The Dutch Stock Market only has 21 technology and telecommunications companies listed and trading on the Dutch Stock Exchange (AEX). Of these, only two are actually software vendors. Last week they released their numbers.
In line with global (4.5%) and European (3.8%) trends for enterprise application growth in 2012, both vendors have been able to show growth, though both vendors admit that economic conditions are tough and the local market conditions are challenging.
Unit4 announced that its 2012 revenues increased by 5.4% to €469.8 million (2011: €445.7 million) In particular the run rate for cloud revenues of FinancialForce.com grew, with 90% to $17 million. Overall SaaS and Subscription revenue grew 25%.
Exact announced a revenue increase in 2012 of 0.7%, to €217.1 million. License revenue decreased 13.3%, but online revenue increased 47.2%, making up for on-premise loss. Exact’s Cloud Business unit grew 47% to €14.2 million in 2012.
In the Netherlands software remains the biggest driver for growth in the Dutch ICT industry, with application software showing the largest growth. In the enterprise application software segment growth opportunities reside in cloud and SaaS based applications. Our own research shows that spending on SaaS in the Netherlands will grow from €298 million in 2012 to €734 million in 2016, a CAGR of 27%.
As evidenced by the numbers Dutch software vendors place their bets on SaaS and cloud, though change comes very gradual. Local vendors should be expected to generate a profitable cloud business, as they tend to have more vertical expertise, offer best-of-breed, and focus less on ERP suites. Their strength lies in vertical and horizontal functionality, which is more favorable in a SaaS expansion model. Exact follows this route with very specific vertical as well as horizontal solutions. As of this year, the company plans to release its SaaS offering – Exact Online – in the UK, US and Germany with France following in 2014. Unit4’s Financial.Force is making big strides with 90% growth. Financial.Force has the Salesforce look and feel, and will surely benefit from Salesforce growth.
The fact that these companies are growing their SaaS subscriptions is not surprising. Indeed, you’re in trouble if you do not have a growing SaaS offering. So we need to look beyond the numbers and look at other elements as well:
- Are vendors addressing new markets or cannibalizing existing market share (or partner market share) with their cloud offering? In most cases cloud born vendors are addressing new markets, net new revenues. Enterprise application vendors with existing product lines have a much bigger chance of getting trapped into taking market share from their existing market.
- Who is actually able to translate growth to profit? At the moment much of the on-premise profits are being invested in SaaS or cloud expansion models. For cloudborn companies it is still a challenge to create a profitable SaaS business model . Salesforce latest financials still have no sign of profit. On-premise vendors face the same challenge, but have an additional ramp-up challenge, that affects available cash flow and solvability.
- Who is able to actually build and attract a SaaS ecosystem, build an active appstore, and attract partners to its SaaS platform. Traction is everything, and building the footprint is the major concern for vendors at the moment.
We can’t get away from the impression that Dutch software vendors are still struggling with the cloud business model. Selling online subscriptions appears to be more difficult than selling on premise solutions. Issues such as the customer experience, transforming sales teams and partner profit models, but also trust & security issues and SLA’s are hurdles that still need to be taken by the vendor before they are able to adopt a full wide spread cloud model. These challenges do not only affect the two large listed companies. The Netherlands houses many other software application vendors such as Twinfield, Afas (which does not have a true cloud offering yet though), Reeleezee and many more smaller cloud vendors. Growth does not (yet) translate into profit. But then again, we have not seen many vendors setting the example yet.
If you are the exception to the rule, let us know!
Spot on: Pure play Saas is a revenue growth play, not a profit-play (yet).
For the more global perspective, within ISVWorld we track 100.000 ISVs, of wich we’ve put ± 22K in the “Cloud Ecosystem”; as part of that we benchmark SaaS P&L’s to “All ISV” P&L’s and a snapshot of ± 1000 companies shows you’re right, driven a/o by R&D and Sales/G&A spending