Not so promising Cloud?

Courtesy of Nick Carr, I read Sarah Lacy’s take on why SaaS will drag.

Lacy says

“….On-demand software has turned out to be a brutal slog. Software sold "as a service" over the Web doesn't sell itself, even when it's cheaper and actually works. Each sale closed by these new Web-based software companies has a much smaller price tag. And vendors are continually tweaking their software, fixing bugs, and pushing out incremental improvements. Great news for the user, but the software makers miss out on the once-lucrative massive upgrade every few years and seemingly endless maintenance fees for supporting old versions of the software.”

Well, I have some questions to Lacy. Isn’t that gouging by licensed software vendors (charging fresh-off-the-oven rates even after years of amortization of developmental expenses) in the name of maintenance and support and upgrades and consultancy the reason why SaaS came into prominence? Now won’t the users that are victimized give a longer rope for SaaS vendors to perfect their art? SFDC did succeed after all, didn’t it, albeit in its own niche?

Lacy then asks “Why isn't Oracle a bigger player in on-demand software?” She seems to have some answers as well. But I would rather say - “Ellison just didn’t get it”! On-demand model has to be designed from scratch by some brain that has not been corrupted by the luxuries offered by the licensed software model. Ellison knew he won’t be able to figure it out ever. That’s why he smartly backed Marc Benioff of SFDC who had no such prejudices.

On the same lines, I also differ with Nick Carr as he says -

“The unsentimental Ellison will wait until the profits from traditional software begin to decay, and then will buy his way into the software-as-a-service business, cherry-picking attractive suppliers”.

Given the way software business and user patterns evolve, both licensed model and on-demand model will have to co-exist for a long time until other issues around connectivity, hosted service quality, data storage and security, WiMax spectrum availability are resolved globally. If profits from traditional software begin to decay, chances are that it will be replaced by a more economical enterprise application and not necessarily by a SaaS app. Transition of all things on-premise to everything on-demand may not happen at all. But the economics will tempt a lot of rethink and it is that scenario which might drive some sense into enterprise vendors to stop gouging customers and get real.

So don’t hurry to bitch SaaS. For every believer in enterprise hegemony, there could be ten others that swear by SaaS economics.

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