The year ended well for our SaaS portfolio companies, and particularly
well for our online marketing and advertising platform companies. While Europe remained soft, NA more than made
up for it. All of online advertising
platform companies exceeded their budgets, in some cases by as much as
40%. We also saw margin expansion as
several of our SaaS companies were able to continue raising license
prices. However, these companies
continue to hire aggressively (sales, engineering, customer support) as they
try to keep up with the accelerating adoption of SaaS. Based on the end of the
year activity it became obvious that, as I had written,
the enterprise buyers were holding back in previous quarters and, once again,
flushed their budgets during 4Q. The
buying activity and our interactions with solution buyers led us to conclude
that 2013 is starting with strong optimism around online marketing solutions,
as well as general SaaS solutions for the mid-upper enterprise. We are more circumspect about the 2013
application budgets of global enterprises where we, and investment analysts
from Morgan Stanley, Piper Jaffray and other banks, continue to see very modest YoY
increases. We expect 2-2.5% for the year
for the global enterprise but 4-6% for the mid-upper enterprise and over 10%
for online marketing and advertising solutions, in particular.
Based
on the results announced to date by the public SaaS companies we monitor, e.g.,
Netsuite, Demandware, ServiceNow, Jive, Cornerstone OnDemand, Qualys (Trident
portfolio company) their performance during 4Q12 remained strong, in-line with
analyst expectations. Brightcove less
so. Valueclick and Millennial Media, two
public online advertising platform companies we follow, announced strong 4Q12. The public SaaS companies continue to be
impacted by the global macro environment and the decreasing IT spending. We continue to see moderating revenue growth
for these companies, compared to the explosive growth we had seen in the
past. Based on the announced results, I
expect that for 2013 these companies, and our corresponding portfolio
companies, will show consistent YoY growth in the range of 25-50%.
Overall,
the number of M&A technology transactions, and the value of those
transactions, during 2012 were slightly down from 2011, but cloud computing in
general attracted more of the acquirers’
attention. However, 4Q12 was another
active quarter for SaaS M&A. Oracle
bought Eloqua, as it continues to bolster its marketing technology solutions
portfolio, Synchross bought Newbay from RIM, and Citrix's acquisition of
Zenprise.
In 4Q12 we invested in Fruition
Partners. This is our first investment
in a tech-enabled services company that has built its business around a SaaS
solution, in this case ServiceNow’s solution.
We were impressed by Fruition’s growth trajectory, capital
efficiency, and differentiated IP that is built on top of ServiceNow’s
application.
Positive aspects of our SaaS portfolio’s performance:
Strong license revenue growth of 30% QoQ for
the online advertising platform companies, and 15-20% of the remaining SaaS
companies. Our portfolio companies saw
contracts with higher ARR (due to broader corporate deployments) and fewer
multi-year contracts (which we liked). During
the quarter our companies also saw less pressure for discounts, an issue that
was a concern in 3Q12. 4Q is typically
the strongest quarter for the advertising platform companies, and this year was
no exception. Based on our direct checks
regarding advertising budgets for 2013 we are starting the year being very
optimistic.
Steady renewal rates (85-90%) with strong
upsells in 15-20% (similar to last quarter) of the renewing customers, with the
exception of social application companies where, as I had also written when I
was reporting the 3Q12 results, we continue to see higher than expected churn (15%
MRR churn) by mid-market clients.
Sales pipelines grew well, indicating continued
interest in SaaS applications in general and online advertising platforms. We
see continued interest for solutions for the CMO and also in data-driven
solutions.
During the quarter our SaaS portfolio
companies saw increasing interest for partnerships by large IT vendors. Many of these partnerships are driven by
large enterprise customers that want to see SaaS applications, particularly
social business applications, integrated into larger enterprise platforms,
e.g., CRM, HRMS, eCommerce. We expect
that these partnerships will start taking shape during the 1H13.
Negative aspects of our SaaS portfolio performance (none of these are
new compared to what we reported in the past):
Higher than expected revenue and customer
count churn in social business application companies. We see this as
the result of customers having
difficulty establishing the ROI for many applications of this type. It
also follows a more general, and important to follow, trend we
observed during 4Q12 regarding social in the enterprise. In particular,
we saw
that enterprises started merging their social interaction
departments/organizations, which during 2011 and 2012 operated as
standalone
entities, into their marketing departments, presumably to better
integrate
their overall marketing efforts and thus try to achieve better ROI from
these
efforts.
Lead generation and nurturing remains uneven. Lead generation is becoming more effective
due to the strong interest in SaaS solutions.
However, nurturing these leads and converting them into sales qualified
opportunities still requires too much field sales involvement.
We have been pleased with the end of the year performance of our entire
SaaS portfolio and particularly our advertising and marketing platform
companies. 2012 was a transformative
year for many of them as they entered the growth stage of their lifecycle,
aided by the overall market’s growing appetite for SaaS solutions.
