The super majority (26 of 27) of publicly traded software vendors in the Software Insider Index® delivered turnaround stories for Q3 Cy 2010 year-over-year (YoY) performance.  SaaS vendors and middleware vendors led the charge with solid double digit gains against tough comps.  Performance of on-premises apps vendors reflected the easy comps from a dismal 2009 downturn.  An analysis of the 2010 CY Q2 2010 results show:

SaaS Vendors Continue To Crush All Expectations In Subscriber Growth (Figure 1.)

• SaaS vendors showed massive gains in subscription revenue at on-premises vendor expense.  SuccessFactors (33.22%) continued the lead in quarterly revenue gains followed by a record breaking Salesforce.com quarter (29.81%).  Kenexa (25.97%) and RightNow (25.46%) also demonstrated above 25% YoY quarterly gains.
• Subscription license growth has become the norm for both SaaS and On-Premises vendors looking at SaaS revenue.
• On premises vendors w/ subscriptions showed traction.  SAP reported $101M of subscription revenue and JDA software reported $5.758M in subscription revenues.
• Of note, Saba (3.89%) and Kenexa (25.97%) were added to the Software Insider Index® this quarter

Figure 1.  SaaS Vendors Continue To Crush All Expectations In Subscriber Growth (Right click to view full image)

Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

Traditionally On Premises Apps Vendors Fare Well As Technology Spending Picks Up

• JDA Software (65.29%) continues to benefit from retail and supply chain vendor consolidation.  However, JDA’s growth came from maintenance revenue, not new license gains.  In fact, the ratio of maintenance to license revenues remains dangerously high at 3.94.  The good news – focused efforts around SaaS options also grew.   Meanwhile, rival Manhattan Associates saw gains with (13.35%) YoY quarterly growth with respectable new license gains.
• SAP (19.74%) showed a huge turnaround with significant gains.  However, new license growth came mostly from analytics revenues and not from core apps such as ERP, CRM, SCM.
• Traditional bellwethers CA (17.21%) and Oracle (15.82%) showed above 15%, healthy YoY quarterly gains.
• SMB vendors showed mixed results with Epicor (16.28%) leading the pack through gains in Epicor 9 and significant new license growth of 47.07%.  Epicor and Microsoft Dynamics (not listed) have been beneficiaries of the two-tier apps strategy movement.  On the other hand, IFS (5.34%), Lawson (3.35%), and Deltek (1.74%) barely moved the needle in revenues.  Deltek’s 21.38% new license growth reflected a structural shift in the business as new license gains make up maintenance losses.
• Four vendors continue to enter dangerous trends with maintenance to license revenue ratios above 3: Manhattan (4.42), JDA (3.94) Lawson (3.86), Oracle (3.24)

Figure 2. On Premises Apps Vendors Fare Well As Technology Spending Picks Up (Right click to view full image)

Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

Middleware Vendors Benefit From Optimization Mandates (Figure 3.)

• VMware (45.84%), Informatica (30.68%), and Software AG (28.89%) crush numbers as demand for middleware, virtualization, and integration continue to gain traction.
• All middleware vendors maintain healthy maintenance to license revenue ratios below 2.0:  SoftwareAG (.65), VMware (1.08), Informatica (1.31), Progress (1.82).

The Bottom Line – Enterprise Software Is Back …