Bargain Hunting Software-as-a-Service Stocks
Understanding the evolution of enterprise software business models helps investors look beyond the sea of complex acronyms and ever-changing terminology to understand trends. In the olden days, companies hired software developers to build internal applications which serviced all functions. This was especially the case where secrecy was paramount. It’s why firms like Morgan Stanley built their own CRM tools to keep their client lists from prying eyes. But what was Morgan Stanley’s core competency? Building CRM tools, or clever financial engineering?
Over the years, firms have moved from building to buying so they can focus on core competencies. Concerns around privacy were addressed by hosting software solutions “on-premise” using internal servers with corporate firewalls protecting the data. Then came “software-as-a–service” or SaaS business models which moved the solutions from on-premise into the cloud. That movement has caught some legacy software firms by surprise as they attempt to move their solutions to the cloud. Why? Simply because cloud-based solutions generate a lot more revenue.
Editor’s Note: There’s a big debate about whether you should say “on-premise” or “on premises.” We don’t have a dog in the race, so will use these terms interchangeably based on what sounds best at any given time.
From On-Premises to SaaS
Splunk is an example of a firm that offers their solution on premise, but is now moving to the cloud for two main reasons. It’s cheaper for clients whose CTOs can sleep better at night knowing that someone else is responsible for securing their firm’s most vital assets.
