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)!

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.