Hi Gil,
Thanks for the tap on the shoulder, we always try and keep things clear, but as the teacher used to sat – could do better!
As SiteMinder gets bigger, it will become more profitable per dollar of revenue:
The initial costs such as engineering team, platform infrastructure, head office are relatively fixed, meaning each additional hotel customer added to the platform carries far higher incremental margins. A business with 10,000 hotel customers carrying $50 million in fixed costs is far less profitable than the same business with 50,000 customers carrying the same $50 million in fixed costs. i.e. revenue can continue compounding while costs grow far more slowly, which is where the profitability inflection in successful software businesses comes from.
To put simply, SiteMinder has done the hard work of building the platform and signing up the customers. It now comes down to how fast profits grow as more hotels pay more for more services, without SiteMinder’s costs growing at the same pace. If their Smart Platform strategy works, meaning hotels adopt the broader suite of tools rather than just the channel manager, revenue per customer grows, transaction volumes increase, and because the cost base is largely already in place, most of that extra revenue drops straight to the bottom line as profit.
It’s the difference between a business that’s growing and a business that’s profitably growing — and for SiteMinder, that inflection point is what the market is now watching closely.
