SaaS market will 'collapse' in two years

SaaS market will 'collapse' in two years

Summary: Lawson's CEO, Harry Debes says SaaS is the third attempt at "on demand" in his lifetime and predicts it will take the same path as the first two--to oblivion.

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Lawson's CEO, Harry Debes, doesn't believe in software-as-a-service (SaaS).

In fact, the ERP (enterprise resource planning) software company's top executive has put a two-year expiry date on SaaS' head.

Debes led Lawson's US$607 million merger with Intentia in 2006. He told ZDNet Asia in an interview why SaaS is history repeating itself, and why the company is not going down the same path as its bigger competitors that have jumped on the "on demand" bandwagon.

Q: All the other big players are going "on demand". Is cloud computing the next big thing?
Debes: This "on demand", SaaS phenomenon is 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.

But it's pretty much the same thing. And my prediction is that it'll go the same way as the other two have gone--nowhere. SaaS is not God's gift to the software industry or customer community. The hype is based on one company in the software industry having modest success. Salesforce.com just has average to below-average profitability.

People will realize the hype about SaaS companies has been overblown within the next two years.

An industry has to have more than just one poster child to overhaul the system. One day Salesforce.com will not deliver its growth projections, and its stock price will tumble in a big hurry. Then, the rest of the [SaaS] industry will collapse.

Won't people avoid the mistakes of "previous" SaaS incarnations, as you mentioned?
People are stupid. History has shown it repeats itself, and people make the same mistakes.

So it's safe to assume Lawson does not have a SaaS strategy?
Actually, the original design three years ago for one of our better products was SaaS. In 2005, we started building a human capital management product. At that point, people were talking about SaaS. There was a lot of buzz around it, so we decided that in case it was going somewhere, we'd build the software for the SaaS model.

It was going to take us seven to 10 years before we made any money. That's nonsense.

But as we did the math, we realized we could get killed. It was going to take us seven to 10 years before we made any money! That's nonsense. So we reversed our plans--I'm very glad that happened because now we can sell the software in both models. We wouldn't have to wait 10 years to make a profit.

But what about your competitors offering SaaS models?
[Oracle's CEO] Larry Ellison has the same perspective as I do. He accidentally funded the CRM product and Netsuite. He didn't really mean to. They've had small successes, but overall, they've been spectacularly unsuccessful.

And SAP's Business ByDesign is a disaster. [SAP] said it would have 10,000 customers [for ByDesign] within a couple of years. And yet they have less than 100 today, after all that hype and marketing.

We use Salesforce.com, and I like it. But I would've bought the product even if it wasn't SaaS. The success of Salesforce.com, in my opinion, has to do with their product being good, not because it's SaaS.

Theoretically, the business case for SaaS seems fairly straightforward.
Yes, but because all your costs are up front, and your revenue is over a five year period, the more you sell, the more you lose.

You don't break-even till the four-and-a-half year mark, but here's a bigger problem--there's no guarantee that that customer is still going to be yours in four years' time.

Getting signed up as a SaaS customer is fast, but getting out is just as fast. 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.

So is Lawson is looking to lock people in, this same way?
It isn't about locking people in. People lock themselves in! They see the software, like it, and want it. This is true of all professional software.

The cost of moving is too high. As long as it's working, people are happy to stick with one product.

When the sunk costs have been fully depreciated, customers effectively run the software for free, thereafter. Whereas if they went to Salesforce.com, it'd cost them a million a year because they're paying for ongoing licensing and maintenance. SaaS is just a financing option for the customer. For that, we offer a hosting service. If the customer pays [over a period of time] through a financing entity, it's exactly the same [experience] as SaaS.

What is your plan for Asia, a region with a large proportion of SMBs? Many don't have the capital for a big upfront investment in ERP software.
There are still several thousand companies who fall into the revenue range of between 50 million and a couple of billion dollars.

We sell into target verticals, not generically. Frankly, we can't compete against SAP or even Microsoft by being generic. They can outspend us and outmarket us.

By being vertical-specific, that's the way we are leveling the playing field.

Topics: Software, Cloud, Emerging Tech

Victoria Ho

About Victoria Ho

Victoria Ho is a tech journalist based in Singapore, whose writing has appeared in publications such as ZDNet, TechCrunch, and The Business Times. When she's not obsessing about IT, you can find her tinkering with music and daydreaming about which guitar to buy next.

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46 comments
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  • He doesn't get it

    So to summarize Debes (who comes off a little like Vinny from da mob or a coke dealer - his words, not mine):
    (1) SaaS and Cloud computing as a delivery vehicle has been tried before and therefore will fail (like all things) (2) People (excluding himself) are stupid (3) Lawson hasn?t made a SaaS product because they couldn?t recoup for 8 years (which has nothing to do with the fact that they would have to rethink their entire operations, or that it?s easier to be a SaaS company when you?re designed that way ? lean and mean ? in the first place) (4) People don?t lock themselves in to a vendor; they just like it that way (like they like moving in with mom) and (5) Lawson is only going to go after big businesses with lots of cash to spend on an on-premise, proprietary platform that only Lawson Professional Services knows how to support.

