SaaS Industry Will Collapse In Two Years
By Daya Baran at August 27, 2008 16 Comments|
Lawson Software’s chief executive, Harry Debes, believes software as a service will collapse in two years. In an interview, Debes told ZDNet Asia why SaaS is history repeating itself, and why his company is not going down the same path as its bigger competitors that have jumped aboard the ‘on-demand’ bandwagon. Q: All the other big players are going on-demand. Is cloud computing the next big thing? 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. People will realise the hype about SaaS companies has been overblown within the next two years. An industry has to have more than just one poster child to overhaul the system. 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. Q: Won’t people avoid the mistakes of ‘previous’ SaaS incarnations? Q: So it’s safe to assume Lawson does not have a SaaS strategy? At that point, people were talking about SaaS. There was a lot of buzz around it, so we decided that, in case it was going somewhere, we’d build the software for the SaaS model. But, as we did the maths, we realised we could get killed. It was going to take us seven to 10 years before we made any money. That’s nonsense. So we reversed our plans. I’m very glad that happened because now we can sell the software in both models. We wouldn’t have to wait 10 years to make a profit. Q: But what about your competitors offering SaaS models? And SAP’s Business ByDesign is a disaster. [SAP] said it would have 10,000 customers [for ByDesign] within a couple of years. And yet they have less than 100 today, after all that hype and marketing. We use Salesforce.com, and I like it. But I would’ve bought the product even if it wasn’t SaaS. The success of Salesforce.com, in my opinion, has to do with their product being good, not because it’s SaaS. Q: Theoretically, the business case for SaaS seems fairly straightforward. 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. Getting signed up as a SaaS customer is fast, but getting out is just as fast, whereas traditional software is like cocaine — you’re hooked. It’s too difficult and expensive to switch providers once you’ve invested in one. If it were easier to jump ship, a lot of people would’ve hit the eject button on SAP a long time ago. Q: So is Lawson looking to lock people in, in the same way? The cost of moving is too high. As long as it’s working, people are happy to stick with one product. When the sunk costs have been fully depreciated, customers effectively run the software for free, thereafter. Whereas, if they went to Salesforce.com, it’d cost them a million a year because they’re paying for ongoing licensing and maintenance. SaaS is just a financing option for the customer. For that, we offer a hosting service. If the customer pays [over a period of time] through a financing entity, it’s exactly the same [experience] as SaaS. Q: What is your plan for Asia, a region with a large proportion of SMEs? Many don’t have the capital for a big, upfront investment in ERP software. We sell into target verticals, not generically. Frankly, we can’t compete against SAP or even Microsoft by being generic. They can outspend us and outmarket us. By being vertical-specific, that’s the way we are levelling the playing field. |
Tags:
cloud computing, saas
16 Comments
The guy is a moron
So to summarize Debes (who comes off a little like Vinny from da mob):
(1) SaaS and Cloud computing as a delivery vehicle has been tried before and therefore will fail (like all things) (2) People (excluding himself) are stupid (3) Lawson hasn’t made a SaaS product because they couldn’t recoup for 8 years (which has nothing to do with the fact that they would have to rethink their entire operations, or that it’s easier to sell and market as a SaaS company when you’re designed that way — lean and mean — in the first place) (4) People don’t lock themselves in to a vendor, they just like it that way (like they like moving in with mom) and (5) Lawson is only going to go after big businesses with lots of cash to spend on an on-premise, proprietary platform that only Lawson knows how to support.
While it might be good for their bottom line and investors, it has no benefit to the company when dealing with a changed workforce. Sure, Lawson’s ERP niche is geared toward dinosaurish industries, but that’s not the point of SaaS. It’s about immediate results and higher productivity, not year-long engagements with yet another entrenched vendor you’re stuck with.
SaaS providers can make money because by designing to take on the economy of scale with a leveraged platform. SaaS providers build like Starbucks. Traditional enterprise software like Kopi Luwak Coffee.
There is room for both in this world. Just like there’s room for smart and stupid people.
I believe there one BIG difference between the past ASP model and now. SAAS is growing in popularity because the cost of hosting, operating systems and databases have dropped plummeted. Today, most costs associated with running applications in house will be spent on development, infrastructure and support. For SMBs this is a strategic advantage that is impossible to ignore.
[...] the profit is too back end loaded, if profitable at all. Here’s more of the highlights on the collapse of SaaS prediction posted by our friends at the WebGuild. Filed Under: The State of [...]
