SIIA/OPEXEngine Report on U.S. Software Industry Shows Strong Revenue Growth & Renewed Focus on Investment

The private U.S. software industry is experiencing its biggest revenue gains since the recession, and both private and public companies are renewing their focus on investment in order to gear up for further growth.

The 2014 Software & SaaS Financial Benchmarking Report is produced by SIIA partner OPEXEngine, the leading aggregator of financial and operating benchmarks for small- and mid-sized software companies. To complete this eighth annual report, OPEXEngine surveyed several hundred private and public U.S. firms with revenues between $1 million and $450 million, with a focus on Software-as-a-Service (SaaS) metrics.

The report, which benchmarks 2013 financials and operating metrics, finds that median revenue for private software firms rose almost 42 percent year over year – the highest percentage increase since the 2008 recession, and almost 40 percent higher than last year’s revenue growth rate of 30.5 percent. Revenue for all public companies included in the survey rose an average of 18 percent in 2013, while revenue growth for public SaaS companies averaged almost 30 percent.

This year’s study also indicates that private and public firms – encouraged by  revenue growth – felt confident about increasing spending over current revenues, and were investing in operations and hiring to drive further growth.  See table below for more detail.

Private Companies Public Companies
FY09 FY10 FY11 FY12 FY13 FY09 FY10 FY11 FY12 FY13
Year-over-Year Revenue Growth 21% 27.8% 37.4% 30.5% 41.7% 12% 22% 37.5% 21.9% 18.3%
Operating Income/Loss -20.4% -13.2% -9.6% -4.1% -13.0% 11.5% 6.1% 6.1% 4.2% -8.2%

Further demonstrating this focus on investment, both private and public companies have budgeted to add jobs this year. Private firms plan to increase employee headcount by 26 percent (a 3.5 percent increase over 2013 plans) by the end of 2014, while public companies project a nearly 27 percent gain in 2014 headcount.

OPEXEngine also compares software firms in different geographic regions and finds that median revenue growth for private East and West Coast firms is twice that of private companies in the Central and Mountain regions. At the same time, average operating income for private firms in the Central and Mountain regions is positive (by nearly 3 percent), whereas  private firms based on the East and West Coast had operating losses of median 34 percent and  27 percent, respectively.

Other key findings from the 2014 Software Benchmarking Industry Report include:

  • Median revenue growth for private East and West Coast firms is 51-53 percent, compared to an average of 25 percent for firms in the Central and Mountain regions.
  • Median sales and marketing spending for West Coast firms is highest among the regions at 65 percent of revenue. Comparatively, East coast firms spent a median of 51 percent on sales and marketing, while Central and Mountain region firms benchmark at a median 33 percent in sales and marketing.
  • West Coast private firms utilize the most venture funding, at a median of $65 million.  East Coast firms follow, accepting a median of $23 million in venture funding, while firms in the Central and Mountain region access a median of $6.8 million in venture funding.

The 2014 Software & SaaS Financial Benchmarking Industry Report provides extensive financial and operating metrics for U.S.-based companies with 2013 revenues of between $1 million and $450 million. Benchmarks cover key financials, including detailed expense ratios, revenue and profit metrics, geographic break-outs, employee statistics, as well as customer and sales model comparisons. The report also looks specifically at Software-as-a-Service (SaaS) vendors and breaks out all the benchmarks for smaller, private companies as well as for larger, public, companies.

Rhianna Collier is VP for the Software Division at SIIA. Follow the Software team on Twitter at @SIIASoftware.

Intellectual Property Roundup

IP News

Google, Canon, Dropbox and Others Pool Parents to Ward Off Trolls (Re/code)
A coalition of technology companies have agreed to join the License on Transfer network, promising to grant licenses to one another whenever one of those patents is sold, in an attempt to defang patents before they get into the hands of patent trolls.

Copyright Office Ponders Aereo Fallout (The Hill)
The U.S. Copyright Office is asking the public to weigh in on what the Supreme Court’s ruling on streaming TV service Aereo means for the future of copyright law.

Aereo’s Plan C for Cable (ZDNet)
Aereo’s new plan after the Supreme Court ruled its service was illegal is to argue that it is a cable company and as such Section 111 of the Copyright Act grants it the “compulsory licenses” it needs to re-transmit over-the-air television content.

