Bridging the SaaS Continuum

© 2009 Montclair Advisors, LLC Confidential Information

Bridging the SaaS Continuum

Presented by

Montclair Advisors andOPEXEngine

July 2009

© 2009 Montclair Advisors, LLC Confidential Information

What’s Different about a SaaS Business?

1. Cash flows

2. Contracts

3. Customer relationships and satisfaction

4. Trackable metrics

5. Management objectives

6. SaaS selling vs. Enterprise selling

7. Sales compensation

8. Internet marketing and social networking

9. R&D management and product development

10. Hosting management

© 2009 Montclair Advisors, LLC Confidential Information

SaaS Market Landscape

Infra

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Source: Montclair Advisors, 2009

© 2009 Montclair Advisors, LLC Confidential Information

The SaaS Poster Children

SaaS Continuum

© 2009 Montclair Advisors, LLC Confidential Information

The SaaS ContinuumOn-Premise

Stage 1Hosted Stage 2

ASPStage 3

SaaSStage 4

DevelopmentReleases Annually Annually Semi-Annually Quarterly

Upgrades Major Major Minor On-Going

Architecture Single Tenant Single Tenant Mixed or Virtualization Multi Tenant

Deployment

Implementation Customization Customization Some Customization Configuration

Fastest Time Months Months Weeks Hours or Minutes

Team Systems Integrator Systems Integrator Boutique Minimal, Self Service

Delivery On-Premise Internet, In-house Internet, Co-Lo Internet, Cloud

Complexity High High Medium Low

Marketing

Product Launch Major, Annually Major, Annually Moderate Minor, Quarterly

Lead Generation Tradeshows, Email Tradeshows, Email Webinars, Email Social Networking

Communications PR Agency PR Agency PR Agency Viral, Social Networks

Sales

Organization Enterprise, Channel Enterprise, Channel Enterprise, Telesales Telesales, Channel

Approach High Touch High Touch Mixed Low Touch

Pricing Perpetual, PS and Maintenance

Perpetual, PS, Hosting, Maintenance

Subscription, PS, Hosting Subscription, Set Up

Trials No No Very Limited Yes

Source: Montclair Advisors, 2009

© 2009 Montclair Advisors, LLC Confidential Information

Bridging to SaaS

Pricing

Cash Flow

Sales Model

CompPlans

MarketingStrategies

SoftwareDelivery

Development& Upgrades

Integration

Partnerships

Data CenterManagement

© 2009 Montclair Advisors, LLC Confidential Information

Best Practice Considerations

Montclair’s Top 10 Best Practices When Moving to SaaS

10. Understand Your True Hosting Costs9. Be Able to Calculate Your Customer Acquisition Costs8. Know Your Company’s Actual Customer Retention Rate7. Model What Subscription Pricing Will Do To Your Cash Flow6. Define Your New Compensation Plan for SaaS Sales5. Write a Reasonable Customer Service Level Agreement4. Figure Out How Quickly You Can Deploy Your Software3. Be Committed to the Software-as-a-Service Model2. Do You Have the Right Team to Transition Your Company to SaaS?1. Make Sure You Have Management and Board Support Before Moving

© 2009 Montclair Advisors, LLC Confidential Information

Why is the SaaS Business Model Different?

Bessemer’s Top 10 Laws of SaaS

1. Key monthly business metrics: CMRR, Churn and Cash flow2. Customer Acquisition Costs (CAC) and Customer LifeTime Value (CLTV)

are best indicators of long term value creation3. Tune Before You Scale.4. Separate ‘Hunters’ and ‘Farmers’.5. Focus Your Business Development Efforts on Business Service Channels.6. Savvy Online Marketing is a Core Competence.7. Stay Local - Prove Your Business in North America First.8. Single Instance, Multi-Tenant, Single Datacenter.9. The Most Important part of Software-as-a-Service isn’t ‘Software’ It’s ‘Service’.10. Be Prepared to Cross the Desert.

Source: Byron Deeter and Philippe Botteri, Bessemer Venture Partners

© 2009 Montclair Advisors, LLC Confidential Information

Key SaaS Metrics

• Contracted Monthly Recurring Revenue (CMRR)• Net new customers for full year 2008 and first half 2009• Cost per customer to acquire new customer• Cost per customer to maintain a customer per month• Average contract value per customer• Average increase in number of seats per customer for 2008 and for first half 2009• Average up-sell in dollar value per customer for 2008 and for first half 2009• Customer renewal rate during 2008

(as a percent of customers up for renewal during 2008)• Dollar renewal rate during 2008

(as a percent of total $ value up for renewal during 2008)

