Is SaaS Dead?

There is a meme going on in the tech world about whether SaaS has lost its charm and it is on the way to extinction. This is based on Gartner’s recently published report on the need to re-evaluate the rationale for SaaS. 

SaaS may not have delivered on its early grand promises – of the current SaaS deployments we estimate that a total of 90 percent of SaaS deployments are not pay-per-use -, but it has re-energized the software market and added choice. SaaS does not solve all the challenges of software delivery, but can provide advantages based on the specific circumstances of a deployment as it is quicker to implement and configure for less-complex problems. “SaaS changes the role of IT from implementing its own operations to inspecting a vendor’s operations,” Mr. Cearley added.

In my opinion, the fears about the demise of SaaS is overblown. I agree with Gartner that the enterprises should have their SaaS game plan right. It is important that they evaluate SaaS properly to ensure that their business process is not disrupted. However, there are some myths that are clearly not the case. I thought I will offer some of my thoughts on the myths.

1. TCO Myth: It has been argued that the TCO of SaaS is less than On-Premise only if the enterprises regularly upgrade their On-Premise software. This is old fashioned thinking in my opinion. In order to compete with the SaaS vendors, On-Premise vendors will be forced to offer upgrades with features that competes with SaaS applications. In today’s ultra-competitive market with increasingly difficult economic conditions, any business using an older version of a product with features not in tune with modern day business conditions (like an increasingly empowered sales force using devices of all form factors working from any location, engineers who increasingly work from remote locations, top management who want to keep tab on the company’s crucial information from any place using their smartphones, etc.), they are sure to lose out to their agile and smart competitors. Enterprises cannot afford to stay backward and still compete. They would want to use state of art software offered through regular upgrades. This will definitely increase the TCO of on premise software several folds over SaaS. Any attempt to dismiss SaaS TCO advantage is not right.
2. Pay as you use Myth: Many pundits claim that the pay as you go model is a myth and they happily point out to Salesforce.com. I do agree that some of the vendors force their clients to prepay for a year or more. But it is more of an aberration than a norm. I do not agree that pay as you go is a SaaS myth. A significant number of SaaS vendors rely on the pay as you go model. However, it should also be noted that many enterprises prefer to pay for 1-3 years in advance to avoid the headache associated with the pay as you go model. In fact, Salesforce.com found that many enterprises welcome such long term contracts. Ideally, I would expect the SaaS vendor to offer both pay as you go as well as long term contracts. I guess the market forces will eventually ensure that the “rogue vendors” also fall in line with the original SaaS philosophy.
3. Shelfware Problem: Shelfware problem is an issue but I would blame it more on the contract between the vendor and their clients than the SaaS business model itself. When you are an enterprise with money to throw into SaaS, please don’t tell me that vendors are refusing to do a contract that could avoid the shelfware problem. If at all Shelfware is an issue, it is more of a problem with the client who does a bad job during contract negotiations. 

It is important for all of us (users and analysts) to realize that SaaS is still in early stages and it is going to take some time before it matures into an enterprise-worthy ecosystem. It is important for the potential buyers to do due diligence in their evaluation and contract negotiations before committing to any migration to SaaS. It is unwise to prematurely dismiss SaaS as a major enterprise players. Instead of our fantasies shaping the market, let us wait for the market forces to shape the market as SaaS matures in the coming months and years. What do you think?