Killing the Golden Goose

Following on Sarah Lacey's story in Business Week last month about how hard SaaS is for traditional enterprise software vendors and the disparaging comments about SaaS by the CEO of Lawson last week, Richard Waters of the Financial Times just published a story about SAP and SaaS called The End of the Software Gravy Train.

Waters' story focuses on SAP's reaction to SaaS, and brings together some of the themes I've been writing about on this blog - the internal innovator's dilemma for the established software firms looking at moving to SaaS, the customer lock-in that comes with enterprise software, the addiction to maintenance revenue and the shocking lack of focus on what is good for the customer.

In the Financial Times story, Waters talks about his impression of a recent discussion he was in with the CEO of SAP, Henning Kagermann, and his heir apparent, Léo Apotheker.

There is a distinct tone of sour grapes as they contemplate how Wall Street has embraced lossmaking or only marginally profitable Saas start-ups with open arms. “If you are a start-up and you burn money, the Street rewards you,” says Mr Kagermann; established companies do not get given the benefit of the doubt.

One can sympathise – but only up to a point. This has all the hallmarks of a big, successful company trying to learn an entirely new business and floundering. The technology approach, the management skills and the financial incentives are all very different in the Saas business. SAP may eventually get the formula right, but it has high cultural, organisational and economic barriers to cross.

The article goes on to demonstrate how the traditional enterprise software vendors have become dependent on a model driven by customer lock-in. As Ray Wang, the lead ERP analyst for Forrester Research notes, when you adopt an on-premises ERP system (or any single vendor suite) you put yourself at great risk of vendor dependence and resultant lock-in - and since you are stuck, vendors like SAP and Oracle and NetSuite have shown that they will arbitrarilly raise your price year after year. In other words, if you become too dependent on any one vendor, bad things will happen to you.

From the vendor perspective - customer lock-in is of course great news, and it is at the heart of their business model - and your lock-in becomes their major revenue and profit engine. To quote Rick Dubinsky, They don't want to kill the golden goose, they just want to choke it by the next until it gives them every last egg.

What is interesting and what the stories above show is that in many ways the vendor becomes stuck too - trapped in their old business model that has become co-dependent with locked-in customers - so it becomes very hard to overcome the innovator's dilemma and fight the internal battles to make the move to SaaS.

So it seems to me that we are starting to see the same repeating themes over and over again in regards to SaaS and the large enterprise software vendors.
  • A focus on company profits instead of on what is good for customers - and frighteningly often no discussion of the customer at all.
  • Vision limited to developing more and more features to increase complexity and drive maintenance cycles.
  • A pattern of customer-unfriendly price increases, particularly for the single vendor suites, inevitably substituting margin for growth for the vendors.
  • Vendor dependence on customer lock-in and the resultant nearly 100% profit maintenance and support revenue streams.
  • Massive innovator's dilemma issues, structural challenges and internal conflict.
It's going to be so interesting to see how all of this shakes out over the next few years. The new generation of SaaS companies are growing an order of magnitude faster than the old on-premises vendors, all driven by the fact that SaaS is simply better for customers - so this is just going to get harder for the SAP's and Lawson's of the world as time progresses. Will they kill their golden goose in a focus on short term profits, or figure out what the SaaS companies have - that the SaaS model ensures that goals of the vendor are aligned with what is good for the customer - and show that goose some love.

How to Boil a Frog - Lawson's CEO Hates SaaS

A remarkable interview was published today on ZDnet, titled Lawson's CEO, Harry Debes, doesn't believe in software-as-a-service (SaaS).

I find it just striking how the CEO of a major ERP company just doesn't think at all about what is good for his customers.

He even compares his own company to a cocaine dealer - his whole thought process is about his legacy business model and how he gets his customers hooked on it. His main complaint about SaaS is that Lawson can't figure out how to make money doing it...

It was going to take us seven to 10 years before we made any money. That's nonsense.

Wow. And it get's even better - he says

Getting signed up as a SaaS customer is fast, but getting out is just as fast. Whereas traditional software is like cocaine--you're hooked. It's too difficult and expensive to switch providers once you've invested in one.

So his point basically nets out to - Lawson isn't going to do SaaS because it provides less customer lock-in and it is economically worse for Lawson that their current on-premises software model.

The reporter missed asking the key "boil the frog" question - As Lawson's CEO keeps the company focused on the old on-premises software model - what is Lawson going to do when SaaS companies like Intacct - who have figured out the economics of offering great on-demand products that are also better for customers - start to turn up the heat?

The blogosphere is starting to pick up on this story - Vinnie Mirchandani weighs in on his deal architect blog, and Josh Greenbaum wrote a nice piece on Enterprise Anti-Matter.

I can almost hear the sound of the tar pit starting to gurgle as it begins to swallow the dinosaur...

Office 2.0 - The Un-Conference

I'm delighted to announce that Intacct is participating in many ways in next week's Office 2.0 conference from September 3-5 in San Francisco. Now in its third year, this conference has become a who's who of thought leaders from the worlds of collaboration, SaaS and now cloud computing.

The conference is unique in that it comes together as a real grassroots exercise by the leading influencers in these technology areas. Many are detailed by Denis Howlett in his Irregular Enterprise blog. The focus of the event is on leading edge technologies that can really make a difference, using those technologies to run the conference itself, and predictions for how Flexibilitythings are going to and should evolve.

Recently Ismail Ghalimi, the founder of the conference, announced Intacct had been selected both to run the financials for the conference as well as for his Monolab initiatives. Ismail says:

For the past two years, we've been looking for an accounting application that would be available as a service, would work with any web browser, would support multiple currencies, and could be integrated with Salesforce.com. After much research, we came to the conclusion that only one option was available: Intacct.

If you come to the conference, you'll see Intacct in many places, along with many of our partners and customers. I'm particularly excited about an executive panel on Friday morning at 9:45 featuring Rob Hull, CFO of Adaptive Planning, Doug Harr, CIO of Ingres, Rene LaCerte, CEO of Bill.com and yours truly moderated by Gadi Shami of Revongo about SaaS 2.0 - we'll be talking about what it's like to try to run your whole company on SaaS, which all of us are doing, and what we all think the industry needs to do to make this a reality for more companies.

We all very much look forward to seeing you there.