2 Tech Stocks For Which Transformation to SaaS Played Vital Role - TechnologyOne and Xero

  • Nov 21, 2019 AEDT
  • Team Kalkine
2 Tech Stocks For Which Transformation to SaaS Played Vital Role - TechnologyOne and Xero

SaaS or Software as a Service is a software distribution model, under which a third party provides the end-users with application or software over the internet. SaaS is also known as web-based software, on-demand software, or hosted software, enabling users to access the application or any software without the need for software download and installation. As a result, end users save a lot of time, money, and space and efficiency of the system.

Australians are one of the fast adopters of digital services and technology, globally, with their average usage of internet above average rate as compared to any other OECD countries. More and more businesses try to bring or increase digitalisation by integrating digital technologies into their business practice. From 1994 to 2018, there has been a sharp increase in computer system design combined with related services and internet services.

In 2017-18, the proportion of businesses using paid cloud computing continued to grow, and during the reported period, 42% of the businesses unveiled to have used cloud computing, up from 31% in 2015-16.

In this article, we are discussing two ASX listed SaaS companies.

TechnologyOne Limited (ASX: TNE)

Technology One’s Story:

Adrian Di Marco, the founder and executive chairman of Technology One Limited, started the company in 1987 after securing support from the owner of one of his old company customers from early 1980s, Dugald Mactaggart who was the owner of JL Mactaggart Industries. Since Mr Mactaggart was positively influenced by the service received over the years, he did not hesitate to support Adrian Di Marco in raising the funds to start the company. He not only provided the initial funding but a shelf company from a previous venture called Rent-a-Bull which was renamed to TechnologyOne.

  • The initial product of the company was a General Ledger, after that other components like Accounts Payable, Accounts Receivable and Bank Reconciliation followed. In 1991, these modules were released under a single suite known as Finance One.
  • Post the launch of Finance One, the important strategic decision of the company was to make its software database independent.
  • The founder of TNE realised marketing as an important criterion for becoming successful.
  • TNE was one of the first companies across the globe to develop products on the Oracle platform. Oracle.
  • Slowly, the company moved to sales and marketing of its personal products, which became their major differentiator.
  • In the 1990s, TNE began focusing on certain markets to distinguish itself from players like Oracle and SAP.
  • In 1995, a major market research project was conducted by CFO magazine, which surveyed CFOs of Australia regarding their usage of financial usage, and it was found that TechnologyOne was the top-rated supplier and had high satisfaction rating than other vendors.
  • In 2005, the company released a new technology platform, namely the Connected Intelligence (Ci) framework.
  • After acknowledging how mobile devices started to increasingly suit to business applications, TNE started expanding its Connected Intelligence (Ci) platform to mobile devices using its ‘Ci Anywhere’ strategy.
  • The customers of TNE’s products, through this strategy, were able to use its enterprise software from any location, at any moment and on any device.
  • The strategy created a new standard in enterprise software and gave it a significant competitive advantage over its competitors.
  • In November 2010, the company decided to make its software available on the cloud.
  • The new strategy was the radical restructure of TNE’s business and included developing the entire software suite again from the ground up for the cloud. At that time, it was a different approach as compared to its vendors engaged in developing cloud strategies around their old existing architecture.

Cloud computing altered the way TNE builds, hosts as well as provides its software to customers. Its Ci Anywhere and the TechnologyOne cloud contributed towards the company’s robust and continuing growth in 2010 and onwards.

Xero Limited (ASX: XRO)

Xero Limited (ASX: XRO) is a provider of accounting software to small businesses over the cloud. Let’s know about its journey.

Xero’s Story:

  • Xero was founded by Rod Drury and Hamish Edwards in a Wellington studio apartment in 2006 when they realised that the traditional desktop accounting software had become obsolete. Keeping this in mind, they decided to create a modern cloud-based product.
  • Initially, Xero was known as Accounting 2.0, which later changed to Xero. The company faced a challenge with the domain name as the present xero.com domain was a Linkin Park fan site. Thus, Rod Drury decided to fly the existing domain administrator from the US to New Zealand and later convinced him to sell the domain for US$20,000.
  • Now, the company is one of the fastest-growing SaaS companies around the world. Xero was started to alter the game for small businesses. Through its cloud-based accounting software, the people can connect with the right numbers anytime and anyplace using any device.
  • In the beginning, the company used a single database to record all its client details. The database was easy to use, and it was ensured that it remained resilient. However, as the company grew, it faced challenges in handling the load resulted by lots of new customers.
  • In order to ensure that its platform handles growth, the company altered the method of storing client data to use ‘sharding’, in which the customers are distributed into groups and these groups are then allocated their personal dedicated database clusters.
  • Through sharding, the company was able to expand its platform from 10,000 to 700,000 subscriptions.
  • The company is currently in the process of moving to AWS. Moreover, it is changing the structure of the underlying platform in order to ensure handling millions of organisations in the future;
  • The new platform would be designed around cells, with each cell carrying everything required to operate the application for 100k subscriptions;
  • With this cell model, the company would be able to grow the platform without compromising on service or performance with new customer additions.

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