Last month I wrote a column for BusinessWeek about the hidden– and substantial– marketing costs of software as a service and it created a bit of a stir. The theme of the piece was that the Internet had killed what was once the greatest tech business model: shipping a CD of software that was too brutal to rip out and charging millions for upgrades not to mention ongoing maintenance fees. The business model that built Microsoft and Oracle and SAP, and the business model that injected profitability and growth into maturing hardware names like Hewlett-Packard and EMC.
Of course, the SaaS model– while bad for investors and would-be tycoons eying all of Larry’s yachts– is great for customers and for those entrepreneurs who were nimble enough to "get it" ten-plus years ago. As much as I firmly as I believe the myth of the magic SaaS business model needs to be busted, I never once disputed that SaaS wasn’t the future of software. Think of it like the record industry: Is an Internet world better for label tycoons? No. But it’s better for customers and, well, it’s a reality.
Recently, we’ve seen a few signs of old software grappling with this reality. One is trying to figure it out. Another is just pretending the big, loud, SaaS elephant trumpeting in its ear isn’t in the room.
The first one I refer to is SAP– a company a lot of the SaaS pure-plays love to pick on. Of
course they do: SAP is the largest application vendor in the world and
most SaaS companies are applications companies. SAP didn’t make it easier on itself when it pooh-poohed SaaS for years. And by all accounts, it’s struggling to modernize its business with its new Business ByDesign line of SaaS products. SAP finally owned up to this on Monday, backing off its goals to create a billion SaaS business by 2010.
That’s not necessarily SAP’s fault– very few tech companies (any?) are able to dominate one platform, and then change course and dominate a new one when the industry shifts. But it’s also the particular challenge of the SaaS model, that I wrote about in my column. So is it any wonder that the second company in the press lately is dealing the problem by burying its head in the sand?
Harry Debes of Lawson told ZDNet that the SaaS model will be dead in two years. Oh, and with it all that cloud computing nonsense. You know: The foundation of Salesforce’s and Netsuite’s businesses– not to mention the one Web giants like Amazon.com and Google are increasingly betting on. The very technology– and movement– that even the mighty Microsoft had to pay lip-service to.
Debes’ argument is that he’s seen this movie before.
From the article:
"This "on demand", SaaS phenomenon is something I’ve lived through
three times in my career now. The first time, it was called "service
bureaus". The second time, it was "application service providers", and
now it’s called SaaS.But it’s pretty much the same thing. And
my prediction is that it’ll go the same way as the other two have
gone–nowhere. 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."
No arguments on the challenge of building a profitable SaaS business from me, clearly. But don’t say you’ve seen this movie before, Debes. You haven’t. The Web wasn’t what it was then. It wasn’t as cheap, reliable, robust or as ubiquitous. There wasn’t the same cultural change to "trust" online applications– nor the desire for that kind of flexibility and the customer demand for software that is easy to use. Lastly, there wasn’t a fundamental generational difference. People coming into the workforce live their lives online. My guess is Debes does not. In case you think I’m being hard on the old guy (haha) this bon mot: (ZDNet’s question in bold)
"Won’t people avoid the mistakes of "previous" SaaS incarnations, as you mentioned?
People are stupid. History has shown it repeats itself, and people make the same mistakes."
My advice to Debes: I wouldn’t be throwing out accusations of stupidity. One further comment:
"[Oracle's CEO] Larry Ellison has the same perspective as I do. He
accidentally funded the CRM product and Netsuite. He didn’t really mean
to. They’ve had small successes, but overall, they’ve been
spectacularly unsuccessful."
That’s not exactly true. First off, Salesforce has five times your market cap, Debes. If it’s "spectacularly unsuccessful" what are you? Second, Ellison has said that Oracle has only now turned a profit in On Demand and that’s why it hasn’t bet the business on the strategy. But his funding of Salesforce and Netsuite was hardly "an accident"– particularly Netsuite. Even a billionaire doesn’t "accidentally" invest 0 million in a company. He saw the future before anyone. And clearly, saw it was different this time. Nice try though, Debes.
Now, Lawson is a company in that no-man’s land of enterprise software that rarely gets investor attention or press. Its stock is down precipitously this year. I’m betting this is somewhere between a gambit for attention for press wanting a juicy story or investors wanting a contrarian play. (Judging by Yahoo Finance, neither really happened. But hey, my small blog did!) After all: If SAP and Oracle struggle with SaaS, there’s little confidence a smaller vendor could take it on.
