SELECTED RECENT WHITE PAPERS

SOFTWARE-AS-A-SERVICE

CYBER SECURITY/INFRASTRUCTURE

INTERNET OF THINGS

E-COMMERCE/DIGITAL ENGAGEMENT

MEDICAL TECHNOLOGY

HEALTHCARE ANALYTICS

ANALYTICS

PAYROLL AND BENEFITS




SOFTWARE-AS-A-SERVICE

SaaS Quarterly Insights: Rule of 40 a better predictor of valuation than just revenue growth

ABSTRACT: The Rule of 40 was developed as a gate to determine the best SaaS performers, and using the specific numerical result of adding revenue growth and EBITDA margin is a better predictor of valuation than just revenue growth alone for 2017 data. In this report, we analyze R40 data for companies in our SaaS universe and introduce a new weighted formula, the First Analysis Rule of 40, which we think is an even better predictor of valuation.

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SaaS Quarterly Insights: CAC ratio drops, SaaS companies improve sales efficiency

ABSTRACT: We view the CAC ratio and its trend over time as key metrics for SaaS companies, second in importance to the growth rate itself. The CAC ratio can provide insight into 1) the effort required to sell new customers, 2) how much management is pushing to get growth, and 3) whether it is becoming harder to gain customers over time. In this white paper, we discuss the reasons for the recent improvement in the CAC ratio for our current SaaS universe.

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SaaS Quarterly Insights: Guidance and the growth curve: SaaS companies maturing, growth rates slowing

ABSTRACT: Understanding the growth curve (the expected growth rate over time) remains the key to investing in SaaS stocks. Severe disappointment is likely to occur when growth guidance is below what the market is expecting. In this white paper, we compare 2016 performance to guidance and look at how much conservatism is built into new 2017 guidance.

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SaaS: Talent performance and engagement technology: Engaging and driving the modern workforce

ABSTRACT: Building on our work in Human Capital Technology, this white paper provides a deep dive into the world of performance management and employee engagement, analyzing the economic, demographic, and technology drivers underpinning rapid evolution in approaches and solutions and profiling selected companies we believe are well positioned to be category leaders.

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SaaS Quarterly Insights: Impact of a potential recession; we expect SaaS companies to outperform

ABSTRACT: We are not forecasting a recession in the near term. However, since we are currently around eight years into one of the longest postwar periods without a recession, we think it’s prudent to consider how SaaS stocks might perform when the inevitable occurs. In this white paper we look at stock performance and growth rates by sector during the last recession and discuss how SaaS companies might react to a future economic downturn.

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SaaS Quarterly Insights: Acquisition flurry leaves us asking: Is the market valuing SaaS companies correctly?

ABSTRACT: While SaaS valuations have a reputation for being high, the recent flurry of acquisitions of SaaS companies raises the question of whether valuations are actually too low. In this white paper we look at the choice investors face between paying a high price for low-growth dividend payers or paying what currently looks like a modestly higher multiple for much faster growth.

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SaaS Quarterly Update: CAC ratio: Is it getting tougher to maintain growth rates?

ABSTRACT: We continue to view the CAC ratio and its trend over time as key metrics for SaaS companies, second in importance to the growth rate itself. The average traditional CAC ratio for our SaaS universe increased in 2015 compared to 2014, as the companies are becoming larger and growth rates decline. In this report, we discuss the impact of upsell for our sectors, which can improve the CAC ratio significantly for certain companies.

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SaaS Quarterly Update: Guidance and the growth curve: Is growth slowing enough to justify the recent sell-off?

ABSTRACT: SaaS stocks plunged early in the year due to slowing growth rates at some prominent SaaS companies and valuations at high multiples of revenue. While almost all SaaS companies were impacted, many reported solid growth and some reported accelerating growth. In this white paper, we compare 2015 performance to guidance in order to figure out how much conservatism is built into new 2016 guidance. Last year, prior year results (2014) were often a better indicator of 2015 performance than management guidance. We think this pattern will again hold true in 2016.

