Zombie Software Companies
March 26, 2009 1 Comment
You have likely heard about zombie banks – those without the resources to make new loans. I have heard industry analysts begin to talk about zombie software companies. These are the former icons of the ERP market who no longer have the resources to invest in new technology and win new customers.
Is All Revenue Equal?
This is a chart of the license fees and EBITDA of one of our larger, publicly-traded competitors with a 3-letter name. As with others of its ilk, it keeps topline revenue somewhat flat (vs. a dramatic decline) through acquisitions, increasing maintenance fees and cannibalizing professional services revenues from its partners. License revenue is the true indicator of the health of a software company. EBITDA, of course, is an indicator of whether the company is creating value for its shareholders and whether its customers value what it delivers.
SaaS is Where the Growth Is
It seems all the revenue growth is coming from SaaS companies. Salesforce.com is a $1billion company. Netsuite is over $100million. RightNow, Ultimate and many others are doing well even during these dark times.
Plex Systems posted 33% growth in 2008 over 2007. The first quarter of 2009 is on pace to be roughly 25% above Q1 2008. We are facing the same macro conditions as QAD, SAP, Infor, Epicor, Lawson, Exact and the rest.
SaaS just makes sense. It is the only sustainable model for the years ahead.
Beware the Zombies!