MWD on Pega
Interesting report from MWD on Pega’s recent 2013 results. As Neil Ward-Dutton points out, it isn’t all bad for Pega. They just topped $500M in revenue for the year, and grew 10% YoY… but:
10% growth is good growth in these uncertain times, and certainly for a well-established software company with a lot of heritage; and many of Pegasystems’ competitors have been off that level of BPM business growth over the past couple of years. However, revenue growth is stalling. From 2009-10 growth was 27%; from 2010-11 it was 24%; from 2011-12 it dropped to 11%. 10% marks a further small growth slowdown. Pegasystems is still growing, but it’s not growing as fast as many people might have expected.
Well, this could mean BPM is dead. But if so, it is 10% less-dead than it was last year, isn’t it? However, Pega is finding tougher sledding in the market. I don’t have statistically relevant information to share, but anecdotally I can predict pretty well whether IBM or Pega will win a deal based on the characteristics of the customer. I wonder to what extent they’re getting flanked by IBM or other competition (the purchase of Antenna comes to mind as a defensive move).
Neil asks a couple tough questions:
You might recall that Pega acquired CRM provider Chordiant in 2010. At the time Chordiant’s annual revenue was around $76m – which was about 25% of Pega’s total revenue. This was a Big Deal.
But in the year to 2011, overall Pegasystems revenue grew a total of $80m. Which means that either Pegasystems’ pre-Chordiant BPM business contributed virtually no growth in 2011; or the Chordiant business went backwards. Moving forward, in 2012 Pegasystems’ overall revenue grew $45m; in 2013 it grew $47m. Clearly, the Chordiant acquisition has not delivered a big revenue boost.
My impression of this acquisition at the time was that it was defensive in nature – taking a competitive player in the “packaged BPM apps” space off the board. So while it might have been additive, it was a player in exactly the same corner of the market, rather than buying a business that would grow independently, in its own right. But that’s just my impressions from 10,000 feet.
Given that Pega only achieves 1% of its revenue from the cloud, I’d say it has a long road ahead of it, assuming it makes the transition to a SaaS-based business model. That’s a chasm that a lot of companies have crossed, but very few have crossed without pain along the way. BPM is more insulated against this change than most industries, but it is likely coming nevertheless.
Correction: Pega publicly reported that it grew it’s cloud revenue by $4.4mm (see page 21 of 2013 10K), so Pega grew its cloud revenue by almost 1% in 2013. That’s still not a huge number relative to overall sales, but I regret the error in the original version of this post! Thanks for the correction in the comment section.