Tracked by OPEXEngine

© 2009 Montclair Advisors, LLC Confidential Information

SaaS Continuum Benchmarks – Revenue Growth

43.8%4.4%23.6%Total Recognized ServiceGrowth

$70,719,442$110,134,500$101,476,187Average Recognized Revenue2007

70.7%2.1%22.0%Total Recognized ProductRevenue Growth

70.9%4.3%26.0%Total Recognized RevenueGrowth

SaaSPerpetualLicense

Profit Leaders2007 vs. 2006

Confidential Benchmarking

© 2009 Montclair Advisors, LLC Confidential Information

Taleo: 3 Year Comparison - Part 1

34.2%31.7%33.9% Total Cost of Revenue as a % of Recognized Revenue

$25,183$18,005$12,807Cost of Revenue: Services

$32,390$22,577$19,351Cost of Revenue: Product

$57,573$40,582$32,158Total Cost of Revenue

41.9%35.8%19.5% Deferred Revenue as a % of Recognized Revenue

$70,642$45,866$18,547Short-Term Deferred Revenue (This Period)

29.0%29.7%na 3 Year Revenue CAGR

31.5%34.8%21.1% Revenue Growth / Prior Period

$128,070$94,980$78,410Recognized Revenue (Prior Period)

17.7%18.0%16.7% Services Revenue as % of Recognized Revenue

82.3%82.0%83.3% Product Revenue as % of Recognized Revenue

$29,791$23,038$15,864Services Revenue

$138,628$105,032$79,116Product Revenue

$168,419$128,070$94,980Recognized Revenue

$215,865$856,979$273,824Market Cap (priced as of the period end date)

$000s

01/01/08-12/31/08

01/01/07-12/31/07

01/01/06-12/31/06Period Start Date and End Date

TLEOTLEOTLEOOPEXEngine FINANCIALDASHBOARD

© 2009 Montclair Advisors, LLC Confidential Information

$9$16($5) EBITDA Per Employee

($10)$6($13) Total Operating Profit per Employee

$136$127$121 Total Operating Expense per Employee

$192$195$162 Total Revenue Per Employee

878656585Total Headcount (Year End)

$7,885$10,676($3,161)EBITDA

-4.9%3.0%-4.8% Total Net Margin

-5.0%3.1%-8.1% Total Operating Profit Margin

($8,416)$3,965($7,675)Total Operating Income/Loss

70.8%65.2%74.2% Total Operating Expense as % of Recognized Revenue

18.4%17.9%20.6% R&D Expense as a % of Recognized Revenue

51.3%47.3%53.2% SG&A Expense as a % of Recognized Revenue

19.4%18.5%22.1% G&A Expense as a % of Recognized Revenue

31.9%28.8%31.1% S&M Expense as a % of Recognized Revenue

$119,262$83,523$70,497Total Operating Expense

01/01/08-12/31/08

01/01/07-12/31/07

01/01/06-12/31/06Period Start Date and End Date

TLEOTLEOTLEOOPEXEngine FINANCIALDASHBOARD

Taleo: 3 Year Comparison - Part 2

© 2009 Montclair Advisors, LLC Confidential Information

Concur: 3 Year Comparison - Part 1

39.0%33.9%31.7% Total Cost of Revenue as a % of Recognized Rev

$37,846$43,711$68,378Total Cost of Revenue

$291,874$291,874$291,874Mean Analyst Revenue Estimate (Current Year)

16.4%16.7%13.7% Deferred Revenue as a % of Recognized Rev

$15,974$21,560$29,572Short-Term Deferred Revenue (This Period)

19.6%31.7%44.2% 3 Year Revenue CAGR

35.2%32.9%66.9% Revenue Growth / Prior Period

$71,831$97,145$129,107Recognized Revenue (Prior Period)

17.1%10.2%4.3% Services Revenue as % of Recognized Revenue

82.9%89.8%95.7% Product Revenue as % of Recognized Revenue

$16,644$13,111$9,187Services Revenue

$80,501$115,996$206,304 Subscription Fees

$80,501$115,996$206,304Product Revenue

$97,145$129,107$215,491Recognized Revenue

$569,633$1,293,360$1,854,041Market Cap (priced as of the period end date)

($000s)

10/01/2005-09/30/2006

10/01/2006-09/30/2007

10/01/2007-09/30/2008Period Start Date and End Date

CNQRCNQR CNQROPEXEngine FINANCIAL

DASHBOARD

© 2009 Montclair Advisors, LLC Confidential Information

0.413.933.09 Cash Ratio

$16,334$168,835$267,725Cash and Cash equivalents

$30$45$51 EBITDA Per Employee

$14$24$29 Total Operating Profit per Employee

$104$125$129 Total Operating Expense per Employee

$194$225$231 Total Revenue Per Employee

500575932Total Headcount (Year End)

