SaaS Growth Thrown Into Question - InformationWeek

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2/6/2009
05:35 PM
John Foley
John Foley
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SaaS Growth Thrown Into Question

Steve Cakebread, president and chief strategy officer of Salesforce.com, has resigned, and two other execs are out. One analyst speculates that the company is closing smaller, shorter deals. That wouldn't bode well for the SaaS market.

Steve Cakebread, president and chief strategy officer of Salesforce.com, has resigned, and two other execs are out. One analyst speculates that the company is closing smaller, shorter deals. That wouldn't bode well for the SaaS market.Salesforce is the bellwether of the SaaS market, and it's been on a steady, upward climb. Year-over-year revenue jumped 43%, to $276.5 million, in its third fiscal quarter, ended Oct. 31. If Salesforce's business is softening, it's a warning that other SaaS vendors may be feeling the same pressures.

At this point, the picture is unclear. The company's fiscal fourth quarter closed on Jan. 31 but hasn't been publicly released; if subscription revenue came up short of expectations, those numbers would be circulating internally at Salesforce right about now.

What we do know is that Salesforce predicted in November that revenue for its just-completed quarter would range from $284 million to $285 million, a year-over-year increase of at least 31%. A year ago, Salesforce's fiscal fourth-quarter revenue jumped 50% from the previous year. The company's financials are a picture of slowing growth. While most stocks climbed on the New York Stock Exchange today, Salesforce shares closed down 5%.

As InformationWeek's Mary Hayes Weier reports, Cowen Co. analyst Peter Goldmacher published a note earlier this week in which he postulated that Salesforce's deals with customers "have been downsized and invoice duration has been shortened." Goldmacher noted that Cowen was unaware of any new deals of more than 1,000 seats in the quarter and indicated Salesforce could experience increased customer churn in the near term.

Now that Salesforce is a $1 billion company (its revenue surpassed that threshold last quarter), slower growth is to be expected. My question is whether the harsh economy is causing businesses to curtail spending on SaaS and, if so, the extent to which other cloud computing and SaaS vendors are victims of the same phenomenon.

A promotion running across Salesforce's home page says, "Nearly 90% of organizations expect to maintain or grow use of SaaS in 2009." That data comes from a Gartner survey completed in November, the same month Salesforce forecast growth of 31% for the quarter just ended. It's too early to say that those predictions are wrong, but they no longer seem quite so certain.

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