Cloud Software Companies Still Growing, Still Not Profitable

Cloud software companies both large and small expect to finish 2015 with median revenue growth of about 46 percent, according to a survey, out today, by Pacific Crest Securities.

But as an indicator that only a select few can expect to be profitable in the foreseeable future, they are spending more to acquire their customers than their customers pay them, at least initially. As a group, the companies spent a median of $1.18 to acquire every one dollar in revenue, and for some companies that ratio was as high as three to one.

Obviously, these companies don’t intend to keep losing money forever. Once they signed a customer, it cost a lot less to sell them new incremental services over time. The companies surveyed reported these “upsell” costs at a median of 28 cents for every dollar in new revenue, though this was higher than the 18-cent median cost they reported in the same survey last year.

There are a lot of other interesting details. For one thing, nearly two-thirds of the companies in the survey delivered their applications via the public cloud. Last year, more than half of companies responding to the same survey managed their own servers. Forty percent said they use Amazon Web Services now, and 44 percent said they expect to use AWS three years from now. Other platforms, including Salesforce1 and Microsoft Azure, accounted for a combined 8 percent. Other third-party providers — presumably IBM SoftLayer, Rackspace and others fit in there — accounted for about 15 percent. The remaining 37 percent said they manage their own infrastructure.

The survey, out this morning, is a pretty deep dive into the health and operational benchmarks of cloud software companies. Included in the data are responses from 305 privately-held cloud software outfits, large, small and in-between though it doesn’t name them.

Correction: We originally said the survey included data from publicly held cloud software companies too, but only privately-held companies were surveyed. Sorry about that.

This article originally appeared on Recode.net.

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