$14,805$25,665$47,936EBITDA

53.8%55.6%55.9% Total Operating Expense as % of RecognizedRevenue

12.8%12.3%10.7% R&D Expense as a % of Recognized Revenue

38.5%41.0%42.4% SG&A Expense as a % of Recognized Revenue

14.9%14.5%14.6% G&A Expense as a % of Recognized Revenue

23.6%26.5%27.8% S&M Expense as a % of Recognized Revenue

$52,230$71,744$120,453Total Operating Expense

10/01/05-09/30/0610/01/06-09/30/0710/01/07-09/30/08Period Start Date and End Date

CNQR CNQR CNQROPEXEngine FINANCIALDASHBOARD

Concur: 3 Year Comparison - Part 2

© 2009 Montclair Advisors, LLC Confidential Information

Omniture: 3 Year Comparison - Part 1

39.9%37.3%42.6% Total Cost of Revenue as a % of Recognized Revenue

$2,999$6,953$15,154Cost of Revenue: Services

$28,827$46,411$110,786Cost of Revenue: Product

$31,826$53,364$125,940Total Cost of Revenue

$416,060$416,060$416,060Mean Analyst Revenue Estimate (Current Year)

27.4%29.4%34.4% Deferred Revenue as a % of Recognized Revenue

$21,885$42,041$101,728Short-Term Deferred Revenue (This Period)

nana90.4% 3 Year Revenue CAGR

86.3%79.5%106.5% Revenue Growth / Prior Period

$42,804$79,749$143,127Recognized Revenue (Prior Period)

6.5%7.8%10.1% Services Revenue as % of Recognized Revenue

93.5%92.2%89.9% Product Revenue as % of Recognized Revenue

$5,169$11,117$29,927Services Revenue

$74,580$132,010$265,686Product Revenue

$79,749$143,127$295,613Recognized Revenue

$427,075$1,788,006$760,313Market Cap (priced as of the period end date)

($000s)

01/01/06-12/31/0601/01/07-12/31/0701/01/08-12/31/08Period Start Date and End Date

OMTR OMTROMTROPEXEngine FINANCIALDASHBOARD

© 2009 Montclair Advisors, LLC Confidential Information

Omniture: 3 Year Comparison - Part 2

1.631.920.51 Cash Ratio

$68,287$77,765$67,020Cash and Cash equivalents

$137$10($25) EBITDA Per Employee

($23)($19)($36) Total Operating Profit per Employee

$159$145$179 Total Operating Expense per Employee

$226$201$249 Total Revenue Per Employee

3537131,189Total Headcount (Year End)

$48,433$7,064($30,112)EBITDA

63.2%63.1%59.9% Total Operating Expense as % of Rev Rec + Change in DefRev

70.3%72.0%72.0% Total Operating Expense as % of Recognized Revenue

10.9%12.1%12.5% R&D Expense as a % of Recognized Revenue

59.4%60.0%59.5% SG&A Expense as a % of Recognized Revenue

15.2%16.9%15.6% G&A Expense as a % of Recognized Revenue

44.2%43.0%43.9% S&M Expense as a % of Recognized Revenue

$56,066$103,085$212,817Total Operating Expense

01/01/06-12/31/06

01/01/07-12/31/07

01/01/08-12/31/08Period Start Date and End Date

OMTR OMTROMTROPEXEngine FINANCIALDASHBOARD

© 2009 Montclair Advisors, LLC Confidential Information

Where Are You On The SaaS Continuum?

20%6.5%% Spend on Marketing

Subscription, priced on amonthly basis

Perpetual, paymentupfront

Pricing

YesNot typicallyProduct Trials

OngoingMajor - Once or Twice aYear

Upgrades

Over InternetOn-siteDelivery

65%97%Gross Margin on Product

25-27%15-18%% Spend on G&A

39%26%% Spend on Sales

33-35%19-21%% Spend on R&D

Stage 4SaaS

Stage 1On-Premise

Metrics

© 2009 Montclair Advisors, LLC Confidential Information

About Us

OPEXEngine delivers best-in-class, withoutexception, financial and operating benchmarks totech companies to drive profitability and revenuegrowth. OPEXEngine was founded by senioroperating executives with decades of experiencebuilding successful, high growth, profitable techcompanies.

Visit us at www.opexengine.com.

Lauren Kelley, CEOOffice: 781-891-4149Email: [email protected]

Montclair Advisors provides personalizedSoftware-as-a-Service advisory servicesdesigned to help SaaS-based and non-SaaS-based software companies to optimize theirbusiness models, improve revenues, controlcosts and deliver world-class software.

Visit us at www.montclairadvisors.com, check outour Smart SaaS blog atwww.montclairadvisors.com/blog and follow uson Twitter @Montclairadvrs.

Kevin Dobbs, Owner - Managing PartnerOffice: 510-336-0019Email: [email protected]

© 2009 Montclair Advisors, LLC Confidential Information

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