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Back to the Future: Cloud Computing and SaaS  [ San Diego News Network ]
May 9, 2009 06:38 AM

Friday, May 8th, 2009
Phil Morettini

I have this incredible feeling of déjà vu — maybe even all over again…

That’s an old joke, but it’s what comes to mind whenever I see a discussion of the new Internet-based computing models. The story looks very familiar to anyone with a historical perspective.

Cloud computing and Software as a Service are hot. In my practice at PJM Consulting, I am very involved in software startup activity in San Diego and worldwide. Nearly every new software company that I see today is being built on the Software as a Service business model. It’s all the rage–so much so that it appears that any self-respecting software entrepreneur would be embarrassed to start a company using the traditional software licensing model. Even if an entrepreneur was so inclined, good luck finding a venture capitalist who would even consider funding such a company. No one wants to look like a dinosaur.

This is all well and good–there is definitely a real trend toward SaaS and Cloud Computing, with many good reasons for it. But most high technology trends are initially a bit over-hyped, and tend to get ahead of themselves.

The first bit of history this phenomenon brings to mind is the old terminal/mainframe model from the early years of computing. There were some real advantages to this model, but also some big disadvantages as well–which opened the door for the golden age of PCs and networking.

The second era that the current SaaS wave is so similar to is the “Web 1.0″ phase, when Web-based hosted software (then called ASP rather than the modern SaaS terminology), was going to take over the world the first time. It was in the scorching hot Web 1.0 years of the late 90s/early 2000s when the traditional software license business model was first proclaimed dead. At that time nearly every new business plan was based upon an ASP model.

So while some of component of this fast-moving Cloud Computing or SaaS trend is new — much of it could be viewed as recycled from past trends. Let’s look at the Pros and Cons of this “new” computing model:


• Enables “Utility-Style” computing - SasS costs are a variable expense instead of capital investment
• Allows an end run around overwhelmed IT departments (like PC networking did)
• Is supposedly “On-demand”: use only what you need, when you need it although many business models don’t allow this
• More efficient use of compute resources by time-slicing large farms of cost-efficient computing resources
• Web-based platform which allows anywhere, anytime availability
• Off-site storage of data assists disaster recovery preparedness


• Immature and inherently more difficult security
• More difficult integration with other applications
• Internet latency
• Internet reliability
• Data resides outside the company firewall
• Costs over time aren’t necessarily lower for customers
• Lower margins for software vendors–aren’t always accounted for in current pricing

I believe that the trend toward cloud computing will continue, but there will be some stumbles and pullbacks along the way. Computing in the Cloud and SaaS has some inherent strengths–but also some under-publicized weaknesses. Many software vendors are overlooking the weaknesses at this time, which is typical of any new and hyped technology. Traditional licensed software hosted by the user still has its strengths and still has a definite place in the market. Like many mature technologies and business models, the death of traditional software licensing has been greatly exaggerated. Once the early hype passes, decisions on whether to compute within the firewall, or in the cloud, will once again be made on the individual merits, costs and user needs of a particular application within a particular company. That’s how I see it–post a comment with your opinion so we can look at all viewpoints.