The Softletter Benchmark 53 are all publicly-held companies and most of our basic business metrics are derived from documents these companies are legally required to provide to investors.
We have completely revamped our Benchmark 50, now the Benchmark 53, to reflect the profound changes the software industry has undergone over the last several years. The profiled are now broken into eight segments that provide a representative overview of industry trends and performance. Below are listed the current members of the Softletter Benchmark 53. This list is periodically updated to reflect changes in company status and viability.
The Big Four
- Microsoft
- Apple
- Oracle
We understand that the inclusion of Apple may be questioned by some, but considering that Apple is one of the largest sellers of Apple software, the largest reseller of iOS apps (with 30 point margin per sale), and that iOS apps generate about 70% of all app revenue, we believe it’s very apropos to include them in our benchmark list. We also believe that over time, Apple’s software will generate increasing amounts of revenue for the Cupertino giant, particularly as interest in device independent software portable software environments grows. However, when comparing Apple’s performance against “pure” software companies, keep in mind they’re a hardware/software hybrid.
You will note IBM is missing from the list. The reason is that Big Blues is now primarily a consulting firm, not a software publisher and increasingly not even a producer of “machines.” The imperial days when IBM reigned over computing ended 30 years ago with the demise of OS/2.
SaaS Sales and Marketing
- Constant Contact
- Marketo
- Netsuite
- Salesforce
- HubSpot
- Cvent
- LivePerson
The second cohort is SaaS Sales and Marketing. This is a dynamic market sector that includes 1200 pound gorilla Salesforce.com, NetSuite, and other vibrant firms such as Marketo and HubSpot.
SaaS Enterprise
- Workday
- Zendesk
- Veeva
- Demandware
- ServiceNow
- Benefit Focus
- LogMeIn
Third is SaaS Enterprise. When Softletter began covering the rebirth of SaaS in 2004 and 2005, the concept of “enterprise” SaaS sounded comical to many people. But today, the reign of server-based enterprise software is coming to an end. Investment in on-premise software is over (yes, there a few increasingly rare exception but not enough to count). These days, when companies look for systems to help manage company-wide needs, they begin with a SaaS search. Only if one is not available will they look for an on-premise alternative.
SaaS B2B/C Verticals
- Angie’s List
- Wix
- Pandora
- Blackbaud
- Qualsys
- Realpage
- Callidus
Fourth is SaaS Verticals. This group ties back to the beginnings of the SaaS revival after the ASP collapse of 2001. SaaS established itself by occupying niches and new markets that could not be reached by on-premise products. It is a myth that corporate and CIO acceptance fueled its growth.
Mobile B2B
- Millenia Media
- Medl
- Glu Mobile
- Turbine
- Perion
- Intellicheck
- NQ Mobile
Next is Mobile B2B. Mobile applications are growing rapidly, but they face a unique set of business challenges. Growth must come from one of two primary sources. The first is very high volume sales, as there’s tremendous market resistance to paying high prices for apps (ask the poor GPS firms that attempted to sell $50+ mapping systems to iOS and Android owners. It was not a pretty sight. And Apple price caps products in the App Store at $999.00. The second is services built upon network effect data, something that can’t exist unless sales or use volume creates it. Until recently, not enough publicly-held mobile B2C firms existed to justify creating this category.
Mobile B2C
- NQ Mobile
- King Digital
- Fitbit
- Electronic Arts
- Zynga
- Majesco
- Yelp
- Renren
Mobile B2C is the most unstable group in the Benchmark 52. The category is dominated by gaming companies, and trends (and revenue) can vanish as quickly as a plant zombie meeting a mulcher, then reappear in new and very profitable guises. It will be an interesting category to track.
Social Networking
- In LinkedIn
- Snap Interactive
- MeetMe
- Mediabistro
- Sina
We now come to Social Networking. Who doesn’t want to know how all those companies tracking our movements, encouraging us to expose every aspect of our personal lives, invading our privacy, and reselling our contacts and personal networks are doing financially? We certainly do.
On Premise
- Microfocus
- Autodesk
- Red Hat
- Progress
- Symantec
- Nuance
Finally, we come to our legacy group, On Premise. We expect this group to be relatively quiet financially (and to shrink), but in the meantime, we think it will be a useful yardstick to measure the rest of the industry against. One area of potential growth for on premise is in the area of portable backup for data and portable work environments. Over the years, as people move their computing environments to the cloud, paranoia about the safety and portability of your data will increase, replacing the traditional worries about the fact that you really should backup your PC/laptop/tablet regularly but never do. We expect a market for quick backup of cloud applications and data to local resources to be a future growth area.
Research and Development Analysis
R&D tends to be a stable metric, except when the industry is living through interesting times, as it is now. In the space of nine years, beginning in 2007, SaaS and mobile apps completely disrupted a development, infrastructure, and distribution system that had been in place since the late 70s. In a placid environment, R&D as a percentage of revenue generally hovers between 12% to 18% of total revenue. (But don’t be fooled by the executive summary. Within the categories there are some startling differences.)