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SaaS: Talent Development Technology: The democratization of learning & development

ABSTRACT: Shortages of highly skilled workers and an accelerating pace of change in the knowledge economy are driving employee learning and development up the strategic priority list for enterprises of all sizes. New talent development technologies are packing a one-two punch for employers, spurring revenue growth by ensuring they have the educated talent they need to meet strategic goals while driving cost efficiencies by reducing expenses associated with traditional, often inefficient and ineffective talent development. In this white paper, we analyze the market for talent development technology, discuss the drivers we believe represent a tailwind for the leading and differentiated providers, and profile nearly 60 public and private companies.

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SaaS Quarterly: Indirect sales channels can lead to higher growth, but direct field sales required for most public companies

ABSTRACT: Direct field sales is the predominant approach for companies in the First Analysis SaaS universe; while many of the companies with the fastest growth rates do not rely on direct field sales, some public companies in our universe have been able to support very fast growth using this method. Complex offerings and product suites typically require a direct field sales presence, especially in legacy applications like payroll where a field sales presence is traditionally expected. However, if a SaaS offering can be sold effectively without a field sales force, the economics may support a lower price point that could disrupt the segment. This quarterly update provides a detailed analysis of these factors for the SaaS group in general and also by sector.

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SaaS: Private-side stories to know about

ABSTRACT: This white paper focuses on introductions to private, mainly SaaS, companies that either 1) through their innovation we see as creating a new category within a larger context (e.g., a new area within the broad digital marketing arena) or 2) offer some other distinguishing approach that particularly warrants watching. The stories we tell are designed to give a flavor for what the companies are doing and hopefully some insight into why they can be a compelling presence on the tech landscape in coming years. Most of the companies we feature fall into either a customer-facing context or a security/monitoring context--two areas we consider to offer appealing medium-term fundamentals.

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SaaS Quarterly: What price growth? SaaS customer acquisition cost ratio a key metric

ABSTRACT: To achieve rapid growth and establish or maintain a leadership position, SaaS companies generally spend heavily on sales and marketing. In this report, we analyze the average cost to acquire a new dollar of annual recurring revenue, or the customer acquisition cost (CAC) ratio. It provides insight into 1) the effort required to sell new customers, 2) how much management is pushing to get growth, and 3) whether it is becoming harder to gain customers over time.

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SaaS Quarterly: Profitability: No longer a dirty word

ABSTRACT: We believe profitability is a positive for SaaS companies and multiples, with a large majority of SaaS companies now reporting a profit in their non-GAAP financials. We continue to believe growth rate is the most important metric in determining valuation multiples, but we also believe SaaS companies must be able to make a strong case they will be solidly profitable when growth slows. In this report, we discuss how companies are approaching profitability across five sectors in the SaaS universe and how profitability is impacting current sector valuation multiples.

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SaaS Quarterly: Guidance and the growth curve: Key to picking SaaS winners

ABSTRACT: Management guidance supports the general view that growth rates for SaaS companies will decline over time due to the law of large numbers as companies get bigger. In our previous SaaS quarterly, we found actual growth curves rarely have the smooth downward slope one might expect. We theorized the growth curve is also dependent on total market size, industry leadership and competition, sales and marketing spending, and management’s ability to manage growth. In this report, we investigate the connection between guidance and the growth curve and discuss what investors should think when a company that posted 40% growth last year gives new guidance for 30% growth.

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SaaS Quarterly: Revenue quality important for SaaS valuations

ABSTRACT: While we have discussed revenue retention as a critical SaaS metric, the more subjective issue of revenue quality is another element that should be considered in determining what multiple to pay for a SaaS company. In this report, we discuss revenue quality indicators, such as market focus, contract length, and integration complexity, which vary significantly within the SaaS universe.

