SaaS will never Kill Licensed Software

I have to smile.  Today I read an interview with Harry Debes, the CEO of Lawson Software, discussing why he thinks the SaaS (Software as a Service) model will fade and die.  While I dont agree 100% with his discussion, I do agree with much of what he has to say.

I also have lived through the era of mainframes and dumb terminals, service bureaus, the ASP model, and now SaaS.  Every new incantation does the same thing:  move the burden of software development and systems management from the buyer to a vendor.  And in every era since the 1970s, the service-provider model has not won over 100% of the market.

There is no question that SaaS business models are great for solution providers once they reach a certain size.  SuccessFactors is desperately trying to prove this in the HR market (but so far they still lose nearly 95 cents for every dollar of revenue they produce).  Many solution providers like payroll providers (ADP, Paychex), CRM (Salesforce), Survey Software (Vovici), and others are doing fine.  And the reason they succeed is because the product they sell provides tremendous amounts of functionality and their core market is mid-sized to small companies.  Salesforce.com in particular has done an amazing job of also providing APIs and integration solutions to integrate its product with many internal systems.

But in most large enterprises the hodge-podge of internal systems is quite complex, and buyers become nervous about being dependent on a small company’s R&D for strategic applications.  The largest talent management software providers today are less than $200M in revenue, while their customers are often billion dollar companies.  It will only take a few mergers or product failures for buyers to scratch their heads and wonder if they did the right thing.

Our research clearly shows that many companies prefer the SaaS model (particularly small and mid-market companies), but the larger more complex organizations often prefer to own the software, pay for it once, budget for the ongoing maintenance fees, and put their additional dollars into customization, integration, and internal development.  Hence our research finding that most SaaS solution providers still get 80-90% of their revenues from companies with fewer than 10,000 employees.

It’s very exciting to read articles (and marketing from vendors) about how exciting the SaaS model is.  It’s very interesting and exciting for sure, but I have to agree with Harry that it won’t take over the world of enterprise software. 

His comments are here:  http://news.zdnet.com/2424-9595_22-218408.html .

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  • “…many companies prefer the SaaS model (particularly small and mid-market companies), but the larger more complex organizations often prefer to own the software, pay for it once, budget for the ongoing maintenance fees, and put their additional dollars into customization, integration, and internal development” well said.

    Very interesting post. Thanks for sharing an excellent it and please keep sharing…