Wednesday, February 11, 2009

Micro SaaS Success

Over the past few days much has been said about the apparent decline in growth at Salesforce and how that might reflect on Software as a Service (SaaS) providers in general.  Salesforce has become the poster child for SaaS, not in a small part because of it's market share and rate of growth.  It seems to me that the media and industry pundits are unsure if the rules of free market (saturation, segment maturity etc.) apply to SaaS.  Salesforce is doing incredibly well but by no means is it immune from the basic trends of a market downturn, when sales are down, CRM products take a hit, SaaS or not.  The real question is how is Salesforce doing against it's sector.  When you examine their traditional software cousins in this market, Salesforce looks simply stellar.  

It is my opinion that the real barometer of SaaS success in the marketplace is not to look at the elephants but the rabbits.  In a tough economic period, how does an emerging market perform relative to the broader economy and within that market how do the startups and innovators fare?  

For some time now I have railed on the virtues of embracing a "traditional" business model when running a SaaS cloud service.  As in 2000 and now 2009, "if we get the users, we will make money" mindset falls down without an established revenue model at the onsite.  At some point investors are about an ROI.  Excitement and cool AJAX don't pay for salaries or bandwidth.  DigitalChalk is proving the point, from the time of the market collapse and finance meltdown, our growth rate, revenue and average gross profit per user has steadily gone up.  

there appears to be two types of SaaS providers, the elephants that get the press and the rabbits or "Micro SaaS" that get fat on the grass right at their feet.  
The DigitalChalk core product revenue growth in the 4th quarter of 2008 grew at over 20% month over month with the average gross profit per transaction in a range most blue-chips would kill for.  Our February is tracking at 37% growth in transactions over January with gross profit up over 11% month over month.  In short, we are looking at some pretty amazing hockey stick growth charts for the past seven months.  The very cool thing about this business is (a statistic VC in 2007 would have gagged on) we have less than 10,000 users on DigitalChalk.  We are truly a Micro SaaS.  DigitalChalk will exceed $1.2M in core product revenue in Q3 2009 at current growth rates and we will do it with under 16,000 active users.  

Would I like the have Twitter valuations and VC funding raining down? Sure, but I like my prospects of employment and profit in three years a lot better at DigitalChalk!


2 comments:

Duane Jackson said...

Thanks for sharing the numbers. We did the same recently at http://blog.kashflow.com/2009/01/29/2500-customers/

Duane Jackson said...

Thanks for sharing the numbers. We did the same recently at http://blog.kashflow.com/2009/01/29/2500-customers/

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