When LabTech Software launched a cloud edition yesterday, it completed a ConnectWise Capital triple play. Indeed, ConnectWise now essentially has at least three cloud services -- ConnectWise Cloud, LabTech Cloud and Quosal On Demand -- that MSPs can piece together into an extended business management platform. The net result: I think ConnectWise CEO has found a way to further increase ConnectWise's valuation.
First, a bunch of disclaimers: I know ConnectWise, LabTech and Quosal each are best-known for their on-premises software platforms. Numerous PSA (professional services automation) and RMM (remote monitoring and management) software providers have larger cloud installed bases than ConnectWise and its investment-backed companies. And I realize ConnectWise suffered some cloud bumps from time to time.
A Longer-term StrategyBut here's where things get interesting: When ConnectWise launched the ConnectWise Capital investment effort roughly two years ago, I thought the initial strategy was flawed. ConnectWise itself had a small (though growing) hosted presence at the time. And LabTech -- one of the first ConnectWise Capital investments -- had openly stated that it was an on-premise play, leaving potential partners to explore the hosting side of the equation.
My conclusion at the time: ConnectWise CEO Arnie Bellini was artificially limiting the valuation of his own company and the ConnectWise Capital companies. Think of it this way:
- In the past five years, scores of cloud and hosted software companies have attracted millions of dollars in venture capital. Plus, most of the major IT IPOs (initial public offerings) since 2007 or so have involved cloud and social media companies.
- In stark contrast, how many on-premises software companies have attracted big investment dollars on the way to a successful IPO in the past five years or so? Off the top of my head I can't name any such players.
Cloud Comes Into FocusFast forward to the present and the ConnectWise cloud story is stronger. An educated guess: Quick math suggests cloud revenues alone are large enough to land ConnectWise quite high on the annual Inc. 5000 report, which tracks the most successful privately held companies in the U.S. Now, toss in the growing Quosal and LabTech cloud strategies and you've got an interesting strategy coming into focus. Over time, I suspect we'll see the ConnectWise, Quosal and LabTech cloud services come closer and closer together -- but that's merely a hunch from me.
I realize the overall ConnectWise cloud strategy takes some hits from time to time. ConnectWise insists its software was designed for hosting during the ASP (application services provider) wave more than a decade ago. But some readers are quick to point out that rival Autotask built a successful $20 million business purely on the cloud, and ConnectWise was forced to respond. Moreover, Autotask CEO Mark Cattini -- on the job about a year now -- prefers to compare Autotask to Salesforce.com, NetSuite and other SaaS-centric players that have launched successful IPOs.
So where is ConnectWise ultimately heading next? Plenty of folks have asked me if CEO Arnie Bellini is planning an "exit" strategy or a potential IPO. I don't have the answer. But I do know this: If the ConnectWise, Quosal and LabTech cloud platforms are gaining partners without diluting profitability, I suspect the valuation for ConnectWise and its portfolio companies continue to rise.