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Wall Street Beat: Does Twitter IPO signal a tech bubble?

Marc Ferranti | Nov. 11, 2013
The number of IPOs is ramping up but the market is still not dealing with dot-com era numbers

What's more, tech-vendor business models involve less "pie in the sky" thinking, IPOScoop's Fitzgibbon noted. Among other things, the cloud-based technology being sold by companies involved in IPOs is inherently different than the old client-server technology of the dot-com era, for both sellers and buyers.

"It's 'real cloud' this time," Canaccord Genuity analyst Richard Davis said in a research note issued Thursday. "In 2000, version 1.0 was called 'web enabled,' which basically meant a web-like user interface, but not much more."

Cloud software offers advantages to both the developers and users. "From the software company's standpoint, cloud software is easier to develop and administer for the simple reason that you have fewer extant versions in use," Davis said. This cuts R&D costs by half, he said.

"Software companies used to mail out thousands of CDs to different companies, so you had users on all these different versions of the software," said Peter Gassner, founder and CEO of life sciences cloud software company Veeva, which launched its IPO last month.

"With cloud software, everyone can be on the same version," a phenomenon that among other things reduces turnaround time for innovation, Gassner noted.

"Innovation time between when a customer had an idea and when developers could do something with it could be four years -- now it's four months," Gassner said.

The usage feedback Veeva gets is not only from life sciences companies that use its software, but also from end-user physicians and clinical trial managers, for example, who are constantly logging data.

This data can be captured and then used by Veeva's life sciences customers to add value to their own services. "This is transformational," Glassner said. "Companies are always trying to move up the value chain."

At this point in the development of cloud technology, enterprises appear to have accepted this vision, noted Canaccord's Davis. "Cloud is an accepted, and frankly desired, architecture for corporate IT buyers," Davis said.

Meanwhile, if the market takes a turn for the worse, the number of IPOs will undoubtedly decline. That probably wouldn't keep companies with solid business models out of the market for long, though.

Veeva's decision to go public was not based on the vagaries of the stock market, Gassner said. Enterprises want to consider their primary software suppliers as partners and, as such, want them to undergo the sort of scrutiny that comes with being a public company, he said.

"We decided to go public a year ago," Gassner said, "You can't time the market -- it may be up, but it will go down."

 

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