Well... If you see VCs going ga-ga over Software as a Service (SaaS for short) companies the latest rumors about NetSuite should give you a clue why. The grapevine tells us that the on-demand ERP provider will be going public with a whooping $1 billion valuation which is about 10.5X on their revenues. Apart from hype what is the reason for such a valuation?
To me it's simple. SaaS just makes sense!
For the customer deploying service based applications means they don't have to go through the nagging and tedious IT and procurement processes. They can deploy applications on a small scale before committing the whole organization. When they decide to go for a full blown deployment the total cost of ownership will still be significantly lower than standard enterprise applications. IT guys are likely to cry foul and say that integration is going to be more difficult and the organization will lose the synergies between applications. Well... feel free to boo them and tell them to go learn about the new era of application integration.
For the ISV SaaS means that scaling sales is easier, implementation cycles are shorter and making new offerings available to your entire user base is much simpler. These attributes translate into revenue growth that is not as linked to cost as in traditional models. As you know high growth means high share prices and that in turn causes investors to go ga-ga.
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