In our Predictions piece for Enterprise Software and Apps Services in December, we highlighted that SaaS commercial models will come under greater scrutiny due to the lack of bottom line rewards, the growth of Enterprise App stores and the struggle to monetise this route to market. Companies facing this scrutiny could do worse than look to dotDigital, the AIM-listed provider of email marketing and marketing automation software, for pointers as to how to build a successful SaaS operation.
Annual results for the year to June 2013, see here, showed a business firmly in profit with an EBITDA margin on continuing operations of 40% and revenue growth of 28%. Today’s trading update showed continued progress, with revenue growth of 32% over the last six months, a growing cash pile, at £7.3m, up from £6m in June, and a confident statement about meeting full year expectations. Understandably the shares have done well, now standing at twice their mid-year level.
Requirements for success include a growing market and a capable and easy-to-use product (management talk about “NASA technology with a Fisher-Price interface”) with broad appeal across user industries and supporting a wide range of company sizes. dotDigital has succeeded in building a strong UK client list, where monthly per client billings continue to rise, and the US operation is making progress, with sales up five-fold. Growth prospects are boosted by the product now being available in six languages and by recent investment in marketing and sales teams. With a scaleable delivery model, top line growth is working through to the bottom line. The company is not without its problems however, having closed its agency business last year, and will have to deliver on its product plans, but certainly worth watching.