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SaaS.Analysis
1.
Industry Analysis for
Software as a Service Companies
2.
Cisco Confidential 2©
2013-2014 Cisco and/or its affiliates. All rights reserved. Purpose: To understand key metrics and industry standards in order to move from an On Prem to SaaS delivery model Looked at 22 companies with selected criteria: • Public SaaS Company • Revenue ranging from 0-33 billion • Growth Rates ranging from high growth to mature businesses Analyzed Industry based on: • Gross Margin • Contribution Margin • Professional Services Attach Rate • Revenue Recognition (ratable vs consumption) Methodology • Growth Rate • % spend on R&D • % spend on S&M • Hosting Model AWS BOX Channel Advisor Constant Contact Covisint CVENT DemandWare Hubspot Jive LinkedIn Marketo Netsuite New Relic Oracle Pivotal SAP Service Now SFDC Splunk Workday Xactly Zendesk
3.
Cisco Confidential 3©
2013-2014 Cisco and/or its affiliates. All rights reserved. Reality… Higher Professional Services Attach Rates lead to lower Blended Gross Margins Software Gross Margin is between 70%- 90%* regardless of size of Revenue 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200% BlendedGM% PSAttachRate% Professional Services Attach Rate Vs. Gross Margin PS Attach Rate Blended GM % -50% -30% -10% 10% 30% 50% 70% 90% 110% 130% $- $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 SWGM% Revenue($’k) Software Gross Margin % by Revenue Total Rev SW GW % *Software Includes Subscription & Support *Blended Gross Margin includes Software & Professional Services
4.
Cisco Confidential 4©
2013-2014 Cisco and/or its affiliates. All rights reserved. Reality… -200% -160% -120% -80% -40% 0% 40% 80% 120% 160% 200% -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% ContributionMargin% CM % 3 year CAGR Contribution Margin vs. 3 Year CAGR S&M and R&D as % of Revenue vs. 3 year CAGR High growth companies generally have severely negative contribution margins. Regardless of revenue, average software gross margin is 70%-90%. High Growth companies invest heavily in Sales & Marketing (60-80%). All Companies invest roughly 15-30% in R&D (regardless of growth rate) 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% SMandRD%ofTotalRevenue SM % of Rev RD % of Rev 3 Year CAGR Average length of existence not including Oracle or Sap: 12 years
5.
Cisco Confidential 5©
2013-2014 Cisco and/or its affiliates. All rights reserved. • Invests 127% of revenue in sales & marketing and research & development combined • Sales & Marketing: 96% • Research and development: 31% • No Professional Services • No Royalty Agreements* • Only SaaS company to have a high growth rate and positive contribution margin • 3 year CAGR: 51% • Contribution Margin: 2% • Year founded: 2002 Linkedin • Fastest growing SaaS company in our Analysis • 3 year CAGR: 91% • Contribution Margin: -21% • Year founded: 2005Box
6.
Cisco Confidential 6©
2013-2014 Cisco and/or its affiliates. All rights reserved. No company has successfully done both On-Prem and SaaS delivery models from the same BU – SAP and Oracle do both from different BU’s Software Gross Margin across SaaS industry: 70-90% range High growth companies invest heavily in research and development and even more in Sales and marketing More mature companies have higher contribution margins, and manage OPEX spending. Almost all SaaS companies use 3rd party hosting -considered OPEX and not COGS. All SaaS companies use Ratable Revenue calculation (ex. $10M/5 years = $2M/year) include maintenance (Operate / Basic Support) as part of their Subscription Revenue Average Professional Services Attach rate:10-20% Average Services Gross Margin is Negative (-5% to -10%) SaaS Company Analysis Indicators
7.
Thank you.
8.
Back-up Slides
9.
Cisco Confidential 9©
2013-2014 Cisco and/or its affiliates. All rights reserved. Purpose To understand key metrics and industry standards in order to move from an On Prem to SaaS Selection Process Looked at 22 companies with selected criteria: • Public SaaS Company • Revenue ranging from 0-33 billion Selected companies Analyzed Industry based on: • Attach Rates • GM • CM • Growth Rates • % Spend on R&D and S&M • Revenue Recognition (ratable vs consumption) • Who hosts SFDC Xactly Oracle Marketo Netsuite COVS Workday BOX SAP Jive LinkedIn Splunk Constant Contact Service Now New Relic DemandWare Pivotal AWS CVENT Channel Advisor Hubspot Zendesk
10.