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SaaS Quarterly: How to invest in SaaS stocks over time: Future growth curve is key

ABSTRACT: While the majority of our selected SaaS universe has gone public since the great recession, several companies have been public for over a decade, with Ultimate Software and Concur having IPO'd in 1998, and a number of early SaaS companies have been acquired. What can we learn from this history that will help determine when to buy and how long to hold SaaS stocks? We believe the key element is the future growth curve. Logically, we would expect a long-term expected growth rate over 20-30% to be one of the primary factors in supporting high valuations, with higher revenue multiples awarded for higher growth rates. We would expect the growth rate to correlate with several factors, including revenue size, ability to manage growth, sales and marketing spending, industry leadership, and market size. In this report, we compare revenue multiples to current (2014) growth rates, finding the correlation is relatively strong. As many analysts have discussed, revenue multiples for larger SaaS companies tend to be higher than for smaller companies, although the correlation is not strong. What does seem clear is that valuation multiples for SaaS companies in the $100-250 million revenue range vary dramatically from below 3 to double-digits.

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SaaS Quarterly: Cream of SaaS will rise to top

ABSTRACT: In 2013, money could be made buying almost any software as a service (SaaS) company at any price. The questions now are whether SaaS stocks still offer solid capital gain potential, which SaaS stocks offer the most potential, and what is a reasonable entry price? In this white paper, we present a research-based framework for determining whether a SaaS company is worth a high multiple and how we would frame a valuation discussion. We also present our current thoughts on recent developments in specific vertical SaaS markets, including CRM, healthcare, IoT/M2M, HR/payroll, network security, and education.

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SaaS e-Commerce: Marketplaces and related management software: Arenas poised to expand

ABSTRACT: Selling on multiple, fairly complex marketplaces, or digital bazaars, is challenging. Third-party e-commerce channels index, organize, curate, and display product content in distinct, unique ways. Key dynamics, such as segmentation/categories, pricing, inventory levels, policies, and more vary across the online landscape. In this white paper, we provide an overview of the marketplace scene, touching on basics of what constitutes a marketplace, why consumers buy on them, mobile's growing role, a handful of trends, and a profile of marketplace sellers.

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SaaS Marketing Automation: New-generation buyer engagement finding center stage

ABSTRACT: A new-era solution that addresses a major shift in B2B buying practices, marketing automation is on its way to becoming mainstream marketing table stakes. As we spell out in our white paper, it brings marketing onto the business-generation center stage by 1) driving revenue and 2) advancing marketing’s accountability in doing so. We open our report with a layout of the marketing automation landscape and discuss functionality, how marketing automation and CRM differ, the marketer's changing role, market sizing, challenges, and a handful of emerging areas and trends we expect.

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SaaS e-Commerce platforms: Mixed market finding new life

ABSTRACT: As the online arena becomes increasingly strategic, e-commerce platform capability should only grow in importance. Platform vendors supply the software engines necessary for fundamental e-commerce operations. This usually includes 1) merchandising, search, and promotion capability, 2) shopping cart and check-out functionality, 3) storefront design tools, and 4) tie-in with or supply of enterprise applications (content, order, inventory, and customer management systems). We offer a market overview, discussing platform trends and activity, examining the end-markets, depicting solution types, and assessing specific players.

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SaaS: Talent acquisition and analytics technology

ABSTRACT: A number of factors are driving talent acquisition and development to the top of the strategic priority list for global enterprises of all sizes. Labor shortages in crucial functional areas such as technology, sales, and marketing are making it all but impossible for companies to meet their talent needs solely with traditional recruiting techniques like job postings: a trend we expect to intensify, given the growth of the worldwide knowledge economy. The global economic recovery is shifting power from employers to employees with high-demand skills and increasingly turning labor into a seller’s market. We expect cutting-edge technologies, often offered on a subscription, software-as-a-service basis, to drive considerably more value in human capital in the future, spurring revenue growth by ensuring employers have the talent they need to meet strategic goals. In this white paper, we analyze the market for talent acquisition and analytics technology, discuss the drivers we believe represent a tailwind for the leading and differentiated providers, and profile more than 60 companies.

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SaaS Education Technology: Bringing the classroom to the cloud

ABSTRACT: A confluence of trends is driving significant growth and investment in the education technology (ed tech) sector. Historically, education has lagged many other industries in its use of technology, but we believe a number of factors are aligning to catalyze an acceleration in traction and market opportunity. In our white paper, we profile multiple specific players in the sector, including providers that use technology to dramatically lower the time and cost required to earn a degree, school-as-a-service companies, learning marketplaces and search, learning management systems companies, social networks for learning, and learning analytics companies.

