smartFOCUS: shift in business model promises rewards

It is a tough time at the moment for all kinds of businesses as inflation figures from around the world testify to the fact that consumers are buying less and expecting lower prices for those things that they do buy. But companies have to carry on as best they can and need to find new ways of persuading existing customers to spend more while also getting new customers on board.

One approach for companies is get sophisticated about how they market themselves to their customers and the best way to do this is to use a combination of communications platforms. The power of the brand is all important, of course, but to grow, and maintain, a powerful brand takes a lot of marketing and this is where software can come in handy.

smartFOCUS is a business software developer that supplies ‘intelligent marketing’ solutions that facilitate the delivery of relevant, personalised and timely communications to a brand’s customers via different channels, such as print, e-mail, mobile phones and the Web. At the heart of the smartFOCUS solutions is the ability to consolidate the huge volumes of data companies store about customers and make it usable by marketers.  Through analysis marketers are able to build insightful customer knowledge and information that helps to better identify and target different customer groups with the right communication through the right channel that improves marketing results. Client brands that use its software include Easyjet, Harrods, Hilton, Manchester United, Rabobank and Sony, but in total the company has more than 700 clients.

The company’s online marketing business, smartFOCUS Digital, serves firms that use digital marketing channels. Its e-mail marketing application, smartMARKETER eChannel, is used to turn every e-mail communication into a powerful business tool. Meanwhile, another application, called Digital Marketing Solution, can be used to deliver integrated e-mail, SMS, RSS and Web channel campaigns.

The world’s oldest wine club, The Wine Society, adopted smartFOCUS Digital’s e-mail delivery platform in order to help it better communicate with its 110,000 members. Already using direct mail, the club found it needed a fast way to keep members up to date about the latest wines that were available or the latest promotions that it was holding.

By using smartFOCUS for general promotional campaigns, The Wine Society found that it saw consistent ‘click-throughs’ of 10%, while more targeted campaigns saw response rates of up to 45%. Most importantly, during an 18-month period the club achieved a 400% growth in online sales.

The company also has a news media-specific business, called smartFOCUS ASTECH, that configures software especially to provide marketing automation to the publishing industry. In April, the Dallas Morning News signed up with the business, which works with to over 100 news media brands

smartFOCUS’s final results for 2008 came out at the end of April. These showed that revenues had slipped back from £11.5m in 2007 to £10.4m last year and that profitability had declined, with the company making a loss before tax of £1.2m (2007: £1.7m profit before tax).

The company’s chairman blamed a reduction in software licence revenues that had in turn been caused by the deteriorating economy, specifically in the last quarter of the financial year (traditionally the company’s strongest trading period).

Meanwhile, smartFOCUS has been concentrating on a business strategy that involves migrating from its traditional perpetual software licensing model to a ‘software as a service’ (SaaS) model.

SaaS is a form of selling software that involves the software vendor running applications on its own servers, while its clients access it remotely (usually via the Internet using a Web browser). This makes it easier for the vendor to perform tasks on the software such as upgrades and other kinds of maintenance, while clients are required to install little, or no, software from the vendor on their own computers.

SaaS also gives more control to the vendor, since the vendor gets to manage and limit the use of its applications while preventing unauthorised copies and distribution of its software. Clients, on the other hand, do not have to spend a huge upfront fee, as is the case when buying a software licence. Instead they are, in effect, renting the software, which also helps the vendor predict revenues better than when using a lumpy licensing model.  

At the end of 2008 the business accelerated its move to 100% through the SaaS model and reorganised around this change, which has incurred a one off cost but reduces expenses by around £1.5m annually moving forward. The change to SaaS is expected to deliver a significant increase in its recurring revenues, greatly improving revenue quality and visibility, while also shortening the sales cycle and increasing the competitiveness of the company’s software offering. Additionally, the SaaS model should reduce operational costs and reduce barriers to clients adopting smartFOCUS’s software.

smartFOCUS’s chief executive Chris Underhill said the company’s clients are moving to outsource non-core operations in order to deliver reductions in cost and time to market. The SaaS model for delivering the company’s multi-channel marketing software is aimed at addressing these needs and Underhill expects the marketplace to respond positively.

Meanwhile, the company continues to make sales. As recently as last Monday, SmartFOCUS won a follow-on deal with fashion and sportswear retailer M and M Direct to build a single customer view database.  The retailer had already been using SmartFOCUS’s software for more than three years, but by upgrading it believes it will achieve greater insight into marketing performance and each customer’s behaviour.

Before the M and M deal, during the first quarter smartFOCUS experienced “strong trading” with both revenue and profit ahead of plan, while the company increased its recurring revenues ending the quarter with visibility of over 78% of its planned revenues for 2009.

Forecasts suggest that revenue growth for the whole of the current year will be a little flat as a results of the change to the SaaS model, while the business should make a small profit with earnings per share coming in at 0.25 pence. Next year, smartFOCUS is expected to do better, with EPS estimated to increase to 0.6 pence.

The company had net cash of £1.5m (equivalent to 1.6 pence per share) at the end of last year, so its share price (5.25 pence at the time of writing) should benefit from some support in the event of any bad news. This share is may be a risk, and perhaps not for widows and orphans so cautious investors may want to look out for news that the shift to the SaaS model is working before committing.