OK, Harry Debes is not a babe, that's for certain, but what he uttered the other day is so absolutely revealing about on-premise software that I hope all of you who are considering SaaS, software as a service, stand up and take notice. Debes, by the way, is the CEO of on-premise business software vendor Lawson. Harry, in a interview, was asked about the move to cloud computing - a generic term meaning using the internet 'cloud' to access applications hosted in a data center, really SaaS. Harry has no interest in SaaS, he says, and he relates the story of a product strategy from 2005:
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... ...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.
OK, I completely disagree with how Debes perceives the SaaS business model, but the interview is remarkable for the brazen description of how on-premise software creates a 'cocaine' like addiction in the user client. Really high initial costs of software, hardware, consulting and training results in a client that never wants to go through the experience of (as the junkies say)cleaning up; er, re-implementing an ERP system. Let's be clear: Debes says straight up that the up front costs of on-premise software and their complexity creates stuck clients, from whom you can milk support and maintenance fees forever. This is OK I suppose if you are a software vendor, or a shareholder of Microsoft, SAP, Oracle or Lawson, but what about software buyers? I heard this morning from a fellow Enterprise Irregular that a Lawson prospect expressed relief that they had not chosen Lawson, after reading Debes remark. If you are thinking about on-premise software or SaaS for your young business understand that the phenomenon Debes describes is true for all of the major and minor on-premise vendors. They want to take the money and run, leaving you with a PO Box where you can send the annual maintenance fee. On the other hand, if your software company considers SaaS as its means of deployment, then it will need to work doubly hard to keep its customers happy and on board your service. As for Debes's larger point that SaaS has no future, he needs to look more closely at the many now very profitable SaaS companies, from salesforce.com, to Concur, to several Human Capital Management companies like SuccessFactors. Not to mention Google! For an even more interesting view of how SaaS can really benefit a user company I would suggest you read Bob Warfield's post on "Multitenancy Can Have a 16:1 Cost Advantage Over Single-Tenant." Bob makes the case that SaaS vendors, on average, spend $.25 in operational costs for every dollar of revenue. On premise software costs, according to Oracle, 4x the license fee for the same operational needs, like hardware, human resources, etc. Taking 4/.25 gives us the fact that SaaS multi-tenant software has a 16:1 cost advantage. In fact SaaS vendors must acheive this advantage to be profitable. And this advantage in costs then rolls over to the user companies. Taken together these two articles create an interesting juxtaposition of on-premise software vs SaaS. Without hesitation, Debes is wrong and SaaS is here to stay as more companies come to understand the unique opportunity that SaaS offers, and not only for cost reductions, but for cleansing yourself of software addictions. (By the way, there is a great new Mac vs PC ad out about how Mac will copy all of your files from your old pc to your new Mac, and pc has a fit! Getting customers stuck on their pc software is the key to maintaining 'loyalty.') | 
