SaaS Industry ‘Will Collapse’ in Two Years

by Jim Berkowitz on August 27, 2008

Here are several excerpts from an interview of Lawson Software’s chief executive, Harry Debes, SaaS Industry ‘Will Collapse’ in Two Years:

Lawson Software’s chief executive, Harry Debes, doesn’t believe in software as a service.

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

Q: All the other big players are going on-demand. Is cloud computing the next big thing?

A: This on-demand, SaaS phenomenon is something I’ve lived through three times in my career now. The first time, it was called ‘service bureaux’. 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 realise 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.

Q: Won’t people avoid the mistakes of ‘previous’ SaaS incarnations?

A: People are stupid. History has shown it repeats itself, and people make the same mistakes.

Q: But what about your competitors offering SaaS models?

A: [Oracle’s chief executive] 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.

Here are a few additional comments from Mr. Debes:

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.

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.

First of all, I respectfully disagree with Mr. Debes and find him to be an excellent example of a company-centric versus a customer-centric business executive. He is in total denial of the benefits of the SaaS model because he isn’t looking at the benefits from the customer’s perspective. Also, I never believe it’s a good thing to see people (esp. your potential customers) as “stupid.”

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