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| Home - Industry Article - May 06 Issue |
The Software Industry's Other Transition |
By Paul Holland, General Partner, Foundation Capital
Recently, a new breed of software companies has emerged that help customers grow the top line. By associating their value proposition with increase in revenues, they've been able to appeal to the strategic interests of senior executives and consequently their average selling prices far exceed that of the typical industry average. Technology companies today are hard at work to help their customers make more money vs. simply slashing IT expenditures.
I chose a challenging time to launch my career in venture capital. It was three weeks after 9-11, and the nation was reeling. Businesses of all types were trying to figure out what to do next, let alone the country as a whole.
The software industry was already deep in a post-bubble hangover. E-commerce companies had come and gone despite bold predictions to reshape the future of all commerce. Young software companies hoping to attract VC funding and get off the ground - I would say 95% - were focused on providing solutions for cost cutting or compliance. Less than 5% were looking at other business models.
Fast forward to today. Over the last few quarters I - and many of my venture colleagues - have observed a correction that seems long overdue; namely, the emergence of a new breed of software companies that provide solutions to help its customers grow the top line.
For example, we invested in a company that tells its prospective customers "you will pay us hundreds of thousands or millions of dollars, but in return we will help you make tens or perhaps even hundreds of millions in additional revenue per year." By associating their value proposition with increase in revenues, they've been able to build a business that appeals to the strategic interests of senior executives and consequently their average selling prices far exceed that of the typical industry average.
Turbo Charging the Top Line
Edge Dynamics is one of our portfolio companies currently focused on the life sciences space that provides its customers with revenue improvements through better channel control. In addition to improving the topline, they also help their customers address critical issues of regulatory compliance and patient safety.
Edge is delivering a powerful value proposition to its customers which today include many of the leading pharmaceutical manufacturers, such as Bristol-Myers Squibb, King Pharmaceuticals, Purdue Pharma, and Sankyo Pharma, to name a few.
By helping these companies more effectively manage and enforce their pay-for-performance channel agreements as well as reduce speculative buying, Edge is able to deliver revenue increase of 1% or more to their customers. Considering the fact that the top 20 pharma companies range from $5B+ to $50B+ in revenues and even the SME segment consists of companies with a minimum of $100M in revenues, this can significantly enhance financial performance. In the case of one top-10 pharma manufacturer who is using the Edge solution to address critical issues ranging from channel control to regulatory compliance and patient safety, they've been able to quantify financial benefits of using Edge to the tune of $1 million per business day.
Edge Dynamics is focused on Channel Commerce Management in Life Sciences today, but the company has a powerful business policy management engine that can easily extend to other industries as well in the future, including Consumer Goods.
Further, Edge Dynamics is one of the new breed of companies that is emerging with a hybrid business model that delivers technology to customers in multiple deployment options - software that can be available both on premise and on demand.
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