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Why Some Traditional Enterprise IT Vendors Are Scared of SaaS  [ Read Write Web ]
October 9, 2008 05:04 PM
Written by Bernard Lunn / October 8, 2008 3:50 PM

Some traditional enterprise IT vendors are selling the line that SaaS is a passing phase, that it is "old wine in new bottles". They are telling their market that SaaS is really no different from the discredited Web 1.0 Application Service Provider (ASP) model or even that it is simply the ghost of the ancient mainframe Service Bureau come back to haunt us all. This post shows why their analysis is wrong. It also shows why some traditional enterprise IT vendors feel so threatened by SaaS and why the economic downturn just made this a major issue.

Which Vendors Are Resisting SaaS The Most?

The most extraordinary venting against SaaS came from the CEO of Lawson who, in an interview with ZDNet, predicted that "SaaS would collapse within 2 years". Larry Ellison of Oracle also weighed in during a recent investor conference call, as reported in Information Week, saying that Oracle did not see any money to be made in SaaS.

Just this week, we saw the news that SAP, a company that is investing in SaaS, telling investors that they saw an extraordinary order slowdown in the last 2 weeks due the global credit crisis.

This Is Not Just The "Pooh Corner Debates"

There are people who really believe that SaaS is a passing fad, just Service Bureau 3.0. These people are like Eeyore, the old grey donkey from Winnie The Poo. They think the Tigger types who are constantly running around excited about new technology are just, well ridiculous. There are others, like Piglet, who are just scared of anything new and big. The Wisdom Of Pooh, is just humbly asking asking questions.

But the guys running large enterprise IT vendors are smart. They are just putting on the Eeyore act to appeal to Eeyore clients to keep buying the old stuff as long as possible.

Debunking The SaaS = ASP and Service Bureau Myth

There are similarities between SaaS, ASP and Service Bureau. All are centralized architectures where the hardware is managed by somebody else. But that is where the similarity ends.

The notion that SaaS is taking us back to the days of dumb terminals is simply ridiculous. Have they not heard about AJAX and all the other rich client stuff that actually uses PC cycles to enhance the user experience?

The SaaS detractors are right that the ASP model was really just a financing vehicle. It was the same software, leased and run by somebody else. Yes, the economics of that are lousy.

SaaS is not ASP. SaaS is Net Native software, built to run on the Net. What worries the heck out of the big vendors is that this new code costs a tiny, tiny fraction of the cost that their mammoth old code bases cost. Seeing the traction that 37 Signals have with Basecamp and then seeing that they have only 12 employees is worrying for any old style competitor. You cannot even buy them, they have no VC forcing an exit and they are profitable.

The New New Thing Is Social SaaS

If SaaS was simply doing traditional enterprise IT but with a Net Native design at a fraction of the cost it would be big. But that is only the start. What really differentiates the SaaS winners is that they have a social media/networking twist at the core of their value proposition.

This Downturn Favors The Innovators

Some old style vendors are hoping that this is like the Dot Com crash, when big, solid and reliable beat small and innovative. They are wrong. This cycle is different. The client's risk goes away with SaaS. Try it for free for a while and then start small. The size of your company is not an issue.

This is The Innovation Economy and some people don't like that.