But in an industry undergoing disruption, the numbers can gyrate wildly, as a look at the complete Benchmark 60 makes clear. Numbers in Social Networking and Mobile B2B and B2C are all over the place. For a sense of the good old days, snuggle on up to On Premise with a plushie, some nice herbal tea, and perhaps watch an episode of Family Ties on Nickelodeon.
Why do R&D numbers vary so widely in these segments? For several reasons. These include:
- A company’s core product or service is under attack and it’s trying to code its way out of the mess.
- A market segment is opening up and the firm’s geeks are attempting to out-innovate the competition and build overwhelming market share by filling the feature tick lists ahead of everyone else.
- The original product the company launched into the market has been found out to be a grievous heap of sh…errr…dung and must be fixed immediately.
- Someone in upper management is bored, has a brilliant idea, and the R&D staff has been taxed with creating the next entrepreneurial miracle.
There are other reasons, most of which are usually related to the above.
Please note “Years” may not correspond to company fiscal years. Individual firms are averages; segments are medians. * 2009 filings not yet available.
Research and Development, 2013 – 2014, The Softletter Benchmark 53
| Companies | R&D 2014 | R&D 2013 | Rev 2014 | Rev 2013 | Ratio 14 | Ratio 13 | Average |
| Big Four | 12% | ||||||
| Microsoft | $11,400,000,000 | $10,400,000,000 | $86,833,000,000 | $77,849,000,000 | 13% | 13% | 13% |
| $9,832,000,000 | $7,137,000,000 | $66,001,000,000 | $55,519,000,000 | 15% | 13% | 14% | |
| Apple | $6,000,000,000 | $4,500,000,000 | $182,795,000,000 | $37,037,000,000 | 3% | 12% | 8% |
| Oracle | $5,200,000,000 | $4,900,000,000 | $38,275,000,000 | $37,180,000,000 | 14% | 13% | 13% |
| Median | 13% | 13% | 13% | ||||
| SaaS Sales and Marketing | |||||||
| Constant Contact | $53,100,000 | $45,600,000 | $331,678,000 | $285,383,000 | 16% | 16% | 16% |
| Marketo | $30,337,000 | $23,321,000 | $149,954,000 | $95,918,000 | 20% | 24% | 22% |
| Netsuite | $106,706,000 | $78,312,000 | $556,284,000 | $414,508,000 | 19% | 19% | 19% |
| Salesforce | $623,798,000 | $429,479,000 | $4,071,003,000 | $3,050,195,000 | 15% | 14% | 15% |
| HubSpot | $25,600,000 | $15,000,000 | $115,876,000 | $77,634,000 | 22% | 19% | 21% |
| Cvent | $14,000,000 | $11,200,000 | $142,245,000 | $111,136,000 | 10% | 10% | 10% |
| LivePerson | $37,329,000 | $36,397,000 | $209,931,000 | $177,805,000 | 18% | 20% | 19% |
| Median | 18% | 19% | 19% | ||||
| SaaS Enterprise | |||||||
| Workday | $182,000,000 | $103,000,000 | $468,938,000 | $273,657,000 | 39% | 38% | 38% |
| Zendesk | $36,403,000 | $15,288,000 | $127,049,000 | $72,045,000 | 29% | 21% | 25% |
| Veeva | $26,300,000 | $14,600,000 | $146,621,000 | $73,280,000 | 18% | 20% | 19% |
| Demandware | $34,983,000 | $20,787,000 | $145,879,000 | $95,733,000 | 24% | 22% | 23% |
| ServiceNow | $148,258,000 | $78,678,000 | $682,563,000 | $424,650,000 | 22% | 19% | 20% |
| Benefit Focus | $41,729,000 | $23,532,000 | $137,420,000 | $104,752,000 | 30% | 22% | 26% |
| LogMeIn | $33,516,000 | $29,023,000 | $221,956,000 | $166,258,000 | 15% | 17% | 16% |
| Median | 24% | 21% | 23% | ||||
| SaaS Verticals | |||||||
| Angie’s List | $34,039,000 | $27,570,000 | $315,011,000 | $245,642,000 | 11% | 11% | 11% |
| Wix | $57,832,000 | $29,660,000 | $115,733,000 | $80,473,000 | 50% | 37% | 43% |
| Pandora | $53,153,000 | $31,294,000 | $920,802,000 | $600,233,000 | 6% | 5% | 5% |
| Blackbaud | $77,200,000 | $65,600,000 | $564,421,000 | $503,817,000 | 14% | 13% | 13% |
| Qualsys | $26,300,000 | $21,700,000 | $133,579,000 | $107,962,000 | 20% | 20% | 20% |
| Realpage | $64,418,000 | $50,638,000 | $404,551,000 | $377,022,000 | 16% | 13% | 15% |
| Callidus | $20,307,000 | $17,143,000 | $136,618,000 | $112,337,000 | 15% | 15% | 15% |
| Median | 15% | 13% | 15% | ||||
| Mobile B2B | |||||||
| Millenia Media | $29,468,000 | $18,966,000 | $296,164,000 | $259,171,000 | 10% | 7% | 9% |
| Medl | $40,639 | $42,969 | $2,805,632 | $2,310,815 | 1% | 2% | 2% |
