Special Feature
Part of a ZDNet Special Feature: The Industry Cloud: Why It's Next

Mapping the Industry Cloud landscape

SaaS vendors targeting particular vertical markets, such as healthcare or real estate, arguably have the potential to deliver revenues and profits on a par with leading horizontal cloud companies. We examine how far the 'industry cloud' has penetrated the wider SaaS market.

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Image: Shutterstock
Applications delivered via the SaaS model commonly address broad business functions such as accounting and finance, analytics and business intelligence, collaboration, customer relationship management (CRM), e-commerce, enterprise resource planning (ERP), human resources (HR) and security. Most companies require these functions, and the leading SaaS providers in each area -- most notably Salesforce in CRM -- have prospered as a result.

However, one size of software does not necessarily fit all kinds of potential customer, which is why horizontal SaaS vendors often open up their applications to third-party customisation via APIs. However, if you're a healthcare provider, for example, you're unlikely to relish the effort and expense of customising a series of cloud services to fit your particular line of business. And if you're after mission-critical vertical-market functionality, you're going to require a specialist software vendor with deep expertise in your field.

These are some of the reasons why SaaS applications are increasingly addressing the key business issues for particular vertical markets -- a sector becoming known as the 'Industry Cloud'. Verticals targeted by industry cloud vendors include healthcare, education, real estate, legal, financial technology, transportation, energy, manufacturing and government.

One of the leading promoters of this idea is venture capital firm Emergence Capital Partners, which identifies the following five hallmarks of an industry cloud company: a co-founder or senior executive with specific domain expertise; the ability to create focused customer value from user data; lower customer acquisition costs due to a high frequency of reference selling; the potential to achieve a high market share; and a 'layer cake' product strategy that can leverage cloud infrastructure to offer multiple vertically tailored solutions (CRM, marketing automation, content management and data analytics, for example).

To get a feel for how far the industry cloud idea has progressed, we looked at data from two sources: the SaaS 1000 and SaaS 250 listings from research and consulting firm Montclare, which identify the leading SaaS companies of all kinds; and the 2014 Industry Cloud Landscape from Emergence Capital Partners, which hones in on the leading SaaS companies that sell into vertical markets.

Montclare SaaS 1000 and SaaS 250

SaaS 1000
The SaaS 1000 is an Excel spreadsheet providing Montclare's evaluation of the 1000 'most relevant' SaaS companies worldwide. Priced at $995, the SaaS 1000 delivers the following data points: company name, business model (SaaS or hybrid), 2013 revenues (ranges), public or private (inc. ticker symbol for public companies), Montclare SaaS 250 ranking (see below), primary solution area, website address, city, state/province, country and region.

SaaS 250
In the SaaS 250, Montclare digs deeper into its dataset to identify "the world's most influential SaaS companies". Costing $2,999 for a 12-month subscription, the regularly-updated SaaS 250 uses a proprietary algorithm to analyse 20 out of a total of 60 data points per company, selecting the top 250 from over a thousand ISVs. The results are delivered as ranked listings, charts and maps, with an accompanying narrative, packaged in an interactive browser-based interface:

saas-250-typical.jpg

The overall SaaS 250 and various Top 10 lists (Overall, Hottest, Growth, Innovative, Public, Private, Hybrid, PaaS) are available for free on Montclare's website, which also provides some detail on the methodology used to create the report. The overall top 10 contains some of the world's best-known software companies: Salesforce, LinkedIn, Dropbox, Workday, Google, NetSuite, Box, New Relic, Marketo, Zendesk.

Here are the summary statistics for the SaaS 1000 and SaaS 250 listings:

saas-1000-250-summary.jpg

Note that as the focus moves from the 'most relevant' SaaS 1000 to the 'most influential' SaaS 250 companies, the business model is more likely to be pure rather than hybrid SaaS, the location is more likely to be in North America, and ownership is more likely to be public. As far as revenues are concerned, there's a slightly higher proportional representation of SaaS 250 companies in the higher revenue brackets: 29.6 percent earn $250m or more compared to 21.7 percent for the SaaS 1000.

