Did Lack of Fees Contribute to LucidEra's Collapse?

Ann All

When IT Business Edge reported Oracle's latest earnings, which were down but nonetheless beat Wall Street's expectations, it cited a San Jose Mercury News story that said, essentially, that Oracle would have been totally screwed if not for the maintenance and upgrade fees it collects from its customers.


Wonder if the lack of such fees -- or the need for fewer of them, at least -- has anything to do with the recent collapse of some software-as-a-service companies?


IT Business Edge blogger Dennis Bryon wrote about the demise of Flowgram earlier this month, and now LucidEra is going belly-up. This TDWI article largely faults an ugly venture capital environment rather than the viability of the SaaS revenue model for LucidEra's problems. It quotes Cindi Howson, a principal with BIScorecard.com, who also implies that IT's reluctance to embrace SaaS isn't helping. She says:


I would say that any failure of a SaaS firm is not an indication that SaaS is not of interest. One of the biggest barriers to SaaS continues to be IT, and if you ask IT people if they want SaaS, many will say 'no' because it threatens their jobs and gives control of the BI platform away.


Certainly, there's truth in Howson's remark. As I wrote earlier this month, citing a comment from, of all people, LucidEra founder Ken Rudin, IT folks are likely to be more receptive to the broader cloud computing concept than to SaaS.


Still, what about the relative lack of service and maintenance fees, which have traditionally been a cash cow for enterprise software vendors? The absence of that cushion must hurt SaaS vendors. I hinted at the need for new SaaS pricing models way back in February. That post also mentioned that building their infrastructures may have been more expensive than SaaS providers originally thought, meaning they might need to now raise their prices to cover those costs.


LucidEra may have suffered because of its initial development costs. THINKStrategies managing director Jeff Kaplan tells destinationCRM that LucidEra built much of its own architecture instead of piggybacking on the infrastructures of platform-as-a-service providers like Amazon or Salesforce.com, the path increasingly followed by newer SaaS providers.


Kaplan makes the same point in a piece he wrote for Seeking Alpha. He also notes that a crummy economy is especially tough on less well-established companies like SaaS providers. He writes:


The proliferation of players, combined with incentives within companies of all sizes to delay purchase decisions, has extended the salescycles for almost every SaaS company.


Like Gartner, which earlier this year predicted that 20 percent of companies will use a vertical SaaS-style analytic application by 2012, Kaplan is still bullish on the future of business intelligence delivered via SaaS. He writes:


Just as the demise of individual car companies or banks doesn't spell the end of the automotive or financial services industries, the failure of LucidEra doesn't represent the end of the SaaS era. It also doesn't mean that SaaS-based business intelligence and analytics can't succeed. Customer interest and adoption of SaaS-based BI/analytic solutions is growing. But, there isn't enough demand to support the myriad of SaaS vendors competing in the market.

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