| Glu Mobile | $64,284,000 | $46,877,000 | $223,146,000 | $105,613,000 | 29% | 44% | 37% |
| Turbine | $7,869,000 | $1,322,000 | $24,404,000 | $3,855,000 | 32% | 34% | 33% |
| Perion | $23,959,000 | $13,393,000 | $330,757,000 | $277,275,000 | 7% | 5% | 6% |
| Intellicheck | $1,823,147 | $2,056,744 | $6,613,000 | $7,298,000 | 28% | 28% | 28% |
| NQ Mobile | $25,665,000 | $17,437,000 | $332,324,000 | $196,702,000 | 8% | 9% | 8% |
| Median | 10% | 19% | 18% | ||||
| Mobile B2C | |||||||
| King Digital | $177,934,000 | $110,502,000 | $2,260,241,000 | $1,884,301,000 | 8% | 6% | 7% |
| Fitbit | $54,167,000 | $27,873,000 | $745,433,000 | $271,087,000 | 7% | 10% | 9% |
| Electronic Arts | $1,125,000,000 | $1,153,000,000 | $3,575,000,000 | $3,797,000,000 | 31% | 30% | 31% |
| Zynga | $396,553,000 | $413,001,000 | $690,410,000 | $873,266,000 | 57% | 47% | 52% |
| Majesco | $2,263,000 | $5,542,000 | $34,368,000 | $47,267,000 | 7% | 12% | 9% |
| Yelp | $65,181,000 | $38,243,000 | $377,536,000 | $232,988,000 | 17% | 16% | 17% |
| Renren | $50,675,000 | $77,956,000 | $82,954,000 | $147,947,000 | 61% | 53% | 57% |
| Median | 17% | 16% | 17% | ||||
| Social Networking | |||||||
| $536,184,000 | $395,643,000 | $1,528,545,000 | $972,309,000 | 35% | 41% | 38% | |
| $2,666,000,000 | $1,415,000,000 | $7,872,000,000 | $5,089,000,000 | 34% | 28% | 31% | |
| $1,403,002,000 | $664,890,000 | $691,543,000 | $593,992,000 | 34% | 28% | 31% | |
| Snap Interactive | NA | NA | $13,558,690 | $12,610,092 | NA | NA | NA |
| MeetMe | $28,324,443 | $26,660,709 | $44,817,436 | $40,378,007 | 63% | 66% | 65% |
| Mediabistro | $3,557,000 | $2,810,000 | NA | NA | NA | ||
| Sina | $192,322,000 | $146,332,000 | $768,241,000 | $665,106,000 | 25% | 22% | 24% |
| Median | 34% | 28% | 31% | ||||
| On Premise | |||||||
| Microfocus | $54,900,000 | $52,000,000 | $418,100,000 | $410,600,000 | 13% | 13% | 13% |
| Autodesk | $611,100,000 | $600,000,000 | $2,273,900,000 | $2,312,200,000 | 27% | 26% | 26% |
| Red Hat | $317,300,000 | $263,200,000 | $1,534,615,000 | $1,328,817,000 | 21% | 20% | 20% |
| Progress | $58,965,000 | $57,336,000 | $332,533,000 | $333,996,000 | 18% | 17% | 17% |
| Symantec | $1,039,000,000 | $1,026,000,000 | $6,676,000,000 | $6,906,000,000 | 16% | 15% | 15% |
| Nuance | $338,500,000 | $289,200,000 | $1,923,500,000 | $1,855,300,000 | 18% | 16% | 17% |
| Ansys | $165,400,000 | $151,400,000 | $936,021,000 | $861,260,000 | 18% | 18% | 18% |
| Median | 18% | 17% | 17% | ||||
R&D Benchmark 53 Analysis
As we noted in the executive summary, R&D ratios gyrate widely in new and competitive markets and an examination of the Benchmark 53 bears out that assertion. Mobile B2B and B2C are very unstable, with results as low as 1%! (this is an indicator of a company in search of a monetization model) to 57% (Zynga, a game company attempting to code itself to that next you-can’t-put-it -down-while-commuting-to-work app game. Virtual farms can only take you so far.) Notice that Electronic Arts is not far behind Zynga; building hot new games and platforms is expensive and even the most successful franchises lose their glitter (ask Ultima Online, EverQuest, and yes, even World of Warcraft, which lost 44% of its subscribers last year. So it has always been in the wild and wooly world of digital gaming. But, when all is said and done, the medians for the groups come in towards the high end of historic norms.
Social Networking is the standout in terms of high R&D costs and the reason is simple. These companies are in high growth mode and competing viciously with each other. Facebook wants to be Google and become a platform, Google wants to be a platform and become Facebook (and displace Microsoft), Twitter wants to avoid being crushed by Facebook, likewise LinkedIn., which with its SWAM systems (Site Wide Auto Moderation) has proved you can innovate yourself into pure stupidity. SaaS Enterprise is likewise a highly competitive arena as on-premise solutions recede from the market and new opportunities open up.
Note the overall R&D winner is Apple, with 3%.
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