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Loading ...I don’t often put a “?” and a “!” in a post title, but today deserves it, mostly because of this post on WebGuild. I like the thinking (shown in a nice diagram) that makes a continuum from on premise to SaaS (Software as a service, not a misspelling of the airline). Licensing runs from traditional perpetual licensing, through subscription, then transaction and finally Ad-funded. That’s a good way to look at the many different apps out there these days, which go from things you can run on your servers, to things that run on services like Amazon S3 et al.
The post pivots around an interview with Harry Debes of Lawson Software. He predicts that SaaS will go nowhere, putting it in a bucket with ‘service bureaux’ and ‘application service providers’:Â
“SaaS is not God’s gift to the software industry or customer community. The hype is based on one company in the software industry having modest success. Salesforce.com just has average to below-average profitability… …One day Salesforce.com will not deliver its growth projections, and its stock price will tumble in a big hurry. Then, the rest of the [SaaS] industry will collapse.
Salesforce.com’s Q2 Fiscal 2009 Financial Results (PDF) put them at $263 Million in revenues and GAAP EPS of $0.08. They were guiding at >$1Billion for FY09 revenues. Lawson’s Q4 2008 revenues were $233 million, so this is big boys talking big talk. Debes again:
“People are stupid. History has shown it repeats itself, and people make the same mistakes.”
Selling services and selling products are fundamentally different. Yes, the big software houses sell services to back up their product offerings, but that is very different than being a services-lead business. Customers expect different things, which makes it very hard to transition from one to the other. Few businesses have done it successfully.
If you are looking to SaaS, you want to choose a supplier that has a good attitude towards data portability and security and an exemplary ability to manage and run data centers to strict SLAs. Either that or back-off to someone who has, and then have robust processes between the customer and that third party. That’s a very different set of attributes than you’d be looking for in an on-premise software vendor.
With the SaaS market growing so rapidly, that’s going to result in green eyes over in the on-premise software camp. Vendors can’t run build out SaaS on a product business model. The economics are different, and are currently changing rapidly. Back to Debes again:
“all your costs are up front and your revenue is over a five-year period, the more you sell, the more you lose… …You don’t break even till the four-and-a-half-year mark, but here’s a bigger problem: there’s no guarantee that that customer is still going to be yours in four years’ time”
The last part is exactly why businesses should be looking at SaaS – more leverage over the vendors. Yes, that’s bad news if you are a vendor, but only if you are afraid to play in a more competitive field. As to the economics, the SaaS vendors now have the opportunity to back the up front costs off to a Cloud service. These days, if a service is loosing more the more it sells, it’s time to take the product manager outside for a quiet word. There really is no excuse.
What we have is a win-win for the user and the application provider. The service bureaux was a rather wonderful thing, I’m just about old enough to remember them. They had a long and profitable life, and let businesses get on with their business. New applications could be turned up rapidly, and you had the benefit of their scale and buying power.
The ASPs got killed in the aftermath of the dot com bust, essentially collateral damage. So I’d say Debes is wrong, dead wrong. Far from off-premise software being a blip, I’d argue the exact opposite – our love affair with the PC and on-premise software is the blip. SaaS and Cloud Computing are simply the industry reverting to sanity.
Nice writing style. Looking forward to reading more from you.
Chris Moran