Economists Admit SaaS Firms Represent Growing Segment of Economy

Though a number of prominent economists have noted the importance of organizations that use the software-as-a-service model of doing business, new reports are starting to indicate that the exact value of these firms is hard to put into standard financial terms. Computer industry insiders have suggested that new metrics should be developed in order to better gauge the value of these firms on the economy as a whole, though this has been met with at least some derision. Critics say that such metrics could either be unfairly critical of SaaS firms or, alternatively, they could be far too promotional.

Digital goods have always been hard to put into dollars and cents, unless the only metric they're judged by is the sheer volume of sales made. Seller discretionary earnings figures are normally considered the most fair, though even these have problems too. Regardless of what system is used to judge the value of such firms, however, economists do agree they're quickly becoming an important part of the financial landscape as a whole.

Defining Standard SDE Numbers

Small-to-medium sized SaaS companies that are valued at around $5,000,000 or less in US funds are valued solely in terms of SDE metrics, which are normally defined as their discretionary cash flow. Companies that have more cash coming in than they can reasonably spend even after profits are drawn by the company's owners will be worth more than those who show a negative value. The problem with this is that a negative valued firm isn't necessarily losing money. Those that accept payments through alternative currencies may not have accurate figures when judged in this fashion.

Certain growing market segments produce a great deal of extra income for their operators, which are then reserved as profits and dividends paid out to shareholders. That makes it appear like they're losing money even though it actually indicates that they're rapidly growing. Due to this confusion, it can be hard to tell whether or not a company is healthy and whether or not said firm is growing too quickly.

Organizations that provide a contact center as a service are perhaps poised for the fastest growth, though many of these firms are currently quite small. That means that they may not actually bring in much profit on their own yet have a large 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 companies, which then create other goods and services for the public at large. These initial contact center companies may not be very large, but a number of other companies couldn't exist without them. That makes them far more valuable in terms of GDP than they otherwise might be.

Currently, no system exists to measure the impact that one SaaS provider might have on other organizations. It's at least somewhat unlikely that any single agreed upon metric could ever be created due to the marked differences between different types of organizations. SaaS-based video providers, for instance, serve more of a niche market than those that provide contact centers. That doesn't make them any less valuable, however, since they might very well provide a service that allows other companies to stay in business.

Financial experts are therefore at odds with how to put their exact impact into numbers. The prospect is challenging, especially when dealing with global SaaS platforms that defy national borders.

Picturing a Truly Digital Economy

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

Perhaps these estimation techniques, which rely on figuring out how much it would have cost to do business in another traditional way, are the best manner in which to judge the value of SaaS firms. If nothing else, then they provide a lingua franca that economists can use to compare them to existing methods of doing business that have concrete measurement statistics associated with them.

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