CDC Software buys into SaaS for global reach

CDC Software is a business applications vendor that was spun out of Asian Internet giant Chinadotcom in 2002. Its strategy has been to piece together a business applications suite chiefly through acquisition; the company bought ten suppliers in the first six years of doing business, including ERP provider Ross Systems and CRM vendor Pivotal Corporation.

That acquisition activity has accelerated since August 2009, when the company launched on the NASDAQ stock exchange. While not as successful as the company had hoped, the IPO (and a $30 million investment from US bank Wells Fargo) nevertheless helped CDC Software fund its bid to become a software-as-a-service (SaaS) supplier.
CDC Software has acquired five SaaS companies since December 2009, including Canadian on-demand ecommerce platform supplier Truition and supply chain application vendor Tradebeam.

The company is not going all SaaS, however. “I’ve seen software vendors that have dropped everything on-premises and taken everything on-demand,” says CEO Peter Yip. “But that will take them forever, and I don’t think it’s a model we can adopt.”

Yip believes SaaS applications are best suited for outward-facing functions, whether it is dealing with customers or trading with suppliers, and this is reflected in the company’s choice of acquisitions. The long-term goal of the SaaS strategy, he says, is to sell not just software but platforms on which its customers can do business.

He points to the example of Tradebeam, whose tool allows businesses to manage their supplier contracts. One of its customers is a medical device maker in the UK, which uses the application to deal with its many component suppliers around the world. Using Tradebeam not only benefits the UK company, Yip says, but it also provides the component makers with a route to market. “That is a perfect example of a cloud application that really makes sense for the small guy to be able to hook on to,” he says.

Another driver for CDC Software’s SaaS strategy is extending its geographical reach. “To be successful you can’t just be in one market,” says Yip. “You need to be a global provider.”

One region of particular focus for the company is India. “A lot of people look at India as a cost centre, a place to find cheap developers, but we look at India as a profit centre,” he says. “For the last several quarters now it has been one of our fastest-growing markets.”

SaaS has particular potential on the subcontinent, he explains. “IT is one of India’s biggest exports, but the adoption of IT by medium-sized companies there is very low. Cloud computing means that small and medium-sized enterprises can adopt IT, because they don’t need to have capital expenses. It is perfect for a big country like India.”

Interestingly, while the company is now in the process of consolidating the numerous data centres it has acquired in the US and Europe, it is still planning its first facility in the Far East. “We will eventually get one up in Asia,” says Yip. “We’re determining which centre to use – either Singapore or Hong Kong.”

As that suggests, Asia is the CDC Software’s smallest market despite the company’s Chinese roots. On the eve of its IPO, investment analyst Bill Simpson cited the fact that “only 5%” of CDC Software’s revenue came from Asia in 2008 as one reason why “I’m going to simply stay away from this deal. Too many oddities.”

But Yip says CDC has strong potential to tap the growing Asian market for business software. “Take Truition; they are strong in North America and they have some presence in Europe, but they are hardly trading in Asia,” he says. “We can take these services and offer them to our customers in China, and in Australia, in Japan, Korea and so forth.”

As yet, though, this potential is largely just that.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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