Dutch software vendor Exact reported its 1H 2012 results results and updated the market on its future strategic direction. Highlights include:
- Reports strong SaaS growth (+45%) in the Benelux, SaaS now 6% of total revenues and 35% of license revenues
- Announces restructuring into Cloud Solutions (Exact Online) and Business Solutions (on-premise) units
- Directs new investments into Cloud Solutions business unit
- Reorganises for (international) growth of Exact Online in the UK, Germany, France and in the US
To address Exact Online growth, Exact is following the textbook SaaS business expansion paths in its core software offerings, its horizontal and vertical solutions, and its partner ecosystem (see figure below).
SaaS Core Expansion
Exact is growing the SaaS core through:
- Features & functionality: adding new business processes like Exact Online CRM
- API: providing interfaces to banks, accountants and software partners
- Mobility: providing Exact Online iOS and Android mobile clients
We expect more Exact offerings to be cloudified. HRM looks like a prime candidate to follow CRM. In addition, we expect further developments of APIs into more horizontal solutions (project administration, collaboration, etc.) and mobility client expansion to Windows 8.
Horizontal and Vertical Expansion
We see Exact extending the reach of its SaaS offerings through horizontal and vertical expansions:
- Branch specific: Adding new branches such as Retail & Hospitality, Trade, Business Services, and eCommerce
- Size specific: Exact segments offerings into basis, advanced, and premium; providing modules and add-ons
- Cross business process functionality: integrates Microsoft Office 365
We are curious to find out Exact’s expansion plans in horizontal cross business process functionality beyond integrating with Microsoft.
Partner Ecosystem Expansion
Exact is extending the reach of its partner ecosystem through adding an appstore that resells partner apps and aims to provide a one-stop-shop for the SMB customer:
- Appstore: End of 2012, Exact aims to launch an appstore for partners to sell their software to the Exact customer base
- PaaS: The Exact Online Add-on program gives software developers access (for a monthly fee) to Exact’s customer base through providing custom apps for specific solutions based on the Exact sdk
- Partner programs: Exact is still struggling with its direct – indirect model. Exact has not developed specific partner programs for the Exact Online offering which is mainly a direct play for Exact. It does have a specific partner program for accountants though, who use, sell and promote Exact Online. Affiliates get compensation based on click-through rates
Having an appstore is inevitable, partners who develop products that interface with yours need a platform to sell these. A successful appstore or marketplaces depends a lot on gravity – who attracts the most customers is most successful. Vendors like SAP, Microsoft, Salesforce.com offer the same service to their partners (and customers). An Exact appstore will benefit from its strong local presence, internationally the vendor will face more fierce competition. With the addition of CRM and the foray into international markets Exact will need to beef up its partner ecosystem both in the type of partners and the geographic spread.
Bottom Line
Exact needs to carefully manage its traditional on-premise software business for profitability and at the same time manage its cloud business for growth. With on-premise customers demanding OPEX based pricing structures similar to cloud, the challenge is to maintain Business Solutions profitability whilst reducing up-front license revenues.
With Exact Online positioned to grow 30-50% on an annual basis, and firmly established in the Benelux, the challenge is to build out the international footprint without jeopardising Cloud Solutions (future) profitability. This can be done through acquisition, organic growth, business partner expansion, and following customers abroad. As Exact has spend 2011 consolidating (from 33 to 13 subsidiaries), and renewed focus on its core accountancy products, we expect Exact to focus on organic growth, with acquisitions focused on extending the core.
Exact investors need to realise that reaching profitability in the SaaS business is not a short term proposition and that the margins on the Business Solution unit will be used to invest in cloud. For example, Salesforce, the worldwide leader in CRM cloud, is still struggling
to reach profitability.
In addition, Exact will encounter fierce competition from the likes of Salesforce in CRM and from the like of Sage and Twinfield (Wolters Kluwer) in the international online accounting market. Local vendors like Reeleezee, Visma (Accountview) and AFAS will challenge the leader’s cloud offering in the Benelux.
Given the challenges highlighted above, the restructuring into separate business units for cloud and on-premise is a sensible step and will provide clearer direction and focus. Where in the past Exact’s reorganizations were aimed at cost reduction and consolidation, the current announcement is focused on future growth. We look forward to see the vendor expand and execute its strategy.
PS: Check out our Dutch CRM SaaS Opportunity research piece for more information on the potential addressable CRM market for Exact in the Netherlands. Also, check out our our Exact to Challenge Channel Issues as SaaS Adoption Grows blog piece for more information on how existing Exact partners should deal with Exact Online.
