Cloud computing has been red-hot, as seen with high-fliers like Salesforce.com (NYSE:CRM), SuccessFactors (NASDAQ:SFSF) and NetSuite (NYSE:N). Even Apple (NASDAQ:AAPL) is getting aggressive in the space. In the latest blowout earnings report, CEO Tim Cook called the cloud the “strategy for the next decade.”
The IPO market also is seeing a surge of cloud deals. On Wednesday, Guidewire Software (NYSE:GWRE) made its mark on the 2012 IPO market. The company priced its offering at $13 and ended the first day of trading up 33%.
Guidewire builds software to help insurance companies manage their operations, including claims, underwriting and billing. Customers include Tokio Marine & Nichido Fire Insurance and Mercury & Zurich Financial Services Group.
I recently had a chance to interview the company’s CEO, Marcus Ryu, to discuss his company’s public offering, the cloud and more:
Q: What was the IPO process like? And why take the company public?
A: It was my first time, and it was an exhilarating experience. We know that our employees love the company and so do our customers. But the big question was about the investors. But as seen on Wednesday, the reception has been strong.
We think being public is important because it shows the strength of our balance sheet. We can also be more transparent. This will be important for getting large customers.
Our software focuses on mission-critical functions of insurance companies. As much as 95% of a company’s employees can be using the system on a daily basis.
Q: You have a cloud version and one that is in a private cloud?
A: That is correct. But our system is based on one code base. And the private cloud version is used by a small minority of customers.
Instead, they are more concerned about replacing 30-year-old legacy technologies. The type of software deployment is not a big factor.
Q: What were some of the lessons learned before starting Guidewire?
A: While at Ariba (NASDAQ:ARBA), I saw the power of enterprise software and how it can change the economics of an industry. But there also were the dangers of the dot-com era. One was growing too fast.
At Guidewire, we look to the long term. This means moderated growth and a focus on the customers. Our attrition rate is 0%, referenceability is 100% and renewals are 100%.
Q: How long does it take to implement the software? And what about the contracts?
A: It takes anywhere from 12 to 18 months to implement. Our software is really a transformation of a company’s operations.
The average contract life is about five years. But we have some that go as long as 20 years. Using our software is a significant decision and requires long-term planning.
Q: What about mobile?
A: We are working with mobile technologies, such as for the iPad. It’s still in the experimental phase, but we think there is lots of potential. This is especially the case with claims. Field employees can use mobile apps to easily input data, take photos and so on.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.