This downturn’s test for SaaS/On Demand

This almost-inevitable downturn will answer one of the open questions about SaaS/On Demand: How “recession-proof” is Saas, really?   Already, an number of SaaS vendors have seen their forecasts taken down, just like normal enterprise vendors (here and here, for example). 

Of course, many still believe that SaaS is recession-proof (see Jeff Kaplan posts and comments here and here).  I certainly don’t believe that as a blanket statement.  In fact, I believe that on demand vendors that focus on edge processes will be in deep trouble.   That’s because one of the benefits of SaaS to customers is the ability to stop consuming whenever they like — and edge applications will get stopped first. 

It is funny how we don’t hear about the benefits of “consumable” services now that consumability doesn’t exactly match the “SaaS is immune” narrative.  Per my earlier rants on this topic (here and here):

The ease with with one can consume services — which certainly does promote usage — is matched by the relative ease with which one can stop consuming services.  If one can get in easily, one can get out easily…. Also, trying to mitigate that risk by locking-in revenue with longer subscription periods sounds good, but it makes SaaS/On Demand too strongly resemble an On Premise relationship.

That last sentence is one example of the On Demand catch-22: as SaaS gets more embedded in the enterprise core, the more it behaves like on premise (e.g., SFDC’s lengthening sales cycles). 

Maybe Harry Debes isn’t so crazy after all (here and here)!


SAP Current Performance and Strategy Presentation

I forgot to post this quick shout out to SAP’s investor relations folks.  They do a great job pulling together recent presentations by SAP’s executive team — the main page is here

The best strategy summary presentation I’ve seen recently was given by Werner Brandt to a Deutsche Bank conference in June (here).   It does a nice job pulling together how our current established business both serves as the foundation for of our business and as a platform for expansion (slide 18 outlines how the transition works over time).

Of course, Henning is talking to a Citigroup conference tomorrow, so I’ll have to check back in after vacation.  Now it is off to get bookcases!

Good article on SAP CEO transition

I liked Carter Dougherty’s recent article (here) on the pending handover from Henning Kagermann to Leo Apotheker.   Most of the focus is on Henning and the tone is casual and chatty, befitting a successful exiting CEO.  For the most part the facts, spin, etc. appear correct.  It’s also useful to remember that Henning did lead sales for a bit; he isn’t simply a coder. 

There is one bit of emphasis I’d like to add to this paragraph:

There is some truth to the tale being told in the markets, but the reasons run deeper than a mere change of chief executives. The company is indeed shifting its focus more toward the bottom line,…

Definitely agree so far.

… and less on the multibillion-dollar investments in technology that helped make it the market leader in the lucrative field of business software.

Don’t agree here… in fact, my take is that we’re being more careful about how we spend our R&D dollars.  The intent is to focus the development portfolio on initiatives that are true game-changers or keep us on top of the current game, which usually aren’t small potatoes.

For more on this, my own comments when we announced the new R&D targets are here, along with some from Dennis Howlett (here) and Larry Dignan (here).

On Demand — is it just “one damned thing after another?”

The struggles of on demand make that old Churchill chestnut seem appropriate.  Especially since they’ve made it to Business Week (here), which should be a buy signal according to my “Business Week Reverse Lock” theory.  It is a Sarah Lacy piece, so I figure that it has to be somewhat plugged-in to the Valley’s, ummm… wisdom.  And I sure have my doubts that on demand/SaaS will “immamentize the eschaton” as well (here, here, here). 

However, while this news isn’t “news”, there was one passage that struck me as telling:

Not every startup has the patience—or funding—to stick on demand out for 10 years and $100 million-plus in sales. Those mid-slog are feeling it acutely.  [Bruce} Richardson {of AMR] says he increasingly hears about “founder fatigue,” entrepreneurs being ground down by the endless travel and ever-ballooning marketing costs. It’s worse for the publicly traded companies constantly under Wall Street’s what-have-you-done-for-me-lately scrutiny.

An “aha” moment (for me at least).  How many entrepreneurs — never mind SV folks — have the patience for a ten year “Long March“?  On demand places such a premium on execution that it seems unlikely that the very same “swaggering, elephant hunter-style salesmen [who] would drive up in their gleaming BMWs” could wait out on demand’s growing pains.  No wonder they’re fatigued…

Your Platform-as-a-Service Racing Form

Well, not really, but Charles has next best thing: a strong post Handicapping PaaS.  If you’re into noodling about the future of the on-demand “great game,” it is worth a close read. 

Go to the comments as well, some good back-and-forth as well as my take (comment five).

SaaS/On Demand not immune to the downturn

Per Joe Panettieri’s article (here), I’ve never agreed with analysts who believe that the SaaS/On Demand players would somehow be recession-proof (read my earlier rant here).  There’s a lot about the business model that’s compelling, but not this.

The ease with with one can consume services — which certainly does promote usage — is matched by the relative ease with which one can stop consuming services.  If one can get in easy easily, one can get out easy easily (sure, there are caveats, especially if one has been hooked for a while).  Also, trying to mitigate that risk by locking-in revenue with longer subscription periods sounds good, but it makes SaaS/On Demand too strongly resemble an On Premise relationship.

I agree with Joe that this period will shake out the SaaS/On Demand players.  Those who don’t have a truly “sticky” value proposition will be gone or acquired.

Enterprise SW value, complexity, and R&D

Dennis Howlett’s extended response (here) to Vinnie Mirchandani’s post demanding more simplicity — or begging Steve Jobs to find it — in enterprise apps (here).  Dennis effectively boils down Vinnie’s argument to this:

Why is it that despite all the interest in SaaS and Enterprise 2.0 that the industry offers so very little apparent bang per buck for business as a whole?

Way too much to comment on comprehensively, but here are three:

  1. Behind the simplicity of iTunes lies the complexity of SAP ERP.   Every time you hit iTunes, you’re hitting SAP ERP.  Tell me again that the iTunes/iPhone model would work without ERP and that Apple’s not getting value out of its investment. 
  2. Enterprise software is modeling a business in real-time — a non-trivial, complex task that evolves in time.  Per Dennis’s comment about the process approach, once you try to take enterprise SW beyond implementing functions you’ve gotten into the business process management business whether you like it or not.
  3. Brian Sommer‘s comment is spot on: modern portfolio management is just getting introduced to the SW business.  Perhaps it should be a bit more ruthless.  Vampire/zombie projects, rampant cross-subsidization, and derivative products litter the R&D landscape in both commercial and in-house software development. 

SaaS/On Premise Coexistence

Jeff Nolan gets beyond the gnostic, either/or thinking that pervades the valley when he reiterates that on premise ain’t going away even in the Enterprise 2.0 world.

Being web-based behind a firewall or on the public internet are not that dissimilar. There are enterprise 2.0 apps that depend on a network effect or a market that is strongly aligned to on-demand hosted, but the fact remains that many companies and many markets still want on-premise capabilities. This is one point that Oracle and SAP both nailed, rather than chasing the multi-tenant hosted trend they listened to their customers, who by and large simply weren’t asking for it.

I’m trying to work through the heuristic firms will use to decide what goes SaaS, what stays SaaS, what goes On Premise, etc.

  • Will SaaS really have a big role in value chain segments that are critical to a company’s success?
  • Will enabling processes like talent management continue to see SaaS boom, or will they get sucked back OP?
  • Will SOA be how we get the best of both worlds, where OP apps can call services that provide fresh, complex content (e.g., GRC apps where the risk data stays OP, but regulation-driven content like checklists, codes, etc. can get pulled in on demand)?
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