    While it might be good for Lawson's bottom line and investors, it has no benefit to the customer that's dealing with an ever web-reliant workforce. Sure, Lawson?s ERP niche is geared toward dinosaurish industries, but that?s not what SaaS is addressing. It?s about immediate results and higher productivity, not year-long engagements with yet another entrenched vendor you?re stuck with.

    SaaS providers can make money by designing with an economy of scale in mind and a leveraged platform. In short, SaaS providers build like Starbucks. Traditional enterprise software like Kopi Luwak Coffee (look it up).

    There is room for both in this world. Just like there?s room for smart and stupid people.
    dklcheng
    • Thou dost protest too much!?

      Why so sensitive?
      Mr Debes' comments are very valid when it comes to ERP. Enterprise software providers that have tried it have not had success. It seems to have far greater value to smaller segments of the business information market.
      eroomj49@...
    • Staying On Track

      Nice reply dkcheng. Debes was a bit un-becoming...Ay yay yay. I vote for SaaS and I hope to someday kick-the-coke habit. After all how can a "coke" habit be free when there's upgrade costs and annual support costs.
      itforGod
  • RE: SaaS market will 'collapse' in two years

    "People are stupid."

    I've been saying this for decades. LOL.
    robinl1234
  • So! - the evolution of recombinant, reusables is over in computing ? - NT

    NT
    raycote
  • RE: SaaS market will 'collapse' in two years

    Most rational people detest the idea of being ?hooked? on anything. And when in such a situation, humans actively seek to unload that which holds and confines them. It is true of cocaine and it is equally true of traditional license based software. SaaS will be successful because the underlying economic benefits to the end user favors SaaS over the traditional license based model. Whether SaaS companies can generate superior returns over conventional models is perhaps questionable. However the absolute economic value that SaaS delivers to the end user is quantifiable and indisputable. In the end, this will drive the continued adoption and success of the SaaS model and it is for this reason that the conventional model?s days are numbered.

    I hope there are more CEOs out there with the same view. Taking their customers is like shooting fish in a barrel.

    John Grabski
    CEO
    ClearMomentum
    jgrabski
  • RE: SaaS market will 'collapse' in two years

    This is the latest in a growing number of enterprise software CEO's who have forgotton that their business is about serving their clients and struggling with the innovators dilemma. I've written about this and many other examples in my SaaS 2.0 blog at http://intacct.blogspot.com

    Dan Druker
    SVP, Intacct
    ddruker@...
  • SaaS will double in two years.

    Mr. Debes says this is just history repeating itself, as if the industry is the same today as it was in the past. Does he not think that the wide adoption of broadband and the shrinking cost of resources might have an impact?

    Giant enterprise software companies that can't (or won't) adapt will wither and die. Just because Lawson hasn't figured out how to build a SaaS app that provides immediate return doesn't mean more agile companies, or even 2 guys in a garage, can't. And those who can will be stealing market share from Lawson in two years.

    The software industry is moving at a blistering pace. SaaS is a natural evolution of innovation in the industry, and the companies that want to succeed in the future must continue to innovate if they want to stay competitive. You simply can not build a giant company and then expect you'll be able to repeat past successes over and over indefinitely into the future.

    Consulting software companies about how to be successful in the SaaS world just happens to be what my company does. So Mr. Debes, if you want to know how to get into SaaS and be successful, I invite you to email me. (bscates (at) muralconsulting.com)

    Brian Scates
    Creative Director, Mural Consulting
    sxates
  • RE: SaaS market will 'collapse' in two years?

    Wow! I had no idea how 'stupid' people are to believe the benefits of an internet based delivery model for business applications. Guess we should all just stick with dated on premise applications from the last millenium and forget about the internet as a delivery model. Thanks Harry for setting us all straight! To be serious for a moment, there are just too many wild inaccuracies in this posting to merit response, but for a valid perspective on SaaS and open source advantages, check my blog: http://blogs.ingres.com/dougharr/
    doug.harr@...
  • RE: SaaS market will 'collapse' in two years

    Stop getting all up-in-arms about this.

    SaaS is a great model for smaller companies. People are more likely to get involved BECAUSE they can get out at any time. It means that people will give the software a chance before they make their decision (can anyone say shareware?).

    Small companies that market to individuals and other small companies have a lot to gain from going with an SaaS model. It means that they can get on their feet and making a profit sooner. It doesn't make sense, however, for large businesses that market to other large businesses. Seriously, do you think anyone would use Oracle if they said "We will serve the software, and you have to connect to our servers."? They wouldn't because SaaS just plain don't make sense in that situation.

