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The Ranking of the 50 Fastest Growing Software Companies
The Methodology Behind the 50 Fastest Growing Software Companies
By Robert Hertzberg
New revenue has become difficult to find in the software industry as enterprises curtail their technology investments. But companies delivering their software-as-a-service (SaaS) are faring better, according to CIOZone's second annual survey of growth in the industry.
The survey, which looks at publicly held software companies, shows that companies employing a SaaS model are gaining market share as CIOs look to cut costs and increase flexibility. SaaS companies like Salesforce.com and the Web analytics company Omniture grew far faster than most other software companies in 2008.
"SaaS is a very attractive option in a down economy," said Liz Herbert, a senior analyst at Cambridge, Massachusetts-based Forrester Research. She said enterprises are switching to solutions that have relatively low start-up costs, that can be deployed quickly and that offer the possibility of a fast return on investment. "SaaS fits very nicely into that," she said.
In total, the 50 companies on CIOZone's fastest-growing software list generated revenue of $160.2 billion in 2008, a 13.7% increase from 2007. That was a big slowdown from 2007's 24% revenue jump. Aggregate profit fell 19% to $26 billion in 2008 as many companies were caught with expenses that were too high for their revenue levels.
The slowdowns were evident at many of the biggest software companies. Oracle's growth fell to 17% from 25% in 2007, Adobe's to 13% from 23%, and Symantec's to 9% from 12%. Symantec also posted a $6.3 billion loss, the biggest on our list, as the security company wrote down the value of some previous acquisitions.
Microsoft's growth also dropped dramatically, to 7% from 26%. And last month, in results that aren't captured in the CIOZone survey, Microsoft reported its first quarterly sales decline in its 23 years as a public company.
Many of the software companies that grew, and are growing more quickly, are doing so by taking a relatively narrow application and delivering it through "the cloud," to end users who access it as they would any other Web application. This means there may be no need to install new software or devote any staff to maintaining it-a huge advantage for CIOs at a time when many of them are operating with fewer resources.
CIOs also like the simplicity of the SaaS pricing model-typically a per-seat monthly subscription fee, where upgrades are automatically provided by the vendor and aren't dependent on customers' paying a maintenance fee on top of a license fee.
"The economic climate that we're in throws all of these issues into very strong relief," said Bruce Francis, vice president of corporate strategy at Salesforce.com, the customer-relationship-management vendor whose success with SaaS has set both small and big software companies scrambling to offer similar models. "These big ticket items-the software, hardware and data-center purchases-are really hard to justify right now. That's making a whole new generation of companies take a closer look at cloud computing. I definitely feel like it's coming into prime time."
Among the name-brand customers that started using Salesforce's software in 2008 were Avon Products, Kaiser Permanente, Dow Jones Newswires and SunTrust Banks. Its new business helped Salesforce grow 44%—the third fastest growth rate of any company on our list-and pass the $1 billion revenue mark.
Next: Web Services Companies Outpacing Industry
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