Software Vendors Hedging Their SaaS Bets?


Earlier this month I shared what I thought was an interesting sentiment from the founder of a company that sold a software-as-a-service business intelligence application that SaaS vendors needed to promote the broader concept of cloud computing if they hoped to win fans among IT folks. (That company, LucidEra, unfortunately has since announced it's ceasing operations, which I wrote about on Friday.)


IT's often skeptical view of SaaS isn't new. But what do vendors think of SaaS? We often hear how vendors push SaaS -- hard -- to their clients, creating lots of hype. But is that the truth?


Not so much, writes Bernard Lunn on ReadWriteWeb. He mentions those perennial bugaboos, security and integration, but brings what he believes is the biggest issue to the fore, namely that IT doesn't want to rent server space from an application provider if its own servers are underutilized. And underutilized they are, notes Lunn, citing a 6 percent utilization figure from McKinsey. Writes Lunn:

That is a lot of wasted cycles. It would be much better to use them up with new applications, and to bring in virtualization technology to use them more efficiently. Why rent more cycles from a SaaS vendor when you are swimming in excess capacity?

If traditional on-premise software vendors can simplify their products, costs of deployment should come down dramatically, thus making such vendors more competitive with SaaS on price. (Ease of deployment and low up-front cost have made many business executives bullish on SaaS.) The real reason we hear so much about SaaS and the cloud isn't because customers are clamoring for it, but because investors are, Lunn points out. Investors have a fondness for the "next big thing," so in that sense SaaS gives them what they want.


Most vendors will hedge their cloud bets, writes Lunn, in an effort to offer both customers and investors what they want. The notable exception is Google, which is primarily trying to win SMBs and consumers rather than big companies. Lunn agrees that cloud computing is a more obvious win for SMBs. Earlier this month, though, IT Business Edge's Paul Mah offered a contrarian viewpoint.


Writing for Forbes, Ed Sperling agrees many software vendors, certainly big ones like IBM, HP and Microsoft, will hedge their bets and offer both on-premise and cloud deployments. Why? So they can sell companies cloud expertise and services. I think he's right. Everybody knows that the real money is in services, not software. Writes Sperling:

Of course, the makers of enterprise technology win either way. It's no longer in their best interest just to pitch more hardware when they can both sell managed data services in a cloud for higher margins and sell their equipment to companies managing those services. Best of all, the essence of the sales pitch has returned to a value proposition that none can dismiss: Enterprises should focus on their "core competencies" and what they really need to run internally.