White House Pulls Plug on Controversial Patent Office Nominee (GigaOM)
The Obama Administration has backed away from an unpopular plan to name a Johnson & Johnson executive and patent reform opponent as head of the U.S. Patent Office.

House Panel Approves Bill to Curb Patent Threats (The Hill)
The House Commerce subcommittee approved Chairman Lee Terry’s bill, the Targeting Rogue and Opaque Letters Act, a bill aimed at increasing transparency and accuracy in the letters companies send to threaten patent infringement lawsuits.

File-Sharing Lawsuits Are a Waste of Mondy, Says the American Bar Association(VentureBeat)
The American Bar Association is recommending to its members that they stop filing file-sharing lawsuits since they “do not yield significant financial returns.”

Keith Kupferschmid is General Counsel and SVP, Intellectual Property Policy & Enforcement at SIIA. Follow Keith on Twitter at @keithkup and sign up for the Intellectual Property Roundup weekly newsletter here.

Digital Policy Roundup

Data Analytics Event This Thursday

Join SIIA for lunch and exciting technology presentations on how big data is being employed to empower and protect citizens. The lunch workshop, “Big Data at Work for Citizens: Applying Data Analytics for Empowerment and Fraud Prevention,” will take place Thursday, July 17 from 12-1:30pm in Room G11 of the Dirksen Senate office building.RSVP HERE

Executive Director Marjory Blumenthal of the President’s Council of Advisors on Science and Technology (PCAST) will open the event with discussion of the Administration and PCAST reports on Big Data and Privacy released in May. In addition, the SIIA workshop will provide for Q&A and discussion about key policy considerations to maximize data-driven innovation. For more information, or to register, click here!

Patent Troll Demand Letter Bill Passes House Subcommittee

Last Thursday, the House Energy and Commerce Committee’s Subcommittee on Commerce, Manufacturing and Trade passed the Targeting Rogue and Opaque Letters Act (TROL Act) by a vote of 13-6. The bill attempts to crack down on demand letters sent by patent trolls by giving the Federal Trade Commission (FTC) the authority to seek penalties when patent licensing demand letters make false or misleading statements. The bill has been widely criticized and even its sponsor, Rep. Lee Terry of Nebraska, has conceded that the bill needs to be further amended to address these concerns. The real question seems to be whether amendments can fix the bill or whether it is fatally flawed. Contentious provisions in the bill include provisions that would: (i) create an affirmative defense that applies if the sender can show that the statements made in the letter were made in good faith or that the sender usually sends letters that are not misleading; (ii) preempt state laws dealing with demand letters; (iii) compromise the FTC’s ability to get an injunction under Section 5 of the FTC Act, which allows it to police deceptive business practices.

Potential PTO Director Nominee Withdrawn

Back in late June rumors swirled that the Obama Administration had planned to name Phil Johnson, a pharmaceutical executive for Johnson & Johnson, as head of the U.S. Patent and Trademark Office. Given Johnson’s very public stance against patent troll litigation reform legislation, the potential appointment was met with significant criticism. In response, last week, the Administration apparently backtracked on the appointment and has withdrawn Johnson’s name from consideration. It is unclear who or when the Administration will name someone to head the PTO in lieu of Johnson.

European Parliament’s International Trade Committee (INTA) Chairman Pushes for Less Ambitious TTIP

Inside U.S. Trade reports that the new Chair, Bernd Lange (member of the Socialists & Democrats group) would like to conclude TTIP by the end of 2015, not the end of 2014 which was the original plan. He would like a more “classic” agreement focused on tariffs, some non-tariff barriers, and government procurement. Regulatory cooperation and Investor State Dispute Settlement (ISDS) would be left out under this scenario. Lange’s comments illustrate how unpopular trade agreements are on the other side of the Atlantic, as well as in the United States. Regulatory cooperation is arguably the most important component of the TTIP given the ambition, often stated in both the United States and the European Union, for the TTIP to serve as a model for the rest of the world. The role of parliament is significant on trade. In 2012 the parliament rejected the Anti-Counterfeiting Trade Agreement (ACTA), which the European Commission (the European Union’s executive branch) had invested significant political capital to conclude. As a result, the Commission has to take parliament’s views seriously.

