THINK IT Services

It continues to amaze me that there are software industry executives who are still living in denial about the rapidly expanding Software-as-a-Service (SaaS) movement.

The latest example is Lawson Software’s CEO, Harry Debes, who was recently quoted in a ZDnet interview as saying the SaaS market will collapse in the next two years.

This interview generated plenty of response and numerous messages in my inbox yesterday. I particularly liked the blog entry of Daniel Druker, SVP Marketing and Business Development at Intacct.

Debes’ interview follows a series of other recent commentaries suggesting that on-demand SaaS solutions and a widening array of cloud computing services aren’t a viable alternative to traditional, on-premise software applications and computing systems.

The nasayers are all entitled to their opinions, but Debes’ views are particularly disheartening.

He starts by discounting SaaS as just “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.”

While he’s right that SaaS is an extension of a longstanding idea, he fails to recognize that today’s technologies, starting with broadband networking, make SaaS more economically viable than its previous iterations; or how the dramatically different economic, competitive and even ecological climate makes leveraging software services even more necessary than ever before. But most importantly, Debes refuses to see how the SaaS movement is being fuelled by genuine customer demand and is experiencing accelerated growth because of widespread customer satisfaction with the business benefits of SaaS.

Debes is honest enough to admit he doesn’t like SaaS because it places too much of the burden on the software vendor, “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.”

He proves that he hasn’t done his homework when he claims, “The [SaaS] hype is based on one company in the software industry having modest success. Salesforce.com just has average to below-average profitability.”

The truth is that there are many successful (i.e., profitable) SaaS companies. Salesforce.com is experiencing exponential growth, achieving unprecedented customer satisfaction ratings and reports limited profits only because it is seeking to win market share and could easily generate greater profits if it wanted to accept slower growth.

However, I agree with him on one very important point when he says, “The success of Salesforce.com, in my opinion, has to do with their product being good, not because it’s SaaS.”

But, Debes is also arrogant enough to even admit that he thinks, “People are stupid.”

The world is littered with arrogant business (and political) leaders who refuse to recognize change or listen to the people around them.

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.

The lesson is that corporate executives who refuse to pay attention to fundamental market changes will pay a severe price.

The recent service outages experienced by Amazon and Google have raised additional concerns about the reliability of these services in particular, and the concept of ‘cloud computing’ and Software-as-a-Service (SaaS) in general.

In my last blog entry, I suggested that the term ‘cloud computing’ may be gaining widespread acceptance but could also be preventing many mainstream business decision-makers from getting their heads around the idea of utilizing web-based services to meet their corporate needs.

The faceless personas of Amazon and Google’s cloud computing services doesn’t help the situation. While traditional telephone support services have left a lot to be desired, they at least give customers a opportunity to seek help from a real person.

Neither Google or Amazon offer this form of customer support for their cloud computing services. Given the modest price for their cloud computing services, it is easy to understand why this form of support doesn’t exist. These vendors, and others, may be planning to add fee-based customer support services later based on the level of demand for cloud computing services.

But, by omitting a customer support capability from their offerings at this stage they are running the risk of driving away customers who don’t want to put up with continuing service quality issues. They are also tarnishing the image of the overall cloud computing and SaaS movement, and could disrupt the growth of this market.

It is time for customers to ask questions about the quality of cloud computing and SaaS vendors’ customer support capabilities in the same way they have been asking about the reliability, security, customization and integration capabilities of their on-demand services.

My views in a recent blog post about how cloud computing and Software-as-a-Service (SaaS) relate to one another generated some interesting feedback. So, I’ve decided to delve in the cloud computing topic again to see if it can produce a similar response.

A few years ago, as the Software-as-a-Service (SaaS) market began to pick up steam, a debate emerged about whether the SaaS term was the right label for this new movement. Many industry insiders became concerned that SaaS was too techie a term, and proposed an assortment of alternatives they thought would appeal more to mainstream IT and business decision-makers. Some, like ‘webware’, had their own techiness. Others were too convoluted to gain any acceptance. In the end, SaaS has won general approval because it has a clear enough meaning for most people to understand.

Although a similar debate hasn’t emerged regarding today’s hot buzzword, ‘cloud computing’, I’m beginning to wonder if it should because there seems to be a backlash brewing that could be due, in part, to the murkiness of the ‘cloud’ terminology.

Over the past few weeks, I’ve seen a flurry of articles and commentaries questioning the viability of the cloud computing concept even as the parade of new cloud computing players gets bigger. Some of the commentaries offer a healthy array of warnings and advice to ensure that customers aren’t burned by the proliferation of new cloud computing solutions.

It is another set of opinion pieces which suggest that cloud computing is only an over-hyped and fundamentally a dangerous approach to meeting an organization’s IT and business needs which concerns me. These articles and commentaries appear to be aimed at the least knowledgeable reader. They exploit the amorphous nature of the ‘cloud computing’ term. What’s harder to get your arms around and, in turn, your head? Clouds.

Like many popular phenomena, it is not easy to identify the origins of the term cloud computing and determine why it has captured such widespread attention. I’d like to believe that the growing popularity of cloud computing is being driven by the increasing number of IT/business benefit proof-points of these web-based services.

It is ironic that few companies were willing to accept the previous iteration of the cloud computing concept, despite the fact it had a far more straightforward name, ‘utility computing’. Yet, just as the application service providers (ASPs) of the past lacked the technology and business model to appeal to customers, so too did the major hardware and software vendors fail to articulate and deliver a viable value proposition and set of solutions to support the utility computing idea. It took an online retailer, Amazon, to resurrect the concept of utility computing with its S3 computing platform.

Now, the players who are coalescing around this new web-based delivery model must clearly define and properly package and promote their offerings so they can be easily understood by mainstream businesses. This may not be as easy as it looks.

Clouds are constantly changing shape. And, if you’ve ever been inside one, it feels like you are in a fog rather than on firm ground. These are not sensations that will make many non-technical decision-makers feel very comfortable without a lot of hand-holding.

For those cloud computing companies who are offering their solutions to mainstream customers, this may mean using other terminology in the same way many SaaS vendors have learned that they are better off calling their solutions on-demand, on-line or web-enabled.

In the meantime, BusinessWeek has published a special report entitled, “CEO Guide to How Cloud Computing Is Changing the World” that includes a sidebar article about how small companies are leveraging this new technology trend, “Cloud Computing: Small Companies Take Flight” which can help in the education process.

Ironically, BusinessWeek didn’t do the SaaS movement any favors by publishing a ludicrous commentary which questioned the viability of SaaS solutions a week ago. It is obvious we still have plenty of work ahead of us to educate mainstream decision-makers and influencers about the business benefits and technical capabilities of SaaS and cloud computing.

In the meantime, see how some vendors are trying to gain a legal edge in this market by trademarking the cloud.