SaaS market will 'collapse' in two years

newsmaker Lawson Software CEO Harry Debes explains why software-as-a-service is overhyped and why the company is not offering a SaaS model, unlike bigger competitors.

newsmaker 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. 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 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.

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, and I like it. But I would've bought the product even if it wasn't SaaS. The success of, 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, 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.