers featured in the study include: Microsoft, IBM, Intuit, SAP, Adobe, Atlassian, Autodesk, Sage, Cornerstone, Marketo, NetSuite, New Relic, Workday and Zendesk.
Other key findings of the paper include:
- While SaaS is dominating certain software markets, including Human Capital Management (HCM) and Customer Relationship Management (CRM), some, like Supply Chain Management (SCM) have been slow to make the shift.
- Markets with high SaaS penetration experience a wide range of pricing levels, and a corresponding wide range of vendor capabilities to raise or lower prices and achieve positive results.
- SaaS pricing was one of only two factors to receive negative reviews from respondents relative to their perception of SaaS before they purchased. Integration with third-party apps ranked lowest.
- Large SaaS firms spend nearly twice as much on sales and marketing (as a percent of revenue) compared to software firms.
- While resellers are less a part of the SaaS story compared with software, SaaS players will increasingly need resellers, a topic to be covered in the next report on this study.
About Altman Vilandrie & Company
Altman Vilandrie & Company, www.altvil, is a strategy consulting group that focuses on the telecom, media, technology and investor sectors. The company’s consultants are experienced in strategy, marketing, finance, M&A, technology, regulatory and operations disciplines. Based in Boston, with offices in New York City and San Francisco, Altman Vilandrie & Company enables clients to seize new opportunities, navigate mounting challenges, improve business performance and increase investor value within complex and converging industries.
More The Cloud News
- Red Hat OpenShift Top Choice for Enterprise Kubernetes Platform
- Microsoft Launches Cloud Incubation Program in China
- Diesel Engine Specialist Upgrades ERP to Infor CloudSuite Industrial
- Really Simple Systems Moves CRM Services to Google Cloud
- STT Connect Choose Armor To Protect Cloud Solution
- Biznet Launches NEO Cloud with Canonical BootStack
- IDC's Top 10 Prediction on IT Industry for 2018 and Beyond
- Baby Bottles Goes to The Cloud
- Cloud Business Platform: The Path to Digital Insurance 2.0
- US Army Transform Its Global Network with Commercial Cloud Solutions