    Large companies LOVE to feel in control, and have the money to blow on a software. They have nothing to gain by buying the SaaS model. It means that they are not in control, and are actually depending on another company for an internal system. Not good.

    What I took from this article is that, apart from a few small exceptions, companies on the SaaS model will not be able to turn a profit big enough to play with the big boys, and the big companies won't be trying to press out SaaS.

    SaaS won't die out entirely (the internet didn't actually die with the .com crash), but it won't be as big as it's trying to be. It's more buzz from the people who brought you the non-event of Web 2.0, and it just simply can't support big business.

    Companies will still produce SaaS, but it won't be their main revenue steam. That will still lie with more expensive, licensable software.
    samlev
  • CEO ???

    High time for Lawson to get themselves new CEO. Giving incorrect and erratic statements just because your product strategy doesn't supports that. Surely "People" (SaaS evangelists and beneficiaries) aren't that stupid.
    ssrivastava5
  • Grain of Salt

    The key points in Debes comments are:

    - Lawson like to lock their customers in; and,
    - they can't make the business model of SaaS work their KPIs.

    Salesforce.com doesn't lock its customers in, you can go and get it all back by CSV and put it in another system very quickly.

    Debes is right about Salesforce.com's profit margins, they are pretty poor - their FY09 guidance is for $36m in profit on slightly over $1b in revenue. However, I think the thing that Debes is "intentionally" leaving out is that Salesforce.com spun off $53m in cash on $263m in revenue. So they suffering depreciation and the expenses of stock based remuneration, but those are sunk costs. The market values Salesforce.com because unlike previous incarnations of "bureaus" and "ASPs", Salesforce.com is profitable and cash flow positive. It is also an attractive asset to buy, one bad quarter or a missed growth number doesn't erode the value of their customer base.

    I think what you'll see is that Salesforce.com has turned the corner on the "return dilemma" that Debes was talking about. He couldn't tie up that much capital and resource trying to build a new business model that cannibalises his existing business. Salesforce.com and other SaaS players that are profitable around the world (not all SaaS companies are on the Nasdaq) are also realising that the investment curve is diminishing as a percentage of revenue and therefore, profitability is becoming easier.

    The last thing I'd say is, a good idea doesn't become a bad idea because it was poorly executed. As a customer of both, Siebel and Salesforce.com over the years, let me say that Salesforce.com is TEN TIMES better than Siebel. In fact, there isn't a CRM product on the market as pleasant to use as Salesforce.
    SuperSean
  • Well SaaS will go and come back new name!

    That's how history repeats! SB->ASP->SaaS! RPC->CORBA->SOAP->SOA->? is another thread!
    joemartn
  • The problem == Data security

    The problem with SaaS or on-demand cloud is with data security. Unless you don't mind others looking at your data and don't mind losing data through provider fault, this is non option!
    joemartn
    • Wait, WHAT?!

      Dude, c'mon, Not another every system is vulnerable and someone going to look at your stuff post!

      Security methods prevent people from looking at my stuff in SaaS. The same security methods that stop people from looking at my stuff without SaaS. Unless I unplug my system from any communication methods there's always a chance... So please stop conspiracy theorizing!
      ibanez1998
      • Can you do it better?

        Maybe you can, but have you been in corporate IT outside of the Fortune 500? Let the experts design security and scalable data centers, and let businesses buy safe services from experts.
        leathard@...
      • You are real dud!

        Only idiots store data on computers controlled by others. For example, having emails on gmail, yahoo, hotmail, etc., they can see your emails any time! Companies don't put data on your server so that you can see them. Only dud don't understand this!
        joemartn
  • Internet is a fad too

    I agree with him 100%, SaaS will die in two years when people stop using the Internet.

    Oh, and we're all stupid.
    ryan.gahl@...
  • SaaS is dead, but we use SalesForce

    The fact that the company actually uses SalesForce, and finds value in it, is proof positive that the author is being hypocritical. If you asked the employees using SalesForce, I would bet they value it BECAUSE it is SaaS (ie online, available from anywhere, no servers to maintain, etc). I'll also bet the company has employees using Google Apps. The SaaS trend will continue to grow because there are inherent advantages to it. Anyone who doesn't see that value, isn't worth their weight as a CEO of a major company.
    Smitter2K
  • Contradiction

    Dear Harry:
    First you say "Getting signed up as a SaaS customer is fast, but getting out is just as fast. 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."

    Then in the very next answer you contradict yourself by saying "It isn't about locking people in. People lock themselves in! They see the software, like it, and want it. This is true of all professional software."

    Well then if I understand your logic, if poeple like a product, it does not matter whether it is delivered over SaaS or shrink wrapped, does it?

    As for jumping ship in a SaaS, what about the data and the cost involved with finding and adapting an alternative? I think people being "stupid" as you so eloquently described them, how would they chart their own way after hitting the "eject" button on their SaaS vendor? Won't they worry about their data and other migration related issues?

    Cheers!
    rahilkh