David LeDuc is Senior Director, Public Policy at SIIA. He focuses on e-commerce, privacy, cyber security, cloud computing, open standards, e-government and information policy. Follow the SIIA public policy team on Twitter at @SIIAPolicy.

Tips on best subject lines, send times and subscriber expectations

I recall talking to a friend a few months ago who runs a large social group here in Washington, D.C. called Professionals in the City. His email list is something like 300,000. But he said the majority of people who come to his weekly events are relatively new to the list. So getting new leads is essential for him.

Recent research from Mail Chimp supports my friend’s findings. The open rate for the first month of new people signed up to an email list is 24% and the click-thru rate almost 5%. That decreases to 19%/4% in the second month, 16%/3% in the third month, and 14%/2.5% in the fourth. Funny that in the fifth month, it goes down to about 5%/1% but then the sixth month was back up to 11%/2%.

Here are more of their latest observations.

- Try varying the times you send out email. Their study says the biggest open times are between 2-5 pm. The lowest time was between 5-6 a.m.

- The most email opens occur on Wednesday and Thursday. Tuesday sees a higher volume of emails sent, so it may not be the best day to send. Friday email opens are more than Monday and actually not too far behind the top days.

- Placing a particular link in your content more than once will increase the number of clicks for that link.

- Your subject line should describe the subject of your email.  Sounds simple but it’s easy to overthink.

- Always set your subscribers’ expectations during the opt-in process about what kinds of emails they’re going to receive. Don’t confuse newsletters with promotions. If your email is a newsletter, put the name and issue of the newsletter in your subject line. Because that’s what’s inside. If your email is a special promotion, say so in the subject line. Either way, just don’t write your subject lines like advertisements.

- When it comes to email marketing, the best subject lines tell what’s inside, and the worst subject lines sell what’s inside. For length of subject line, they recommend 50 characters or less. “The exception was for highly targeted audiences, where the reader apparently appreciated the additional information in the subject line.”

Two more tips from other sources:

- Tell a story. From Bethesda Emedia Marketing: “Whenever possible, approach your subject line as a story. In other words, pique your reader’s curiosity in your email and get their emotions (fear, humor, curiosity, anger, joy, gain, logic) involved; anything that suggests there is more to be read gets readers to open your email…Sometimes a statement-type subject line is necessary, but do try to ping emotions in the subject line when possible.”

- “Click here” works best. According to a HubSpot blog post, your Call to Action in emails will do better with certain words. “Click Here” received the most clicks (32%) followed by “Go” (24%), “Submit” (20%), “Download” (15%) and “Register” (10%). They also found that conversion rates were three percentage points higher without the word “Submit” than with. Perhaps submit, download and register all represent too strong a commitment, whereas click here and go come off a bit more friendly and allow us more time to assess.

Subject lines, headlines and any other lines that help your audience to decide if they want to read something are hugely important—not breaking news. But the point is that if you’re like me, sometimes you take a lot of time to craft the story/profile/marketing copy/renewal plea/ webinar invitation, etc.—and then are anxious to get it out, so you don’t put that same energy into the subject line and headline. Take the extra few minutes.

Drop in Journalism Majors May Open New Doors for Niche Publishers

I heard a wonderful segment on National Public Radio’s Weekend Edition last Saturday. Tamara Keith filled in as host for Scott Simon and related letters she wrote almost 20 years ago to Simon and top NPR correspondents Cokie Roberts and Liane Hansen.

“It was 1995 and my family was taking an epic cross-country trip [from California]—to see America from the windows of a minivan. I was hoping the letters would land us a tour of NPR during the few days we were planning to spend in Washington, D.C.”

Keith received letters back from all three. Roberts told her to major in anything but communications. (I received the same advice.) Hansen invited her to write essays about being a teenager that would air on Weekend Edition Sunday. Ultimately, it led to Keith’s first radio job.” And Simon…get this—he invited the family to his home and followed through! His advice: “Consider majoring in philosophy. I did,” said Keith. “It was one of the hardest things I’ve ever done, but it taught me how to break apart arguments, how to ask the right questions.”

There’s a lot there to consider.

I was just sent not a letter but an article from the American Journalism Review reporting that “enrollments in journalism and communication schools nationwide fell two years in a row for the first time in two decades.” In addition, seven out of 10 students in journalism are studying advertising and public relations, as has been the case for more than 20 years.

