Nicholas Carr discusses the upcoming year for SaaS (software as a service) or
On-Demand software in 2008:
SaaS’s breakout year? posted in his in his “Rough Type” blog on
January 03, 2008. He refers to posts from Jeff
Kaplan and Phil Wainewright
who postulate 18 reasons why 2008 will be the year of SaaS.
All are strong reasons for the growth of On-Demand software and, as Nicholas points out, On-Demand vendors or the infrastructure vendors that they will use to host applications have invested in capacity for that growth.
Are we in a breakout year for On-Demand software? Will it rule the application space? Or will it meet the fate of many an internet and telecom vendor from the Internet boom and bust era (has it only been five or so years!)?
More likely the growth is there; it may be significant, but it probably isn’t as mind boggling as the zealots are proclaiming. And some vendors will flourish, some will fade away and others will be bought by the software titans.
The On-Demand (or SaaS) stock index
We will discuss On-Demand software and its impact on DW, BI and performance
management solutions that people are implementing. One of the ways to view this market, but it is only one metric, is to watch the stock performance. I am introducing the On-Demand (or SaaS) stock index. This index will be initially be composed of the following dozen companies:
Concur Technologies (CNQR)
Constant Contact (CTCT)
Kenexa Corporation (KNXA)
Netsuite Inc (N)
Rightnow Technologies (RNOW)
Salesforce.Com Inc (CRM)
Taleo Corporation (TLEO)
Vocus, Inc. (VOCS)
An index can be built using a weighted market cap or an equal weight formula.
Using the weighted market cap method the index is based on the amount of outstanding stock each company has, with large firms often dominating the movement of the index.
The equal weight approach allocates the same amount of hypothetical money invested in each company’s stock. This method provides a more representative sample of how the stocks are doing in aggregate. I have chosen to build the On-Demand Index using the equal weight approach.
On January 2nd I posted a reference to a cautionary stock recommendation regarding the SaaS stocks. The On-Demand Index has declined 8.8% since January 1st while the NASDAQ has declined 5.3%. The first three trading days of this year have been a great illustration of momentum investing, i.e. sometimes all companies in an industry go up together and then they all go down together regardless of individual company performance.
Remember, stock performance, especially for new tech categories, is often overly optimistic and then gets overly pessimistic. We will watch the index to see where we are going in the long-run.
I set up a similar index back at the beginning of December on http://www.marketocracy.com/ with a set of Saas firms (obviously adding Netsuite at time of IPO.)
BBBB CNQR CRM DMAN HIRE KNTA KNXA LOOP LPSN N OMTR RNOW SFSF SLRY TLEO TRAK TZIX ULTI VOCS VSCN WSTM
I have set up both a weighted & unweighted approach – getting beat at the moment on both.
Results for equal weight approach.
Saas Index -7.99%
S&P 500 -3.84%
Lucky it isn’t real money, only virtual 🙂
How has the weighed index done?
You have a good assortment of firms represented. I anticipated adjusting the index based on feedback and insight from others. Your feedback is very helpful.
I can’t believe I forgot to include Blackboard (BBBB) since I think the product is terrific (I teach a course for the Graduate School of Engineering at a Boston-base university so I use it from an instructor persepctive.)
Forwarding on this link to you of a report from GOLDMAN SACHS on the saas market – not sure if you have seen it. They have a taken a scorecard approach for evaluating saas players and the industries the play in. They also highlight additional saas firms (public/private)
I think the fund is probably at the bottom of the trough at the moment – with the upcoming Q4 / Yr end results in the next couple of weeks, I expect things to improve.