February 22, 2009
SAP Snaps Up Coghead
Among my predictions for 2009, was that the on-demand services industry will experience a shakeout and consolidation.
I also suggested in a recent post that platform and cloud computing companies which don’t offer a combination of solid enabling technologies plus attractive channels to customers won’t survive the shakeout.
Sure enough, the rumors about the demise of Coghead have come true, and it is among the early entrants to the platform/cloud computing market who are now making an equally early departure.
Coghead may have had terrific technological capabilities, but it lacked a sufficient revenue model to stay afloat in an increasingly competitive market. As a result, investors were unwilling to continue to fund the company and it had to discontinue operations.
The primary reason Coghead couldn’t generate sufficient revenue to stay alive was that it didn’t offer enough value to attract adequate customers. It was a classic ‘Catch 22′ situation – not enough customers bought into Coghead’s value proposition and as a result not enough customers were willing to buy its solutions.
However, it didn’t take long for SAP to capitalize on the situation and acquire Coghead’s assets and a handful of its engineers for a fraction of its paid-in valuation.
The asset sale gives SAP much needed insight into the engineering requirements to play in the Software-as-a-Service (SaaS) and broader cloud computing market.
It comes at a time when SAP openly admits that its internal efforts to develop and deliver a viable SaaS solution are being retooled.
The acquisition of the Coghead technology and engineering team alone will not rectify SAP’s SaaS struggles. But, if this is the first in a series of acquisitions and alliances, which I referred to as the ‘tugboat strategy’in 2007, it could begin to give SAP the new perspective and skills the company desperately needs to get its SaaS and cloud computing efforts turned around and back on track.
The best indication of whether SAP is serious about its intentions in the SaaS and cloud computing market is if it makes more of these opportunistic acquisitions in the months to come.
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Hi, Jeff!
It is unfortunate but not surprising that business revenue models for SaaS and PaaS continue to take beatings and would stay so unless enterprise adoption- not isvs and medium- sized orgs, really becomes widespread.
Can’t really fault Coghead for this and I’m sure their subscribers really believed in their product but revenues, esp if something priced really affordable (err cheap) may be akin to a slow death.
Somewhere, I see the ‘big’ boys grinning….
Best.
Alain Yap
Morph Labs
Alain Yap — February 23, 2009 @ 3:30 am
Whatever value proposition Coghead offered was sufficient to attract some customers. I’d bet the customer volume wasn’t all that high despite the product’s attractiveness.
In early 2008 I was looking for examples of SaaS services pricing for a presentation at SaaS University and came across Coghead’s pricing. It was clear to me based on our experience in software and SaaS pricing, that their pricing “architecture” was unlikely to sustain the company.
It takes a lot of deals to generate meaningful revenue at the original price of $50/month for 5 developers and unlimited apps. The price looked just too low. The license metric of developers makes sense but maybe not as much as per app. Further there were other elements of their pricing that were obscure or hard to estimate (or both.)
While product is important, company success requires a pricing architecture that will support the company business model and ability to raise capital.
Jim Geisman
Software Pricing Partners, Inc.
Jim Geisman — February 28, 2009 @ 1:32 pm
Jeff -
As an employee of an online database company, I agree that it does take solid technologies and attractive channels to survive the current economic shakeout.
I also feel that companies evaluating SaaS offerings should do their diligence when evaluating SaaS providers. Jim above makes a great comment on pricing and this is one of the considerations our CTO and CEO recently mentioned as one of the critical tips to consider when evaluating SaaS offerings. Take a look at our recent blog posting and podcast highlighting other tips companies should consider when evaluating SaaS offerings:
http://www.trackvia.com/blog/2009/03/02/saas-tips/
Ed
TrackVia
EDunigan — March 2, 2009 @ 12:11 pm