Economists admit SaaS companies are a growing segment of the economy


While a number of prominent economists have noted the importance of organizations that use the software-as-a-service model to do business, new reports are starting to indicate that the exact value of these companies is difficult to assess in standard financial terms. IT industry insiders have suggested that new metrics should be developed to better assess the value of these companies to the economy as a whole, although this has at least received some derision. Critics say such measures could either be unfairly critical of SaaS companies or, on the contrary, be far too promotional.

Digital goods have always been difficult to value in dollars and cents, unless the only measure by which they are judged is the volume of sales made. Sellers’ discretionary income figures are normally considered the most accurate, although even these are also problematic. Whatever system is used to judge the value of these companies, however, economists agree that they are quickly becoming an important part of the financial landscape as a whole.

Definition of standard SDE numbers

Small and mid-sized SaaS companies that are valued at around $ 5,000,000 or less in US funds are rated purely in terms of SDE metrics, which are normally defined as their discretionary cash flow. Businesses that have more cash than they can realistically spend, even after the profits have been taken by the owners of the business, will be worth more than those with negative value. The problem is, a business with negative value doesn’t necessarily lose money. Those who accept payments through alternative currencies may not have precise numbers when judged in this manner.

Some growing market segments generate a lot of additional income for their operators, which is then reserved in the form of profits and dividends paid to shareholders. It gives the impression that they are losing money even though it actually indicates that they are growing rapidly. Because of this confusion, it can be difficult to tell if a business is healthy or not, and if that business is growing too quickly.

Organizations that provide a contact center as a service may be poised for the fastest growing, although many of these businesses are quite small right now. This means that they may not generate a lot of profit on their own, but have a big impact on the economy as a whole.

Measuring an indirect economic impact

Contact centers provide an extremely useful service to a wide variety of outside businesses, which then create other goods and services for the general public. These initial contact center companies may not be very large, but a number of other companies could not exist without them. This makes them much more valuable in terms of GDP than they would otherwise be.

Currently, no system exists to measure the impact that a SaaS provider might have on other organizations. It is at least somewhat unlikely that a single agreed metric can ever be created due to the stark differences between different types of organizations. SaaS video providers, for example, serve a niche market more than those that provide contact centers. That doesn’t make them any less valuable, however, as they could very well provide a service for other businesses to stay in business.

Financial experts therefore do not know how to quantify their exact impact. The prospect is difficult, especially when it comes to global SaaS platforms that challenge national boundaries.

Imagine a truly digital economy

Companies that never even use alternative currencies can still be difficult to follow due to the digital nature of their work. Their work, however, is of extreme value. This paradox has affected those who tried to judge the value of open source software for years, with some projects like Debian worth over $ 1.5 billion by conventional estimates.

Perhaps these estimation techniques, which involve determining how much it would have cost to do business in another traditional way, are the best way to judge the value of SaaS companies. At the very least, they provide a lingua franca that economists can use to compare them to existing business methods that have concrete measurement statistics associated with them.

This article does not necessarily reflect the views of the editors or management of EconoTimes.

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