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School as a Service: The next big thing in the higher education industry

ABSTRACT: Over the past several years, a growing universe of companies designed to help traditional schools manage the challenges of building and maintaining online programs has emerged. These companies have expertise in program design, implementation, marketing, recruiting, IT support, and student retention services and can effectively build and manage online programs from the ground up, allowing partner institutions to remain focused on the pedagogical side of online learning. These companies also help institutions overcome one of the significant hurdles to building online programs by providing start-up funding in exchange for a portion of the tuition generated when students ultimately enroll. This report profiles some of the leading companies in this rapidly growing industry, which we refer to as School as a Service (SaaS), along with a handful of other companies whose business models revolve around providing services that help increase access to the traditional higher education sector.

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CYBER SECURITY INFRASTRUCTURE

Cyber Security: An analysis of the endpoint security opportunity and an overview/expansion of our broader sector coverage

ABSTRACT: ‘Endpoint security’ refers to directly protecting end-user-accessed, network-connected devices, such as laptops. It is arguably the most valuable and vulnerable segment of an organization’s infrastructure. In this white paper, we frame and assess the endpoint security landscape, discussing dynamics such as market drivers and the growth outlook, solution trends, hurdles facing next-gen market evolution, positioning of 25 or so private players, and an overview of eight key players.

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INTERNET OF THINGS

Smart Home market large and underpenetrated, stage set for strong growth

ABSTRACT: Consumers have historically been slow to adopt connected device technologies in the home environment, but we think the stage is finally set for this to change, driven by the dissemination of smartphones, the growth and expansion of broadband networks, rising consumer awareness of Smart Home technology, and increasing interoperability among vendors. In this white paper, we segment and size the Smart Home market opportunity and profile 18 significant public and private players participating in the Smart Home ecosystem.

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IoT/M2M Platform Software: Overview of an essential and increasingly appreciated ecosystem layer

ABSTRACT: The ability to help manage the inherently complex Internet of Things/Machine-to-Machine networking environment as well as automate related tasks at scale has pushed platform software to the fore, sparking significant investor and M&A interest and making an in-depth look at this market a timely undertaking. This white paper offers a high-level overview of the infrastructure software market beginning with a basic description of a platform and the three general platform types. We then describe the benefits of using a platform, discuss ways to segment the market, size the global opportunity, highlight adoption drivers and trends, and offer some high-level conclusions. After our overview, we profile 30 public and private players.

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Internet of Things/M2M: Industry update; spotlight on our coverage universe

ABSTRACT: We view the Wide-Area-Wireless Internet of Things/Machine-to-Machine market as a significant opportunity, projecting growth of over 19% a year (CAGR) to reach $200B by 2023. In this report, we define the IoT/M2M market and discuss the drivers behind this growth, such as increased wireless network carrier support, declining hardware and airtime costs, smartphone proliferation, and regulation. We discuss the key verticals in the market, including mobile resource management (MRM) and usage-based insurance (UBI), focusing on the major public players as well as recent M&A transactions.

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Fleet management solutions market large and underpenetrated, supports strong growth potential

ABSTRACT: Fleet management solutions capture vehicle and/or driver data, communicating it over a network to a back-end system or application where it is analyzed and translated into actionable information. This information is used by management to improve decision-making and resource management, enabling fleet operators to address inefficiencies and reduce costs, drive productivity improvements, capture revenue opportunities, and raise customer satisfaction. In this report, we offer a high-level overview of the M2M fleet management solutions market, beginning with a description of a basic solution and its components. We look at history, use cases, ROI, market size, growth expectations, and factors influencing adoption. We segment the market on a variety of dimensions and outline attributes we expect the successful companies in the space to exhibit both near and longer term.

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Wide-Area-Wireless M2M trends and opportunities

ABSTRACT: Machine-to-machine is the communication of data over a network between two devices for the purpose of either monitoring or controlling a particular asset or environment. Wireless M2M devices and software are being deployed to help businesses reduce cost and increase efficiency, create new revenue opportunities, improve customer experiences, and allow for more advanced data collection for analytics. In this report, we discuss Wide-Area-Wireless M2M market trends, review some of the key public and private players, and assess who will benefit from the corresponding strong growth in M2M connections.

