Tuesday, November 10, 2009

New SaaS 13 Index: Welcome to LogMeIn (Nasdaq: LOGM)!

While poised with a limited number of transactions this year, the world of public Cloud Computing and SaaS companies has been marked by two events in the past few months: the acquisition of Omniture by Adobe and the high profile IPO of LogMeIn, a leading provider of PC remote access and support with a very interesting freemium model.

The acquisition of Omniture by Adobe for $1.8B was a great outcome for the company (kudos to Josh James, their visionary founder & CEO!) and the second SaaS public transaction in history behind the acquisition of Webex by Cisco in 2007 for $3.2B. After Google buying Postini, the SaaS M&A market continues to be full of surprises. Who would have thought that Adobe would acquire Omniture? It is intriguing to see the M&A dynamics in the space, highlighting the interest of tech companies for recurring revenue streams - even SAP announced in their analyst call earlier this month that they were moving from perpertual licenses to five year term licences. Hopefully this trend will continue (and accelerate!) in 2010.

On the IPO front, LogMeIn made the news, being one of the few tech IPO on the NASDAAQ in 2009. The stock was very well received, jumping 25% on its first day of trading. Today, the stock is still up 22% and the company is trading at a very healthy 4.2 EV/09 rev. multiple, with 43% 08/09 growth rate and double digit free cash flow margin. Congrats to Jim Kelliher, CFO and Michael Simon, CEO, for a successful IPO!

These events led me to redesign the SaaS 13 Index. I have changed the composition of the Index with LogMeIn officially replacing Omniture and Dealer Trak and AthenaHealth replacing Salary.com and LivePerson. The Index has also been reset to start at 100.00 on January 1st 2008. All the multiples and CAC ratio have been adjusted to reflect this update.

As you can see on the graph below, the Index made a nice come back this year and we are just at 11% down since Jan. 2008 after flirting with the lows in March 09 at -65%.

Unveilling of the Bessemer's 10 laws of Cloud Computing and SaaS - Winter 2010 Release

When we first published the Bessemer’s Top 10 Laws for Being “SaaS-y" on Sandhill.com almost two years ago in conjunction with our annual Cloud/SaaS CEO Summit, we were overwhelmed with the positive response and feedback we received. We have heavily modified many of the best elements that we believe are still relevant, and have added several entirely new concepts for this update publication on Cloud Computing and SaaS.

The Cloud computing stack is currently defined by three levels: SaaS, PaaS, and IaaS. Software as a Service (SaaS), the most mature of these segments, is comprised of end user applications like Salesforce.com. Platform as a Service (PaaS) is the service and management layer of the cloud platform, and is evolving dynamically to include things such as intelligent provisioning, as well as application and network management. Infrastructure-as-a-Service (IaaS) is the foundational layer of cloud computing, and includes raw storage, compute, backup, disaster recovery, databases, and security. As the first segment to emerge in scale and the most application oriented, SaaS has lead the market to date with the largest market size, highest gross margins, and highest per-seat pricing. Recently, however, we have seen the rapid emergence of hyper-growth businesses in the PaaS and IaaS markets demonstrating that these will soon be independent, multi-billion dollar segments in their own rights with the potential for massive sales volume and attractive cash flow characteristics.

Here is the new version of the 10 Laws of Cloud Computing and SaaS:

  1. Less is more! Leverage the cloud everywhere you practically can (more...)

  2. Get instrument rated, and trust the 6C's of Cloud Finance (more...)

  3. Study the Sales Learning Curve and Only Invest behind Success (more...)

  4. Forget everything you learned about software channels. The internet is your new channel and Technology Enabled Service providers are among the few partners that actually care if you succeed (more...)

  5. Build Employee Software. Employees are now powerful customers, not just their managers! We are witnessing the “Consumerization of Software” so focus on ease of use (more...)

  6. By definition, your sales prospects are online - Savvy online marketing is a core competence (sometimes the only one) of every successful Cloud business (more...)

  7. The most important part of Software-as-a-Service isn’t "Software" its "Service"! Support, support, support! (more...)

  8. Leverage and monetize the data asset (more...)

  9. Mind the GAAP! Cloud accounting is all about matching revenue and costs to consumption…well, except for professional services! (more...)

  10. Cloudonomics requires that you plan your fuel stops very carefully (more...)

BONUS LAW: You can ignore one or two of these rules, but not more - Great companies innovate, but pick your battles! (more...)

You can download the full white paper at www.bvp.com/cloud or click here