We have paid interns here at SIIA, and they are huge contributors—and sometimes get hired full-time here. I hope publishers do this or would consider this in the future. You can be sure that most young people don’t know the wonderful opportunities available in niche publishing. Instead of a dwindling newspaper landscape—Lee Becker, the University of Georgia professor who led the study, calls it a “dramatic change”—they might see in niche publishing a thriving place to write, work and learn.

The other advantage today of bringing on young people is that they may bring excellent social media and video skills with them—something we all can use more of. Whereas I still need to consciously think about tweeting, posting and filming each day, it will be much more natural for them.

If you can, establish ties with local journalism programs and community colleges. It’s obvious from Keith’s story what encouragement from successful professionals can bring. I saw an excellent new documentary film last night called Let the Fire Burn about the longtime feud between the city of Philadelphia and the controversial radical urban group MOVE and their deadly climax May 13, 1985. Jason Osder, the director, spoke after; he’s an assistant professor at The George Washington University’s School of Media and Public Affairs. I can guarantee you that his students are learning how to do video well and could help a publisher.

What about writing? Will the 140-character syndrome bring on a new normal. And what about investigative journalism where our awards entries have been way down in recent years? Lynda Kraxberger, the University of Missouri’s associate dean for undergraduate studies, said that the big concern is in the lessened interest in classical journalism—holding governments accountable, exposing inequities and reporting on world affairs.

One other parallel that struck me is that at Indiana University officials have reacted to a 20% decline in undergraduate journalism enrollment by merging it with related fields in the arts and sciences. When you think about what’s happening in our field—the breaking down of walls between editorial and sales/marketing, and marketing and IT, etc.—what Indiana is doing makes perfect sense. Keith got the advice not to major in communications because it’s considered something you can learn by doing. Why not engage it with other disciplines?

“I know [the merger] has caused some concern,” said Anne Kibbler, the communications and media relations director at Indiana University’s journalism college. “But we have been reassuring our students and our alumni that journalism is still going to be first and foremost for us.”

Sounds like an executive editor defending the new special section that marketing suggested and sales sold. As I quoted Taboola CEO Adam Singolda in Tuesday’s post, content may be king, but it still needs a kingdom.

To subscribe to the SIPAlert Daily, go to the SIIA website.

Ronn LevineRonn Levine began his career as a reporter for The Washington Post and has won numerous writing and publications awards since. Most recently, he spent 12 years at the Newspaper Association of America covering diversity, Newspaper in Education, marketing and leadership before joining SIPA in 2009 , and then SIIA in 2013.

Implementing the Right to Be Forgotten

It isn’t easy to implement the European Court of Justice’s right to be forgotten decision.  According to one press report, Google has received 70,000 requests for link removal through its online form since the program went into effect last month.  Another report says requests to remove links are arriving at an estimated rate of one every seven seconds.  As predicted here after the court’s decision in May, the results are not pretty. But the fault is not in implementation but in the flawed underlying decision that restricts free expression and puts substantial legal discretion in the hands of search engines.

Let’s recall how extreme the decision was.  It said that under European law privacy trumps free expression in the context of Internet search.  The right to respect for private life and the right to the protection of personal data “override, as a rule, not only the economic interest of the operator of the search engine but also the interest of the general public in finding that information upon a search relating to the data subject’s name.”  There can be an exception to this general rule: “…for particular reasons, such as the role played by the data subject in public life, that the interference with his fundamental rights is justified by the preponderant interest of the general public in having, on account of inclusion in the list of results, access to the information in question.”

The court’s standard for determining whether privacy interests are implicated was whether the information was “inadequate, irrelevant or no longer relevant, or excessive…”  The court added that triggering privacy interests did not require a finding that “the inclusion of the information in question in that list causes prejudice to the data subject.” So what would trigger privacy interests? To say the court’s guidance is extraordinarily vague is an understatement.

Given the court’s reference to search engines in making access to information “appreciably easier” and playing “a decisive role” in the dissemination of information on the Internet, it is hard to avoid the conclusion that the intent of the court was to limit the effective dissemination of information on the Internet. But it did so by granting discretion to search engines to make some delicate value judgments and without specific guidance on how to make those judgments.

