According to Harry Debes, people are stupid, on-premise software is like cocaine and the software as a service industry will be dead in two years. Surprisingly, these remarks are not from a graffiti painted boxcar, a radio shock jock or even the newest talent-starved reality show but instead from an out of touch CEO of a major enterprise resource planning software company.
In an August 2008 interview by ZDNet Asia, the now famous CEO of enterprise resource planning software maker Lawson Software clearly demonstrates why the old guard guard of ERP software makers were blinded by the SaaS market disruption and why the stagnant ERP software market is overdue for a new breed of customer-focused business software providers.
Questions along with Debes comments include the following:
Q: All the other big players are going on-demand. Is cloud computing the next big thing?
A: This on-demand, SaaS phenomenon is something I’ve lived through three times in my career now. The first time, it was called ’service bureaus’. The second time, it was ‘application service providers’, and now it’s called ‘SaaS’. But it’s pretty much the same thing, and my prediction is that it’ll go the same way as the other two have gone – nowhere. SaaS is not God’s gift to the software industry or customer community. The hype is based on one company in the software industry having modest success. Salesforce.com just has average to below-average profitability. People will realize the hype about SaaS companies has been overblown within the next two years. An industry has to have more than just one poster child to overhaul the system. One day Salesforce.com will not deliver its growth projections, and its stock price will tumble in a big hurry. Then, the rest of the SaaS industry will collapse.
Q: Won’t people avoid the mistakes of prior SaaS incarnations?
A: People are stupid. History has shown it repeats itself, and people make the same mistakes.
Q: But what about your competitors offering SaaS models?
A: Larry Ellison (CEO of Oracle) has the same perspective as I do. He accidentally funded the CRM product and NetSuite. He didn’t really mean to. They’ve had small successes but, overall, they’ve been spectacularly unsuccessful. And SAP’s Business ByDesign is a disaster. SAP said it would have 10,000 customers [for SaaS Business ByDesign] within a couple of years. And yet they have less than 100 today, after all that hype and marketing. We use Salesforce.com, and I like it. But I would’ve bought the product even if it was not SaaS. The success of Salesforce.com, in my opinion, has to do with their product being good, not because it’s SaaS.
Q: Theoretically, the business case for SaaS seems fairly straightforward. A: Yes, but because all your costs are up front, and your revenue is over a five year period, the more you sell, the more you lose. 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.
Well there you have it. Traditional software is like cocaine —buy it and you’re hooked.
Normally we ignore the self righteousness ramblings of an executive no matter how clueless or comical. However, the Debes’ comments underscore exactly why a new breed of ERP software vendors has seemingly emerged from nowhere, gained global market share and may be poised to displace several of the largest business software manufacturers in the world; a feat that only a few years ago would not have been taken seriously. However, in these last few years while entrenched enterprise software publishers SAP, Oracle, Microsoft and Lawson have cast doubt, injected fud (fear, uncertainty and doubt) and chastised the software as a service (SaaS) movement with ridicule, CRM software Salesfoce.com has become the highest growth business application provider in the world, ERP software maker NetSuite has reached the public markets and yesterday’s start-up SaaS ERP companies such as Intacct and Aplicor have each acquired thousands of customers around the world – all while Lawson’s stock lost about half its value since its IPO and since the release of SaaS ERP solutions approximately seven years ago.
Beyond casting himself in the same role as a cocaine dealer, Debes’ remarks clearly show a material lack of customer understanding, a blinding self absorbed righteousness, an il-advised defensive posture and the effects of a bury your head in the sand approach to business survival. Lawson customers and shareholders take heed.
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