Not to be smug, but SaaS is a great place to be in the software industry these days. I was talking to salespeople for several SaaS vendors and partners at a customer event a few weeks ago and there was a palpable sense of relief that they'd moved out of on-premise sales — one described to me a recent joiner's event at his current employer where a dozen or so former Oracle high-fliers were coming on board. "These guys know all about following the money," he commented.
Today, I'm at a NetSuite customer event in London and CEO Zach Nelson has just displayed a chart quoting IDC and Gartner data that shows on-demand ERP sales are growing at a rate four times faster than on-premise. OK, that's from a lower base, but remember too that SaaS vendors book far less each year from each individual deal than their on-premise rivals, which makes their faster revenue growth even more impressive.
So I'm wondering, what's driving this remarkable growth? Conventional wisdom says that it's just lower upfront cost and faster time-to-live that's driving businesses to adopt SaaS, especially in these straightened, cost-conscious times. But there's another factor that I think is underrated and I'm interested to hear Nelson emphasize it in his presentation.
"So you're going to build your business on software that was designed before the Internet existed?" he relates asking a customer in a recent sales call. Increasingly today, business is done in the cloud — with customers, suppliers, employees — and Nelson's message is that, to participate fully in that medium, business systems have to be in the cloud, too. "Your company is in the cloud," his presentation concludes.
The message is reinforced by Peter Bauer, CEO of Mimecast, which adopted NetSuite to manage its growth providing email management services as a multinational business. "You have to increasingly think of customers visiting your organization as an online experience," he said, speaking on a customer panel at the event.
Perhaps more SaaS vendors should take a leaf out of NetSuite's book. Instead of going on about the lower cost and faster time-to-live of their solutions compared to conventional software, they should just point out that operating in the cloud is how business is done these days, and anyone whose business systems operate anywhere else is going to get left behind. It's as simple as that.