This downturn’s test for SaaS/On Demand

This almost-inevitable downturn will answer one of¬†the open questions about SaaS/On Demand: How “recession-proof” is Saas, really?¬†¬† Already, an number of SaaS vendors have seen their forecasts taken down, just like normal enterprise vendors (here and here, for example).¬†

Of course, many still believe that SaaS is recession-proof (see Jeff Kaplan¬†posts and comments¬†here and here).¬† I certainly don’t believe that as¬†a blanket statement.¬† In fact, I believe that on demand vendors that focus on edge processes will be in deep trouble.¬†¬† That’s because one of the benefits of SaaS to customers is¬†the ability to stop consuming whenever they like — and edge applications will get stopped first.¬†

It is funny how we don’t hear about the benefits of “consumable” services now that consumability doesn’t exactly match the “SaaS is immune” narrative.¬† Per my earlier rants on this topic (here and here):

The ease with with one can consume services ‚ÄĒ which certainly does promote usage ‚ÄĒ is matched by the relative ease with which one can stop consuming services.¬† If one can get in easily, one can get out easily…. Also, trying to mitigate that risk by locking-in revenue with longer subscription periods sounds good, but it makes SaaS/On Demand too strongly resemble an On Premise relationship.

That last sentence is one example of the On Demand catch-22: as SaaS gets more embedded in the enterprise core, the more it behaves like on premise (e.g., SFDC’s lengthening sales cycles).¬†

Maybe Harry Debes isn’t so crazy after all (here and here)!

SaaS/On Demand not immune to the downturn

Per Joe Panettieri’s article (here), I’ve never agreed with analysts who believe that the SaaS/On Demand players would somehow be recession-proof (read my earlier rant here).¬† There’s a lot about the business model that’s compelling, but not this.

The ease with with one can consume services — which certainly does promote usage — is matched by the relative ease with which one can stop consuming services.¬† If one can get in easy easily, one can get out easy easily (sure, there are caveats, especially if one has been hooked for a while).¬† Also, trying to mitigate that risk by locking-in revenue with longer subscription periods sounds good, but it makes SaaS/On Demand too strongly¬†resemble an On Premise relationship.

I agree with Joe that this period will shake out the SaaS/On Demand players.¬† Those who don’t have a truly “sticky” value proposition will be gone or acquired.

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