Last week at the Oracle Quarterly Earnings Conference Call, Larry Ellison was asked about Software as a Service (SaaS) and he responded, as reported by Information Week by saying that SaaS is "very interesting. But no one has figured out how to make any money at it." Let's put this into context. I think that Ellison was speaking not only about SaaS, but about the idea of selling into the Small and Medium Enterprise (SME) market all together. And in the context of Oracle he is perfectly correct that SaaS is a very tough fit indeed. Sales, Marketing, Distribution, Culture all need to change in order to move into on-demand software from on-premise software. This turning of the ship is much more complicated than the arduous task of re-engineering the software itself.
Phil Wainewright understands as well as anyone that SaaS is a difficult project to bring to market, especially economically. SaaS vendors know that it will take them much longer to accrue the cash flow that conventional software companies achieve with a few big deals. In fact, Phil wonders whether most conventional software made its gains in the marketplace during tech bubbles. And in an another really interesting post at SmoothSpan, Bob Warfield discusses SaaS with Concur CEO Steve Singh. Singh understands the difficulties that Ellison alluded to in his comments; that conventional software companies experience real pain when moving to SaaS. What I also found interesting here though is that Concur has been able to make the switch and is now doing much better than its one time rival who stuck with on premise. So vendors can make money with the SaaS model, but it takes time and a new way of doing business. Everything must change, from sales compensation to the code. So the long and short of it is this: SaaS is a viable and durable business model for software vendors, like Concur and NetSuite, and they can over time become profitable, but the real beneficiaries are the customers who have the ability to use premium software for a fraction of the price of on-premise software. | 