Cisco Confidential 10©
2013-2014 Cisco and/or its affiliates. All rights reserved. Overall Percentage of Software revenue after SW cost of goods sold should be around 70- 90%. Software Gross Margin% by Company • Other companies not included due to unreported software COGS. • SAP and Oracle not represented due to significantly large difference in total revenue. -50% -30% -10% 10% 30% 50% 70% 90% 110% 130% $- $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 Total Rev
11.
Cisco Confidential 11©
2013-2014 Cisco and/or its affiliates. All rights reserved. • SAP & Oracle not included due to extremely large difference in revenue. • Pivotal & covisint not represented due to a 38% and 42% blended GM; both have a higher services to software ratio (PSA) Blended Gross Margin% by Company -50% -30% -10% 10% 30% 50% 70% 90% 110% 130% $- $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 TotalRevenue Total Rev Blended GM %
12.
Cisco Confidential 12©
2013-2014 Cisco and/or its affiliates. All rights reserved. • The majority of high growth public SaaS companies are unprofitable. • More mature companies exhibit positive contribution margins. • Companies with larger growth rates are investing heavily in S&M and R&D Note: Company to look out for- Linked in Only SAAS company to have a positive contribution margin and high CAGR -200% -160% -120% -80% -40% 0% 40% 80% 120% 160% 200% -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% ContributionMargin% CM % 3 year CAGR
13.
Cisco Confidential 13©
2013-2014 Cisco and/or its affiliates. All rights reserved. Key Indicators: SaaS Companies with 0-$310M Revenue Average Across Selected SaaS Companies $0-$310M Revenue: • 3 Year CAGR: ≈ 60% • Software Gross Margin: 70%-90% • Sales & Marketing Spend: ≈ 50%-60% • R&D Spend: 20-25% • Contribution Margin: ≈ -30% Companies Total Revenue 3 Year CAGR Software GM S&M Spend as a % of Rev R&D Spend as a % of Rev Contribution Margin Channel Advisor $84,901 26% 66% 20% -40% Marketo $95,918 72% 71% 2% 2% -49% New Relic $110,391 93% 80% 81% 22% -45% Hubspot $115,876 50% 76% 5% 5% -42% Zendesk $127,049 82% 61% 29% -52% CVENT $142,245 31% 43% 10% 0% DemandWare $160,553 39% 82% 46% 22% -17% Jive $178,693 25% 73% 50% 29% -31% BOX $216,440 92% 78% 96% 31% -21% Splunk $302,623 58% 100% 71% 25% -26% Pivotal $309,000 54% • Software GM not included due to unreported software COGS. • Does not include S&M and R&D for Pivotal due to involvement in EMC inc.
14.
Cisco Confidential 14©
2013-2014 Cisco and/or its affiliates. All rights reserved. Key Indicators: SaaS with $300M+ Revenue Company Total Revenue 3 year CAGR SW GM% S&M Spend as % of Rev R&D Spend as % of Rev Contribution Margin Constant Contact $ 331,678 15% 73% 38% 16% 6% Netsuite $ 556,284 34% 84% 52% 19% -15% Service Now $ 682,563 67% 75% 50% 22% -22% Workday $ 787,860 70% 83% 40% 40% -27% LinkedIn $ 2,219,676 51% 87% 24% 16% 2% SFDC $ 4,071,003 34% 81% 53% 15% -7% AWS $ 5,160,000 14% SAP $ 16,815,000 9% 81% 25% 14% 27% Oracle $ 32,903,000 2% 71% 20% 13% 39% Average Across Selected SaaS Companies with $300M+ Revenue: • 3 Year CAGR: ≈ 60% • Software Gross Margin: 70%-80% • Sales & Marketing Spend: ≈ 40% • R&D Spend: 20% • Contribution Margin: ≈ -15%-30% • Note: Lack of information from AWS due to unavailable 10-k
15.
Cisco Confidential 15©
2013-2014 Cisco and/or its affiliates. All rights reserved. • Bottom line: We want most of our revenue from software. • As companies increase their professional services attach rate, they tend to decrease their blended margins. • Note: other companies not included due to 0% PSA rate 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200% PSAttachRate% PS Attach Rate Blended GM %
16.
Cisco Confidential 16©
2013-2014 Cisco and/or its affiliates. All rights reserved. R&D and S&M spend as a % of Revenue vs 3 year CAGR High Growth Companies Spend nearly 60- 80% of Revenue on Sales & Marketing and 20-40% on R&D 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% BOX New Relic Splunk DemandWare CVENT Constant Contact COVS SAP Oracle SMandRD%ofTotalRevenue SM % of Rev RD % of Rev 3 Year CAGR • Sales & Marketing and research & development revenue expenditures are essential to drive incremental revenue and increase growth rates.
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