Not Everybody Believes In SaaS

Software as a Service. That little term receives plenty of hype. MSPmentor's own SaaS 20 Stock Index -- down roughly 15 percent so far this year -- shows that the SaaS hype isn't quite living up to expectations this year.

Now comes word that Lawson Software -- a key ERP (enterprise resource planning) software company serving the mid-market -- doesn't believe in SaaS. In fact, Lawson CEO Harry Debes predicts the SaaS market will collapse within two years.

SaaS certainly faces some challenges. But Debes is wrong. SaaS is here to stay. And it's going to be dominant. Here are five reasons Debe and other SaaS doubters will wind up eating their words.

1. Small Business: MSPmentor is owned by Nine Lives Media Inc., which is a small but fast-growing busienss. As a small business co-owner, I don't want to buy servers and I don't want to buy software. Our company doesn't have the time or budget to acquire and maintain that infrastructure. Nor would we want to.

Other than desktop productivity applications and an accounting package, all of our applications are hosted. And it's quite possible that even our desktop applications will move online, as on-demand applications like Google Apps and Zoho mature.

I suspect most recently launched businesses are like us. After buying a few laptops and desktops, the next move is finding online services to drive the business forward. Buying software isn't part of that process.

2. Open Source: Ask any fast-growing open source application provider, and they will tell you their fastest-growing business segment is SaaS. A prime example: SugarCRM CEO John Roberts told me that 30 percent of the company's revenue now involves SaaS deployments, and that figure is rising rapidly each quarter.

3. The Big Three: Amazon.com, Google and Microsoft have seen the future. And all three are investing heavily in SaaS. Amazon.com's Simple Storage Service (S3) isn't perfect, but it has sparked healthy debate and creativity across the SaaS and managed services markets.

4. Broadband: Generally speaking, the US trails numerous countries in broadband penetration. Still, broadband continues to push forward. And that infrastructure provides the foundation for SaaS.

5. Profits: Don't believe the critics who say SaaS is a money-losing venture. The vast majority of the companies on our SaaS 20 stock index are profitable. SaaS is NOT another dot-com market, where investors focused on eyeballs and clicks rather than profits.

Kudos to Jeff Kaplan over at  THINKstrategies for pointing out Lawson Software's flawed business logic. Kaplan writes:

In the Boston area alone, I can rattle off the names of many technology companies that have disappeared because their corporate leaders turned a blind eye to the fundamental industry changes that would eventual sweep them away. The most obvious examples are Digital Equipment Corporation and Wang Computer who dismissed the potential impact of the PC.
Executives at Lawson Software should heed Kaplan's warning. Saas isn't for everyone, but it is the real deal.

And here's a parting shot: Lawson's stock has gone nowhere over the past five years, while Salesforce.com's stock is up 250% since its mid-2004 IPO. Skeptical? Check out this head-to-head stock chart.
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