Montclare logs the type of product offered by each SaaS company, but does not track the markets into which they sell. In the SaaS 1000, the leading solution area is ERP, while in the SaaS 250 it is a tie between marketing and collaboration:

saas-250-products.jpg

ECP Industry Cloud Landscape

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In 2014, Emergence Capital Partners (ECP) assembled a 218-strong list of 'industry cloud' companies that create SaaS products focused on vertical markets (see above). The venture capital firm's contention is that these companies will be "as big, and more profitable, than many of the horizontal cloud companies that have come before them." The leading target market in ECP's listing, by some distance, is healthcare:

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Data source: Emergence Capital Partners

Of the 218 industry cloud companies identified by ECP, just 6.9 percent (15) are publicly quoted. By contrast, 34 percent (340) of Montclare's SaaS 1000 and 47.6 percent (119) of the SaaS 250 are public companies. According to ECP, the 2015 update to its Industry Cloud Landscape will add 20-30 new companies and include more firms in the legal, hospitality and transportation/logistics sectors.

Out of ECP's 218 Industry Cloud companies, just 25 are also in Montclare's SaaS 1000. This 11.5 percent figure suggests that companies focused on vertical markets are still in the early stages of impacting the wider SaaS arena. Here are the summary statistics for the industry cloud subset of the SaaS 1000:

ic-s1000-summary.jpg
Data from Montclare and Emergence Capital Partners

Compared to the equivalent SaaS 1000 and SaaS 250 statistics presented earlier, these industry cloud companies are even more likely to have a pure SaaS business model, be based in North America and be publicly owned. The contrast between the 6.9 percent of ECP's overall industry cloud in public ownership and the 56 percent of the industry cloud/SaaS 1000 subset is particularly striking. Although none of the 25 leading industry cloud companies have broken the $1 billion revenue barrier, 36 percent (9) of them bring in $250m or more.

Here are the 25 industry cloud/SaaS 1000 companies, 16 of which are also in Montclare's 'most influential' SaaS 250 listing:

Company ECP Industry Cloud
(target market)
Services SaaS 250 ranking

Athenahealth

Healthcare ERP 18

Veeva Systems

Healthcare

analytics & BI, CRM

20

Practice Fusion

Healthcare

ERP 34

cVent

Others*

CRM, marketing

44

Opower

Energy multiple 57

Dealertrack

Transportation

multiple

60

Blackboard

Education

multiple

78

Blackbaud

Non-profit

multiple 79

Plex

Manufacturing

ERP, SCM

100

Doximity

Healthcare

collaboration & social

118
Castlight Health Healthcare multiple 128
2U

Education

learning

132

Fleetmatics

Transportation

SCM

139

MediData

Healthcare

multiple

190

Deltek

Others**

ERP

206

Rocket Lawyer

Legal

multiple

220

eVariant

Healthcare

multiple

229

Accela

Government

ERP


Aconex

Real Estate

collaboration & social


Aspen Technology

Manufacturing

multiple


Ellucian

Education

analytics & BI


Guidewire

Financial Technology

accounting & finance


MindBody

Others*** multiple
RealPage

Real Estate

analytics & BI


Yardi Systems Real Estate multiple

* Event management, ** Professional services, *** SMEs

Outlook

The 'industry cloud' is a growing sector of vertically focused SaaS companies that, when they get it right, have inherent advantages that allow them to prosper. There are no billion-dollar industry cloud companies yet, but that day can't be far away: Athenahealth recently reported 2014 revenues of $752.6 million (a 26% increase on 2013) and forecasts 2015 revenues of $905-925m; Dealertrack is even closer, reporting 2014 revenues of $854.4m (a 77% increase on 2013) and forecasting $1.08-$1.1 billion for 2015.

CIOs in healthcare, real estate, education, transportation companies and the rest still need to do their 'due diligence', of course -- both on moving to the cloud in general, and on the industry cloud vendors that serve their particular markets. Resources like Montclare's SaaS 1000 and SaaS 250 are extremely valuable research tools in this respect, especially in conjunction with focused listings like ECP's Industry Cloud.


Acknowledgements
Thanks are due to Montclare for giving ZDNet access to the SaaS 1000 and SaaS 250.

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