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Market Analysis: Ss&C Technologies

Essay by   •  December 23, 2010  •  1,796 Words (8 Pages)  •  1,650 Views

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Product

SS&C is primarily a software company which markets and sells its products/services into seven markets: Insurance entities and pension funds, Institutional asset mgmt, Hedge funds and family offices, Financial institutions (retail banks credit unions), Commercial Lending, Real Estate Property Mgmt, and Municipal Finance. In addition to software, SS&C also provides accounting outsourcing to outside firms.

Industry

Software industry as a whole is maturing and growth is slowing. Software/services one of the largest vertical markets with 62.3 predicted revenues in next year. Financial services industry typically invests more heavily in software since the IT departments in these companies often can't totally handle specialized asset classes and niches that this software is designed to handle. Financial services projected to spend $83 billion on IT in 2004 with $62 billion on software alone. Technology spending in financial services market driven by the growth in the underlying assets, transaction volumes and complexity of securities. Since financial assets are projected to grow annually at 8% (to 26$ trillion by 2007), financial software should grow at the same rate. According to Yahoo, area that is vulnerable is the best-of-breed that specialize in certain niches. No backup plan if growth stalls in that niche industry. SS&C operates in many niches, not just one.

Industry Driving Forces

There are a few driving forces in the software industry that directly affect SS&C. There is pressure to provide a web component to desktop software (to allow access from internet). Currently only a handful of the SS&C's products are web-based (BancMall). Another pressure comes from the increasing globalization in this industry. In 2003, international revenues accounted for 22-23% of total revenues, a work in progress from the company goal of 50%. SS&C already has a sales presence across Europe, a large office in Malaysia, and their US based clients have operations in Europe. Two of their close competitors (Princeton Financial and Advent Software) have not had much success in Europe. SS&C could also capitalize on the rapidly growing Hedge Fund market in Europe to increase this market. Product innovation and technological change are also constant pressures in software. Both technology and financial markets are constantly changing and new product introductions are key. There is a growing preference for differentiated products as certain niches (i.e. debt and derivatives) need products tailored to their market type. SS&C combats this using acquisitions to gain products to satisfy these niches.

Rick factors

As in every industry, uncertainty and business risk are driving forces. The biggest risk factor to short-term demand for products and services is fluctuations, disruptions (earth quakes, terrorist attacks), downturns/instability in financial markets cause consumers to delay or stop IT spending. This is alleviated by the fact that demand for financial software forecasted to be sturdy at least for the next 2-3 years and that SS&C has a high degree of recurring revenues that grow with market/clients, providing better predictability and stability. Secondary risk is normal and execution risk. This includes the potential for surprises from normal acquisition activity such as adverse affects of acquisitions (difficulties in integrating, not receive anticipated benefits), or if SS&C cannot find suitable businesses to acquire (so cannot grow as fast). This is mitigated by the level of experience the company has with acquisitions, the low prices the company pays for companies, and how it has walked away from overly aggressive sellers in the past.

Competition

The software market is competitive, rapidly evolving and sensitive to new product releases. It is also fragmented, with no dominant competitor and many firms targeting only local markets or product niches. There are numerous competitors within each market niche that SS&C competes- Bloomberg in Institutional asset Mgmt, Advent Software in hedge funds, ADP and SUnGuard in financial institutions, McCracken (division of GMAC) in commercial lending, etc. The main competitor in quite a few of these markets is SunGuard Data Systems ($1.8 billion in revenues). Overall, the biggest three competitors SS&C faces are SunGuard Data Systems, DST Systems and Advent Software. In addition to other companies, SS&C also competes with internally developed and internally serviced software by IT departments of financial services firms.

5 Forces Analysis-

Rivalry among current competitors is high considering that there are numerous competitors for SS&C, broken down by each product type. There are three major competitors across the board, major competitors in each product, then smaller ones in their own local niche. Not necessarily a price market, competing more on competitive advantages such as performance features, frequent updates, strong company, and prompt service after sale. There can be potential new entrants, hence the fragmented market as small companies develop software for a particular niche. The economies of scale for this industry are small due to the low cost of production once software has been developed. Cost and resource advantages are independent of size- propriety rights to software, favorable locations to strong markets, experienced dev and consultants are all strong advantages to the incumbents. Substitute products can range from other competitors products, to excel spreadsheets, to in-house IT development. The bargaining power of suppliers is very low since there are virtually no suppliers. Software is developed in house, produced in house, and services are retained in house. The bargaining power of buyers is medium-to-high. Switching costs are generally low, but time consuming, Since the larger the customer has more revenue to spend on IT, the larger customers more important and influential. Finally, there is always the threat that a buyer will integrate backward and create the software in house.

Strategy

SS&C's strategy is to be the leading provider of superior technology and outsourcing solutions to the financial services industry. To do this, it works to identify fast growing, niche markets in the financial services industry, develop highly automated systems and services to meet their needs, build deep vertical market expertise in these niche markets with a focus on complex financial, accounting, actuarial, tax and regulatory requirements, provide the highest levels of client service, leverage existing client relationships by cross-selling new or acquired

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