Revenue Per Employee 2016, Executive Summary

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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 firms 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
  • Google
  • 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 Blue 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 60. 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
  • Facebook
  • Twitter
  • Snap Interactive
  • MeetMe
  • Mediabistro
  • Sina

Next up is 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.

RPE Analysis

Revenue per Employee is one of the most popular financial metric by which to measure a software company’s performance. RPE is indeed a useful productivity indicator, but several caveats apply. One is that a healthy RPE does not necessarily translate to a dynamic, growing company. That’s why despite its handsome RPE, Microsoft stock has not excited anyone in the last several years. Larger companies do tend to generate large RPE numbers; business does indeed benefit from scale, as the Big Four’s handsome numbers demonstrate. But while companies are growing rapidly (something that makes IPOs exciting and the hearts of investors beat faster), RPE can suffer greatly as revenue is devoted to hiring, R&D, and sales and marketing programs that drive growth.

Another point to remember is that a major layoff can temporarily boost RPE; however, this is usually only a temporary fix. But CFO’s love to point to the sugar of enhanced RPE numbers as proof of increased efficiency and health at a struggling company. Sometimes there’s a big crash at the end of the rush.

When analyzing RPE, the sweet spot you should be looking for is:

  • Is the company in an active, growing market segment?
  • Is the company outperforming its contemporaries in terms of RPE?
  • Has the company avoided laying off significant numbers of employees in the previous fiscal year?

If the answer to the above is yes, RPE can be used as a significant indicator of growth and good management.

Below is an executive summary broken out by group.

Executive Summary, RPE, 2016

Revenue

 2014
Median (000s)

 2013
Median (000s)

Big Four $954,872 $974, 455
SaaS Sales and Marketing   $198, 422   $184,813
SaaS Enterprise $202,236 $156,375
SaaS B2C Verticals  $184,370  $183,557
Mobile B2B  $241,624  $193,785
Mobile B2C $390,237 $429,334
Social Networking $321,700 $245,166
On Premise $309,333 $321,209

To see the complete Benchmark numbers for all 60 companies and read more in-depth analysis, please subscribe to Softletter on this site.

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