Big software companies were hit hard during the Great Recession in 2008, but a Wall Street analyst says the blow may be less severe this time around as coronavirus triggers another downturn.
The shift to cloud software based on subscription payments, instead of longer-term licenses, may give tech giants like Salesforce, Microsoft and ServiceNow time to adjust to the downturn, UBS analyst Jennifer Swanson Lowe said in a research note Thursday.
To be sure, the slowdown will hurt the entire software industry, but companies that offer cloud-based applications may have an easier time signing up new customers going forward, she said.
The cloud lets businesses access applications through the web, paying a subscription usually based on the number of users, instead of signing more expensive fees for software installed in private data centers. The trend actually made it possible for businesses to scale down or even abandon in-house data centers.
The cloud was an emerging trend during the 2008 crash, but Swanson Lowe said companies that embraced it, including cloud pioneers such as Salesforce and ServiceNow, managed the crisis better. On the other hand, software vendors that relied more heavily on businesses signing for new software licenses took a harder hit.
“Declines in license revenue for traditional vendors highlight the drop off in new business generation,” she wrote.
The current slowdown downturn will likely have an impact on software revenues in 2021, she added. She said she expects major cloud software providers, Salesforce, Microsoft and ServiceNow, to be in the best position to weather the storm.
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