Forecast: SaaS Extinction by 2010

By Subraya Mallya - August 2008 | Topics - Cloud Computing, SaaS

A friend of mine, whom I have been trying-to-convert as a SaaS believer, sent me this article with a quote from Harry Debes, the CEO of Lawson Software, no less.
http://www.webguild.org/2008/08/saas-industry-will-collapse-in-two-years.php

What a statement it was !!.

In his opinion, Harry makes a valid argument about customer acquisition costs/investment and the flight risk of customers off-boarding just as rapidly as they on-boarded and the need to keep the costs of on boarding low. I agree that the SaaS companies have to provide sufficient value to generate the stickiness and also on their side build tools to cut-down costs of on-boarding customers.

But where I disagree completely is about the history repeating itself. In technology, it is not about history repeating itself in terms of mistakes. History is full of events where major technology changes taking multiple attempts before they mature and become the norm – Client Server, SOA/EAI to name a couple.
“Service Bureaux” (I plead ignorance on this, might have been before my time) ASP was merely iterations of a delivery model where technology was getting more optimized. I don’t think they should be looked upon as failures.

If there is one thing that SaaS companies have not mastered it is to make a lot of money or shake the large kingdoms built by SAP/Oracle and initiate a exodus. I think the very foundation of the on-premise software where the customer bears all the risks (large upfront investment, large on-going expenses for consulting + hardware upgrades, software roll-outs) is completely skewed. Customers who are constantly pushed to eek out more revenues, profits in their core business will continually seek to cut capital and operational expenses and seek technology propositions like SaaS where there is equity in risk. With SaaS, technology providers now share higher risk while their technology matures, bear all the hardware upgrade, software roll-out costs. Customers, on the other hand, benefit from a community based maturity curve of the product where the risk is shared across all customers equally.

SaaS might have a couple of more iterations with cloud based services for Storage, Hardware Processing Power, Remote delivery becoming the norm and more co-operative ecosystems (trusted clouds) of various services, before they assume the wider acceptance like a Public Utility. It is not far as we keep hearing larger SaaS deals announced by the day by Workday, Aravo.

Another angle to the wider adoption is the ecosystem of SI/VARs which the large ERP vendors have in place and serve them as their on-field evangelists. SIs are being asked to look at their business model differently in light of the advances made by SaaS. Had an interesting discussion with a large SI in India recently about their concerns on how SaaS is creating risk to their established ERP Implementation and Consulting practice. More about that in another article.

Since 2010 is not much further ahead, we should get ready with a eulogy for SaaS in Jan 2011. See you then.

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