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November 22, 2010

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Rwang0

Hi Dennis,

Always very astute observations on your end. I thought I'd provide some clarity here on intent, methodology, and data.

INTENT
Yes, as you've stated, "Software Insider Index is supposed to illustrate software market growth"

The total index has both private and public company numbers. Keep in mind the quarterly tractor is only tracking quarterly YoY deltas. It's there as one data point of many to track market performance.

When we do the yearly index, we do have the estimates of about 80 public and private enterprise software companies. We tend to track companies above 100M in that index. Of course, there's a mix of specialty players, vertical players, mega vendors, etc. There is a market sizing model that drives the trends and predictions. In addition, we're not selling that piece of research either so, this is more informational and directional in intent and augmented by the deal flow we see.

METHODOLOGY
We have a consistent methodology for the past 3 years of taking and breaking out license, professional services, maintenance, hardware, and other revenue from not only the publicly traded financial statements but also privately available data and estimates.

We don't account for currency flux on a quarterly basis but factor this on a yearly basis for the index.

DATA
On data, you state,"..the implication of double-digit growth based on the numbers provided in the blog post overstate what is really happening in the market. "

Actually our private numbers also coincide w/ the forecast on double digit growth for publicly traded and privately held SaaS and middleware vendors. As a quarterly tracking summary, this is not revealed here in the index as privately held companies do not have audited GAAP's we can look at and we are making adjustments.

You state on Oracle, "The Oracle (ORCL) number shown under "on premise apps" has some estimation of the Oracle apps group's share of professional services built into it but doesn't seem to include Oracle's $100-million-plus (quarterly) OnDemand revenue. Nor does that revenue show up in the table of so-called SaaS vendors."

The Oracle number is a pure on-premises apps number. There's no mingling of middleware or OnDemand. Pro Services and Maintenance numbers are estimated from our primary research. The on-demand number is not included here in the on-premises section. You raise a good point, we should pull out the OnDemand number into the SaaS section which is really a mix of subscription revenue providers. More on that below...


You state, "Apparently the bar to getting into this category is pretty low because the analysis accepts all the guys like NetSuite (N), RightNow (RNOW), and Taleo (TLEO) that failed to make it in the real enterprise-software market about 10 years ago -- and therefore slowly morphed to SaaS (as I described here in August 2009) -- but it also includes 20-year-old companies such as Ultimate (ULTI) that just abruptly called its license and maintenance revenue SaaS in 2009 or Ariba (ARBA) that apparently didn't even stop using a license revenue bucket in its accounting but just stopped reporting one."

The SaaS numbers reflect both single tenant and multi-tenant on demand offerings. I'm using the "saas" term loosely here.

Thanks for the opportunity to comment. Always appreciate the good peer review!

- R "Ray" Wang
Software Insider's Point of View


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