February 8, 2009
Is the Bloom Off the SaaS Rose?
Over a year ago, I stated that the Software-as-a-Service (SaaS) market would be recession-proof as we entered 2008. And, last year proved to be a boom-time for nearly every SaaS company with a quality service aimed at a legitimate business need.
Now that the economy has sunken into a deeper economic decline than almost anyone anticipated, the SaaS industry is feeling the same pain that has afflicted every other major sector.
Fear, uncertainty and doubt–the classic FUD factor–has hit home in the SaaS community.
Despite the compelling business benefits of SaaS, corporate and IT decision-makers are holding back on purchases. And, corporate layoffs are cutting into the subscription levels of current contracts.
The latest victim of today’s economic realities appears to be Salesforce.com, which acknowledged at the end of last week that three corporate executives had recently left the company, including the company’s president and chief strategy officer.
Although the company was unclear about the circumstances of these departures, it appears these executives may have been let go because Salesforce.com is facing serious challenges.
I don’t have any inside information to confirm this, but executive shake-ups are usually a sign of problems, and it is easy to see that Salesforce.com is facing a tough situation.
The company has been the posterchild for the SaaS market since its inception, and it is now the most prominent proponent for ‘cloud computing’ in the corporate world. But, Salesforce.com is also facing the ‘law of big numbers’, which makes it increasingly difficult to continue to achieve greater growth rates when the base of your operations is getting bigger.
Salesforce.com’s challenges are compounded when you consider the bulk of its growth has come from large-scale enterprises, especially in the financial services sector. Not only have procurement decisions among many major corporations ground to a halt, but many of the banking companies where Salesforce.com made tremendous inroads over the past few years are now gone or facing consolidation.
I’m convinced Salesforce.com will withstand the current crisis, just as I’m confident that the SaaS and broader cloud computing market will prosper long-term despite of today’s economic challenges. Salesforce.com is still the biggest and among the most influential players in the SaaS and cloud computing market. And, I’d much rather be in the on-demand services sector than the housing or automotive industries.
However, the latest moves at salesforce.com are a clear indication that the boom days of the SaaS movement are behind us, and every SaaS company must buckle down in order to survive the current economic crisis.
This means more tough decisions ahead for SaaS executives and tough times for people in the industry.
The keys to success and survival for SaaS companies will be emphasizing the tangible and measurable business benefits their solutions deliver, especially if they include greater cost-savings, higher sales productivity or better operating efficiency and customer satisfaction.
Subscribe to my feed
Although some of the hype has died down, the latest quarterly earnings from SaaS companies like RightNow and Blackboard impressed Wall Street.
Long term, there’s no stopping SaaS’s growth. And solid earnings certainly are even more impressive in the current economic climate.
Joe Panettieri — February 9, 2009 @ 11:05 am
I agree with Joe – SaaS is far from dead, but maybe the hype is? Not even sure about that. However, there is certainly broad applicability for SaaS, and in the banking industry there is lots of experience with hosted, ASP, and now SaaS applciation delivery. However, there are likewise many instances where on premise, licensed software makes the most sense. What we need is to think through the implications of SaaS for each and every application to make sure that costs, risks, and business value strike the right balance.
Jeanne Capachin — February 9, 2009 @ 1:59 pm
Jeff, there aren’t many bright spots in the current economy so it is no surprise that SaaS vendors are also facing tough times. But certain industry sub-segments will outperform others and even thrive in down economies – For example, WalMart vs. specialty retailers. And just as during the downturn in the early 1980’s, technology vendors (SaaS and on-premises) who can demonstrate strong ROI will do better than those who can’t. In this aspect, we SaaS vendors do have a significant cost and time-to-deployment advantage.
Chris Ryan — February 9, 2009 @ 2:23 pm
I think the hype around everything has died down because there isn’t a new upcoming tech to revolutionize business, and while SaaS clearly has enjoyed good press recently, it won’t be the panacea to all the operational expense problems that companies are now facing. It’s just another option. So the downside for SaaS as a whole is less hype, but what will be great is to hear the stories of those who switched to SaaS to help them weather the storm and how they can’t imagine life without it.
Brendan Cosgrove — February 9, 2009 @ 4:34 pm
I agree that the long-term value proposition for the SaaS market is solid, but in this environment, SaaS providers will need to be especially vigilant about their customer acquisition costs. For those who thought they’d spend like mad in the expectation that they’d build a customer base and revenue stream fast enough to cover the costs before they ran out of money, they might want to re-think.
Peter Cohen, SaaS Marketing Strategy Advisors — February 9, 2009 @ 5:11 pm
[...] I published my previous post questioning whether recent executive departures at salesforce.com were an indication of a slowdown [...]
THINK IT Services » Blog Archive » Bloom Still On The Rose? — February 11, 2009 @ 8:58 am