The software industry, particularly for companies in the Software-as-a-Service (SaaS) arena, or those that operate as startups, is one of constant change. At best, it’s unpredictable. Software companies need to stay aware of what trends—within and well beyond their industry—are going to make the biggest impact over the next year.
Between new revenue recognition rules, a sharper magnifying glass on data security, and more regulatory compliance hurdles, here are some of the biggest trends we’re seeing for 2017.
Revenue recognition
A massive new regulatory push is finally coming true—ASC 606 is here to stay, and software companies need to do what they can now to adapt, and it’s not necessarily going to be easy. Even the key points of ASC 606 can be difficult to understand.
Even though it’s only the end of February, change needs to happen now, and it should begin with a full review of your company’s financial system. And if you haven’t begun to work with an enterprise resource planning (ERP) system yet, maybe now is the time to look into NetSuite.
If you want to know more, be sure to check out our Revenue Recognition hub.
IPOs are making a return
With Snap Inc. leading the charge, 2017 is looking to be a strong year for technology IPOs, particularly for software companies. TechCrunch says that “pent-up demand and several other factors will make 2017 the strongest tech IPO market we’ve seen since the dot-com boom of the late 1990s.” They’re predicting as many as 50 IPOs in 2017—well higher than the 13 from 2016.
In one of the biggest IPOs in recent tech history, Snap Inc. is creating whole new trends impacting software companies.
If your company has even the slightest inkling of following suit, you need to be ready far in advance with solid fundamentals around all the financial operations and how you deal with governance, risk management, and compliance (GRC) issues. Software can help with this to provide the necessary visibility, but companies need to start that work sooner rather than later.
Adaptability is critical
With new technologies like artificial intelligence and machine learning gaining in popularity and changing faster than ever, software companies need to be able to adapt and pivot with unprecedented speed. Entire verticals can change overnight, and digital transformation means that you might find yourself with a new sudden batch of customers that you weren’t expecting.
Similarly, targeting only the U.S. market isn’t a solid strategy any more—there are too many rapidly-growing global markets that could be tapped into. That said, expanding into India or China, for example, requires much more than localizing the software and taking the local currency—you need a solid financial backing in order to make any expansion possible.
GRC is going nowhere
Despite chatter around Capitol Hill that Dodd-Frank is going to be dismantled under the new presidency, there’s still many governance issues to be aware of.
A single data breach can affect a company’s ability to IPO or even cause acquisition deals to fall apart or change dramatically, as we’ve seen recently with Yahoo. IT teams are going to be held to new levels of accountability in 2017, particularly when it comes to creating solid governance plans around the security of user data, and only the companies that have a comprehensive system in place are going to find themselves at reduced risk, but also on a much better foot if something does go wrong.’
The SEC headquarters—just one of the U.S. agencies that might be after companies with less-than-perfect GRC standards.
Pricing models are still changing
Years ago, software companies priced their products with a perpetual licence, giving the buyer indefinite access to the platform. They often added a maintenance charge to that, but the industry has largely shifted to a subscription model over the last few years, whether that’s monthly or annual. That might still be changing.
Some companies are now looking into usage-based billing systems—a SaaS customer that uses 100 units of capability maybe shouldn’t be charged the same as one who uses 100,000. These systems can make low-usage customers happy and also help the company better pay for its infrastructure, but usage-based billing requires far more integration with how each customer is using the product. Not an easy task for most billing systems.
The good news is that each of these issues can be addressed with a solid financial foundation—NetSuite offers methods of optimizing tasks, recognizing revenue, and report financials accurately for software companies of all sizes. We offer a 14-day trial for those who want to dip their toe in without the full commitment.
Are there other trends you’re seeing? Let us know in the comments, or get in touch.