KUHN CAPITAL Monday, March 19, 2018
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Software On (and In) Demand


A thorough look at public software vendor marketcaps reveals that the software-as-a-service sector (that is, software functionality delivered online) is on a roll, especially when contrasted with the older SCM (supply chain management) and ERP (enterprise resource planning) sectors.

As of May 23, an analysis by boutique investment bank Updata had 14 online software vendors – companies like Salesforce.com, Blackboard, Ariba, and Digital Insight – enjoying an average P/E ratio of 44x.

A group of seven SCM players, vendors like Ariba, Manhattan Associates, i2 and JDA, saw an average PE of about 23x, while seven ERP vendors (e.g., CDC, Epicor and Lawson) supported an average PE of 22x.

A “disruptive” technology, software-as-a-service changes the traditional industry model from periodic releases of ever more expensive, one-size-fits-all “bloatware” to continuous, selective enhancement of only those functions you actually want to use. Pioneering Salesforce.com management deserves much of the credit for successfully commercializing an approach that may one day force overpriced software vendors -- we're thinking Microsoft -- to charge in some relationship to value.

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