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E-COMMERCE/DIGITAL ENGAGEMENT

Tag managers evolve with MAD tech, unifying view of the customer

ABSTRACT: A key trend to watch over the next few years is the convergence of marketing and advertising technology platforms (referred to as MAD tech) driven by a need on the part of brands to have a more unified view of their customers. We think tag management vendors could have a potentially important role to play given the relatively unique data layer they represent for brands/advertisers. In this white paper, we look at the MAD tech ecosystem and the strategic positioning of tag management systems, the best of which have the potential to replace hundreds of lines of tag code on a page with a master tag having a single line of code.

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Digitization of media and marketing services creates opportunities / risks

ABSTRACT: In this piece, we provide our views regarding the current structure of the digital media and marketing services industry by breaking it down into four relatively distinct categories: digital disruptors, digital or die, service migrators, and digital facilitators. The first two categories are more "front office" in that products are the catalysts driving behavioral change while the latter two categories might be considered "back office." These are companies offering tools and services that provide behavioral intelligence on a passive basis, based on observations over time. We discuss the primary drivers of change for the industry and explore how digital channels are complicating the lives of both buyers and sellers of media and marketing services.

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MEDICAL TECHNOLOGY

Genetic sequencing, next-generation sequencing, and the challenges and opportunities at hand

ABSTRACT: Molecular healthcare encompasses areas of industry development where we see significant opportunity over the next several years to improve healthcare outcomes and create substantial economic value. While molecular healthcare includes genomics, lipidomics, proteomics, transcriptomics, microbiomics, and metabalomics, to name a few, in this report we focus on the fast-moving area of genomics and the early-innings impact next-generation sequencing (NGS) is having on the proliferation of molecular diagnostics in the clinical setting. We also review genetic sequencing basics and profile the key publicly traded and privately held innovators and major players.

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Personalized Medicine: Personalized healthcare management analytics and infrastructure could transform big data into big healthcare benefit

ABSTRACT: Developments in the disparate areas of biological research, information technology, and life science tools - combined in new generations of data platforms designed to store and interpret clinically relevant information - are allowing for the delivery of personalized medical treatments on a far broader scale and for more complex diseases and conditions than would have been possible just a few years ago. Advancements in big data and lower costs for gene sequencing underlie this trend. In this overview, we lay out the case for the emergence of platform and interpretation companies that aim to deliver clinically validated and actionable insight to doctors and patients. We focus on emerging private players, primarily to demonstrate the level of activity in the sector.

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Single-port robotic surgery update

ABSTRACT: Within our life science technology coverage universe, healthcare productivity is the driving theme. In general, the key question is simple: How does one achieve equal or better outcomes for lower or equal total costs? While the value and benefit of robotic surgery and advanced minimally invasive techniques (including diagnostics) remain somewhat controversial at this point, we view the controversy as more a matter of it being early days in many instances as technology and procedures are rapidly evolving and definitive data on clinical and economic benefits is yet to be collected. While our white paper focuses on recent developments in the narrow field of single-port surgical robots, our general thesis includes aspects of our broader life science technology universe.

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Robotics-assisted surgery: Technological advances and increasing adoption

ABSTRACT: The robotics-assisted surgery sector has experienced strong growth over the past 10 years as a result of new technology, particularly advances in medical imaging, and the growing acceptance of robotics in the operating room by both surgeons and patients. In this report, we provide a high-level view of the robotic surgery market, starting with a description of robotic surgery and current and potential markets. Related to market opportunity, we highlight the factors that are leading to increased adoption of robotic surgery, and we provide a snapshot of a number of public and private players in the robotic surgery space.