The reason people do SaaS companies is that they get more funding than “just sell software” companies.
If you tell VCs that it’s google that’s the problem, they don’t want to touch you, because then “Google will do it”, just like earlier “Microsoft will do it” for software, “Intel will do it” for semiconductors and “IBM will do it” for systems. You are totally screwed with this approach, hence the artifice of SaaS as a way of getting around funding stoppers.
Anyone who tells you SaaS is real is just selling something – poorly. It’s a lie, but one that makes VCs comfortable.
Don’t tell that to Blizzard. They’ve had upwards of 10 million people paying for access to their server software. Granted they have a highly sophisticated custom front end to connect to it, but still 10 million people at $15 per month… you do the math.
[...] 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 [...]
You have to give the Lawson CEO credit for trying to put on a brave face while his ship is sinking. He is absolutely right that the economics are wrong for Lawson – Lawson was built around an expensive direct sales to the enterprise model. That is why a new company like SugarCRM will end up owning this market – they were built from the ground up to be profitable with a SaaS business model. Check out the insider selling reports over the next 12 months to find out what this CEO *really* believes
Chris, spot on about the economics of the sales process. Moving from a product to a services business is painfully difficult. Easier to rip it up and start again. Perfect start up opportunity.
Addition to Dilbert Syndrome: “Anything you can’t execute is not important.”
I think what everyone is trying to say is that despite not wanting to, we feel kind of sorry for this guy.
I’ve been in the software business for 20 years and seen (I presume) all of the models he’s referring to come and go; however they get closer to the mark (functional parity with desktop software) every time.
The two things that may derail the train are: non-compliance with web standards (read: microsoft) and ridiculous pricing models (read: salesforce). If the market can resolve those issues, the .exe is dead in most cases; particularly for enterprise applications (read: lawson).
One word of note to the Web Guild editors… don’t lower yourselves by re-printing this garbage. Your readers are interested in dissenting voices, but not some guy making ridiculous self-promoting prognostications.
What’s missing in this article is … the customer! If traditional software vendors would stop navel gazing and take the customer’s view, they would realize that it is obvious that SaaS is growing stronger than ever and is, without a doubt, here to stay.
What do all customers want? Choices, value, flexibility and customizable services. Debes failes to recognize this. Instead, Debes states that people are “stupid”. Is that how successful companies view their customers? Debes states that traditional software products are “cocaine” and then chortles that “If it were easier to jump ship, a lot of people would’ve hit the eject button a long time ago”. This view is exactly why the traditional software industry imploded, and why companies like Lawson are destined for acquisition by SAP, Oracle, or IBM who are more interested in milking the maintenance revenue stream of captive customers than delivering any new innovation.
As a member of the core team that took Salesforce from 0 to $1 billion in less than a decade, I’m proud that it was our focus on the customer that translated to our success. As a newly re-minted entrepreneur, I’m proud to see how those values being are shared by my peers in the SaaS industry.
It is only with the advent of SaaS that the software industry has returned to the basics: focusing on delivering innovative, easy-to-use products that delight the customer and creates long term customer loyalty.
This guy is an idiot. The biggest SaaS is facebook.
And 1 billion of people is now a Microsoft competitor
In one paragraph he states that Salesforce will collapse and in another he states he’s a happy Salesforce customer. It is curious that he would invest his company’s resources in something with an unpredictable future.
Another thing that seems not quite right is the statement that “once sunk costs have been fully depreciated, customers effectively run the software for free”. This isn’t true as there will be software and hardware maintenance costs, not to mention the cost of future upgrades or even the continuing cost of the staff to maintain the software and hardware.
It would be easier to respect his argument if there weren’t flaws in its information or logic. I’m surprised that something a flaky as this would actually get published.
[...] A friend of mine to whom I have been trying-to-convert as a SaaS believer sent me this article from Harry Debes, much less the CEO of Lawson Software. http://www.webguild.org/2008/08/saas-industry-will-collapse-in-two-years.php [...]
This guy is a foo’ and I hope to blog about his idiocy when I get access to the corporate blog. As it stands, it’s quite apparent that he’s trying to (lamely, but amusingly) beat down something because he feels he’s missed the boat/isn’t set up for SaaS. Well, I don’t think it’s going to go away (of course I’m biased) and this sort of self- defeating sophistry is just amusing.