I’ve long had real doubt about the ability of traditional vendors to move to SaaS. The reason for this has very little to do with technological barriers but rather it is the corrosive effects on revenue that a move to recurring models brings – the fact is shareholders are used to traditional vendors throwing off lots of free cash from their regular upgrade cycles forcing customers to keep spending – SaaS impacts upon that.
Further to that, and given the widely accepted thought that service is the biggest differentiator, a SaaS model forces vendors to be completely attuned to their users needs. Despite all vendors saying this is their approach, I’d contend that traditional software which forces customer lock-in, doesn’t do much at all to make vendors inclined to really think about their customers on an ongoing basis.
As Jeff Kaplan pointed out in a recent post;
Rearchitecting their applications may be the easiest task in the transformation process. Redesigning their go-to-market strategies and ongoing operations; restructuring their revenue recognition models; and reorienting their staff are the more difficult challenges.
Of course there are some exceptions to the norm – Coda2go is one par excellence. Another company doing some interesting things in terms of embracing this new paradigm is Callidus.
Callidus recently announced the intention to move it’s entire range of products to SaaS. They’ve been offering some SaaS solutions for awhile – but it’s always been as an aside to their main installed products. They’re really jumping into this change headfirst – CEO Leslie Stretch said in their recent briefing;
We made real strides this past quarter toward transitioning more fully to a recurring revenue model. We closed significant on-demand business in the quarter with sixteen customers increasing their annual recurring commitments…. Some recent and upcoming actions we are taking to better position us to capitalize on the SPM market opportunity include completion of the move to recurring revenues, significant restructuring actions in June and July to reduce annualized expenses by over $10 million and putting in place new leadership in the sales and marketing functions that will be 100% dedicated to growing our recurring revenue business.
Which speaks to the fact that much more than a technology change, a move to SaaS places demands on all aspects of the business, requiring employees that understand the nuances of recurring revenue and service-led delivery.
Despite the difficult parts of a move to SaaS, Callidus’ financials are interesting, especially given that they’re operating in a very down economy. Recurring revenue already represented 53% of Callidus’ last year revenues, but even more interestingly they reported generating 18% margins from their recurring revenues compared to a net loss from overall operations in the second quarter (whatever happened to SaaS being corrosive on total revenues huh?).
It’s great to see Callidus embark on this journey – it’s not for the faint of heart but it’s a strategy that will ensure their ongoing survival.
Also in the news recently has been a couple of announcements of traditional vendors buying fledgling SaaS companies – McAfee is planning to buy MX Logic while GFI Software, a London-based security vendor, bought Hound Dog Technology, a U.K.-based managed services platform vendor.
Tellingly, Walter Scott, CEO of GFI said that this sort of development by acquisition;
is the easiest solution to get started with for a reseller or IT professional to start [a SaaS] offering for their clients. It can be up and running in 10 minutes