So how’s the implementation going? Certainly Google hasn’t done everything right. Taking down some links and then apparently restoring them certainly seems to be a misstep. But on the whole they’ve done a pretty balanced job.  They are requiring the filing of a request, including a statement on why release of the information would not be in the public interest.   There is no indication that they are granting all requests or turning all requests down.  They notify the publisher of the links removed from search results, but they do not reveal the identity of the person requesting the take down, since this would reveal the information that the data subject was trying to conceal.  They are following the law by limiting take down’s to EU citizens and to EU search results rather than extend the EU regime to the world.

Some commenters suggest that search engines are granting too many deletion requests and should instead routinely decline them all – which would force the data subjects to go data protection authorities or the courts to get links removed. [Read more...]

5 Things a Major Publisher Learned About Selling to Their Audience

John Gordon, director of business development for Home Depot, and Andrew Waite, president and publisher of NEXZUS Publishing Group, opened last month’s SIPA 2014 Conference talking about the value of strategic partnerships.

Gordon said that he did not want to hear sales talk from publishers. He would rather they get to know his company and recommend ways to get readers to interact with his store. He equated it to people who come into Home Depot. “If you walk in and get customized engagement, about building a deck, remodeling a kitchen or another project from us…we get growth.”

Media partners should “understand your points of pain, talk about how [to] make your business better,” said Gordon. Become a “strategic partner—that’s power.”

A recent Gannett survey of more than 1,000 decision makers at small- to medium-sized businesses across its national markets about what they want from a media company confirmed this thinking. More than 70% said, “Our media partners do not provide us with thought leadership, but we would like them to”; 68% said they would like their media partners to “provide us with innovative opportunities”; and 67% wanted “assistance with creating an integrated marketing strategy.”

Michelle Krans, senior vice president/strategy and development at Gannett, wrote an excellent blog piece on the International News Media Association site about the survey. She listed the top 5 things they learned:

1. “Stop worrying about creating a world-class sales force and instead focus on creating a world-class experience for your customers.”

2. “Review pricing strategies. Pricing must be simple to teach to your staff, simple to sell, and simple to buy across all platforms… If your legacy pricing does not encourage customers to get on the right plans for their needs, change your rate structure.”

3. “Change the way you talk about your media audiences. We should be shouting from the rooftops about the value of an engaged audience.” You have a dedicated following that shops, buys and, most likely, influences on social media. Are you telling potential advertisers or sponsors about that power?

4. “Improve training to give your sales team deep product knowledge and an understanding of your sales process…For example, our digital certification programme via e-learning modules has been a real boost for our sales force.”

5. “Once the sale goes through, be accountable for the customer’s ROI.” Donna Jefferson of ad-driven Jefferson Communications has spoken frequently of this. “Provide results for your advertisers,” she said at another SIPA 2014 session. “Encourage them to build landing pages [for their ads]. Talk to them in advance about how they are going to judge the success of this program?” She pointed to one advertiser whose ad asked for people to sign up their kids for pre-school, but then they complained that nobody signed up for swimming. Yet they didn’t say anything about swimming in the ad.

Jefferson also doesn’t shy away from telling advertisers that their ad isn’t good. Perhaps they simply took a print ad and converted it to digital with no changes. “[A program called] ‘Smart Advertising’ brings “advertisers into our office,” she said, for talk and advice. She’ll ask, “What do you expect this ad to do?” or tell them what they’re doing wrong. “You have to be honest.”

You can see that Jefferson is cultivating the relationships that Krans says are necessary. It does no good for anyone if the ads or sponsorships publishers run are unsuccessful. Publishers know their audiences better than anyone else and have a good idea of what will make a successful pitch to them. What they don’t know is what, say, Home Depot wants to accomplish—is it getting people to the stores, getting them online, signing customers up for some program, selling big-ticket items, etc?

“We just want to understand your business better,” Waite said to Gordon, “and bring you ideas.”

To subscribe to the SIPAlert Daily, go to the SIIA website.

Ronn LevineRonn Levine began his career as a reporter for The Washington Post and has won numerous writing and publications awards since. Most recently, he spent 12 years at the Newspaper Association of America covering diversity, Newspaper in Education, marketing and leadership before joining SIPA in 2009 , and then SIIA in 2013.

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