Phil Wainewright wrote a provocative blog recently where he states that the economics behind the traditional software model are fundamentally flawed. Wainewright quotes an interview with Steve Singh, president of Concur, a software vendor that successfully transformed itself from an on-premise ‘traditional software’ model to a SaaS model.
The theory is that traditional software achieved success during economic bubbles. Certain events and technology transformations in the IT industry have attracted large cash investments. Think the move from mainframe to client-server, Y2 upgrades, and the Internet. During those periods enterprise software sellers of on-premise systems rode the tide of cash and experienced huge spurts of growth. Singh comments that, compared to that approach, SaaS is slow-and-easy. Growth may not be as rapid for SaaS vendors, but their constant and dependable stream of cash creates a more predictable and manageable business.
Wainwright hints that a lot of the resistance to the SaaS model comes from the vendor’s own sales force. Compensation based on huge up-front costs related to licenses and customization services are preferred by the sales team rather than the smaller, more consistent, stream of money spread out over many years that SaaS brings in.
Further, the larger the software company, the harder it is to re-invent and re-think. For those companies, switching from on-premise software license sales and adopting an SaaS approach is nearly impossible. Oracle realizes the futility and is not really even trying. SAP and Microsoft are trying to address SaaS, but the attempts are feable because of fears of jeopardizing their still-successful traditional software revenue streams.