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More difficult FDA medical device regime prompts new strategies and perspectives

ABSTRACT: The regulation-driven costs of bringing a new or modified medical device to market have increased dramatically in recent years, with respect to both the required time and the magnitude of the process. With few prospects for near-term legal or regulatory changes that might reverse this situation, some companies have adopted proactive strategies that have led to success, such as being more assertive with the FDA and going to market outside the U.S. first. This report presents an overview of the FDA approval process for medical devices, historical data for 510(k) submissions and clearances, and how companies can navigate the FDA regulatory maze.

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HEALTHCARE ANALYTICS

AHIP highlights favorable trends for transparency and precision medicine

ABSTRACT: Transparency and precision medicine were two major themes at the 2015 AHIP Institute conference we attended in June. In this report, we highlight a few emerging private companies in both areas, but most of our discussion focuses on the broader population health market, encompassing precision medicine and the goal to make treatment decisions on an individualized basis down to the DNA level. With respect to transparency, we continue to see a need for improved sources of quality information to complement cost data.

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A closer look at the healthcare analytics market

ABSTRACT: Analytic tools and technologies have become critical across sub-sectors of healthcare, including revenue cycle management (RCM), clinical interventions, and population health management, and represent a multi-billion market opportunity we believe will be largely captured by a group of emerging vendors. Our focus in this white paper is the area of clinical, financial, and operational analytic solutions targeting healthcare providers (primarily hospitals and health systems) vs. those vendors serving payers or pharmaceutical companies. We look at emerging private companies in the sector as well as a handful of publicly traded healthcare analytics companies.

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Healthcare CRM: CRM market evolving, intelligently connecting with consumers and building a brand are critical

ABSTRACT: While healthcare lags behind other verticals, the industry has been shifting from traditional forms of marketing to online channels and social media to drive volume/market share. Consumerism in the form of price transparency is one of many factors driving healthcare CRM, and hospitals and health systems now have to respond to price-sensitive patients and differentiate themselves based on convenience, quality, and brand. In this white paper, we look at a broad range of CRM solutions catering to the healthcare market, including marketing automation and tools such as health risk assessments.

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SaaS/Healthcare IT: A closer look at text messaging in healthcare

ABSTRACT: Most healthcare workers use personal devices, namely smartphones, to complete daily tasks inside and outside of the hospital or office. As a result, secure, HIPAA-compliant texting is a critical issue to be addressed, and there are a number of vendors coming at this problem from different angles. In this white paper, we discuss provider-to-provider communication in healthcare as well as patient-directed text messaging solutions that address engagement and medication adherence.

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Healthcare consumerism a fertile field of opportunity

ABSTRACT: A number of trends and events have brought healthcare consumerism to the fore as an emerging healthcare sector. From a consumer’s viewpoint, healthcare consumerism can range from comparison shopping for a medical service to enrolling in the newly launched state or federal insurance exchange marketplace to joining an online wellness program to simply using one of the rapidly growing number of wearable health devices. Healthcare consumerism includes several subsectors that share many common growth drivers, with those most directly enabling improved consumer decision-making of particular interest. In our white paper, we discuss the trends and events driving the rise of healthcare consumerism, map out key areas of opportunity, and highlight numerous established and emerging players.

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ANALYTICS

Large opportunity in new generation of analytics companies

ABSTRACT: The overall business intelligence (BI) market represents a very attractive opportunity that has produced two recent billion-dollar IPOs. In recent years, two key technologies have driven the market, self-service visual data discovery and in-memory, the latter of which provides the ability to run both transactional and analytical data in the same system. In this white paper, we examine the significant public and private players in the field of analytics and discuss Hadoop, a big data platform/infrastructure that has exponentially extended the scope and potential of the traditional analytics market and represents an important dynamic.

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PAYROLL AND BENEFITS

The evolution of the payroll / HR bundle

ABSTRACT: Since we began writing about bundled business services in 1999, the trend has become widely embraced by the payroll and related companies. While payroll growth has slowed, add-on bundled services continue to grow at a double-digit rate for even the largest payroll companies. We credit the professional employer organizations (PEOs) for leading the way with a very comprehensive bundle of included services. There have been very few losers as bundled services have generally replaced in-house provision of the tasks. As we enter what we believe are the middle innings of this trend, we think it is time to step back and review the competitive landscape.

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