Savvis: Cloud, SaaS Will Fuel Growth

Still skeptical about software as a service (SaaS) and cloud computing? Some promising anecdotal information from Savvis Inc. may help you warm up to both architectures. Indeed, Savvis executives provided an update on the company's SaaS and cloud prospects during a Q2 financial conference call. Here's a summary.

Key anecdotes included:

  • SaaS revenue grew 3 percent quarter over quarter, with the company reaching a quarterly revenue run rate of about $17 million. Savvis provides hosting infrastructure on which customers can deploy SaaS applications. Phil Koen, chief executive officer at Savvis, said the company now has more than 70 SaaS customers. Recent wins include Ricoh Americas Corp., which tapped Savvis for a three-year managed services deal. Savvis announced plans to launch its SaaS service in September 2008.
  • During the second quarter, Savvis booked 50-plus new customers for its dedicated cloud compute and open cloud compute offerings. The latter is a multi-tenant cloud solution. Coen said cloud services are resonating with medium and large enterprises. Savvis announced its cloud foray in February. Koen added that a beta release of Savvis Cloud 2.0 is slated for late in the fourth quarter.
  • Koen cited cloud computing along with SaaS as central to the company’s growth strategy going forward. The company’s managed hosting growth stalled a bit in Q2, however. Managed hosting revenue grew 4 percent year over year and actually declined somewhat on a quarter-over-quarter basis. On a positive note, RFP activity is robust, according to Greg Freiberg, chief financial officer at Savvis. He said he believes managed hosting will return to growth mode in Q4.
  • In Savvis’ colocation business, the company has undergone a shift in business mix. In late 2006, more than half of the company’s colocation customers were large Internet content companies. Those customers present two issues, according to Savvis: they pay lower, wholesale-type prices for colocation services and aren’t interested in managed services.
  • But by the first quarter of this year, the percentage of Internet content companies had declined to around 12 percent and is forecast to drop further by Q4. Savvis, meanwhile, has expanded it colocation business among enterprise customers. Such customers pay market rates for colocation and are interested in managed services, cloud computing, and other value-added services, Freiberg explained.
The shift in business can’t help but bolster Savvis’ objective of migrating colocation customers to managed services.

Here’s the overall financial Q2 picture for Savvis:
  • Revenue of $219.9 million compared with $212.9 million for last year’s Q2 (Q2 2009 revenue includes $6.5 million in non-recurring early termination fees stemming from the departure of the American Stock Exchange following its purchase by NYSE Euronext).
  • Savvis posted a net loss of $6.2 million compared with a Q2 2008 loss of $10.6 million.
As a whole, the SaaS industry appears to be performing well in 2009. Nine Lives Media Inc.'s SaaS 20 Stock Index is up roughly 35 percent so far in 2009.

Contributing blogger John Moore covers Master MSPs, Web hosts and emerging opportunities. Follow MSPmentor via RSS; Facebook; Identi.ca; and Twitter. And sign up for our Enewsletter; Webcasts and Resource Center.
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