Harry Debes, Lawson CEO, STILL hates SaaS

We're rapidly coming up on D-Day when it comes to one of the more bone-headed comments in the recent history of the applications software industry.

Two years ago this month, in August 2008, Harry Debes, CEO of Lawson Software, told ZDNet that he foresaw the SaaS market "collapsing" in two years because the SaaS model is not able to deliver sufficient profitability for software publishers.

This was great fodder for the blogging community - I wrote about it here, the net of what I wrote was that Debes' position was amazingly customer unfriendly - "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."

Debes repeated his prediction a year later in August 2009 - telling ZDNet "I haven't changed my mind on SaaS." By this time Lawson was getting interested in "cloud computing" but not modern, multi-tenant, operated by someone else, pay as you go for what you use, elastic cloud computing - Debes simply meant the same old single tenant Lawson product running on hosted servers.

August 2010 marks the two year anniversary of Debes prediction that SaaS would collapse within two years. And interestingly enough, it coincides with the end of Lawson's Fiscal 2010, in which Lawson saw annual sales down 3%, even counting the acquisition of healthvision (in other words Lawson's heritage license sales shrank even more that this), annual income down 8%, and fourth quarter income down by 70%.

In the same time period, the average large SaaS company grew by between 15 and 25%. Intacct grew even faster. So not only has the SaaS market not collapsed, SaaS vendors continue to grow more rapidly and take share from on premises vendors. Why - because SaaS is better for customers - better functionality, better service and a much better value.

I think it's safe to say that Harry Debes STILL hates SaaS, probably even more today than he did two years ago. Certainly Lawson's shareholders would agree.


mas90guru said...

1. Netsuite just reported this past week. They're not profitable. Are there other ERP SaaS players with audited public financials that are profitable?

2. Ray's chart is totally misleading for anyone who doesn't take the time to review the two prime data points he compares. He's taken on-premise ERP and compared it to SaaS.

The problem is that the SaaS he compares against are not (except for Netsuite) a full ERP suite - rather he has SaaS offerings that are really single purpose - such as Concur which does travel management and Salesforce which does CRM.

3. Young companies grow fast - so it's hard to say that comparing SaaS to stodgy old on-premise ERP proves much of anything.

I'm in your camp that SaaS is the wave of the future -- I just think some additional things must happen before it gets there for ERP Suites.

a. Annual recurring costs need to be reduced about 1/2
b. Customers must buy the pitch that the costs aren't that much when they figure in the hardware/infrastructure savings. My guess is this only works on certain types of companies with larger multi-office layouts.

Intuit is also not helping things with their data outages of the past month.

Guy Alroy said...

Daniel, those of us who focus on SaaS delivery, on building products that meet an SMB scenario, that deliver the promise of 'ease of engagement' / 'ease of availability' sometimes need to give some slack to the players who build on-premise software and struggle with the thought of SaaS which is a completely different model, that requires a unique focus, go to market, and customer engagement. At the end of the day SaaS players are alive and making progress, and some of the cost and perception barriers that faces the early players are no longer an issue.

Daniel Druker said...

Hi Wayne,

I think you and I are probably 80% in agreement. I don't think the license software world is about to go out of business. I do think that SaaS is better for the customer, and that's why it is growing so fast. It's all about the customer, that is why I reacted so strongly originally to Harry Debes' comments.

On your pricing comment - all of the research I have done says the TCO is lower and the ROI is better for SaaS, even at current pricing levels, for the SMB. I would be happy to take you through this.

On profitability - what's interesting about subscription businesses is that profitability and growth can be inversely related - in the short term rapid growth can consume cash. This is one of the reasons I am so sold on the channel model, I think it's more effective that direct sales from a cost of customer acquisition perspective. I'd say don't confuse valuation with profitability - while Netsuite is not profitable, it's valuation is way higher than Lawson's because of it's growth. If NetSuite's growth slows, or if it's cost of customer acquisition drops, it will become profitable.

Tim Johnson said...

Another key point that I see is Mr. Debes' comment about customer lock-in. It reflects backward thinking and is probably a fundamental reason when he doesn't get or like SaaS.

All enterprise software business models, ERP, systems management, etc., were built on the premise that switching costs were so onerous that customers would not jump ship. So long as your stuff didn't force the customer out of business, you could treat or mistreat them as you wish. Renewal time was ugly but eventually the enterprise company would prevail because of that lock-in. How many companies are still using CA 7 for job scheduling even though they hate it or there are MUCH better, newer and up to date alternatives on the market?

As more companies come along that make data migration that much easier, especially in the SaaS space, the more power shifts to customers as switching costs drop to virtually nil. Software providers are then put under the microscope for delivering top-notch solutions but also customer service and great relationships with those customers. I suspect Lawson isn't geared to deliver either.

Perhaps Mr. Debes still sees customer service and innovation as cost centers?

I would understand if someone were to make dire predictions about Mr. Debes' tenure or the very existence of Lawson if they don't wake up and smell the SaaS-roasted coffee.


Anonymous said...

It amazes me to see repeated posts about the "virtually nil" switching costs for Saas offerings.

That may be true for a small point solution. But when you are talking about enterprise applications, a big part of the cost of deployment is implementation and training.

This doesn't make Saas any less attractive, but it make the suggestion that there are no switching costs seem very naive.

Surge said...

I have read preditions that the saas market will be up 25% in the next 3 years. It is interesting to me that some people choose to live in the stone ages.

Anonymous said...

Why should any of Harry's anti-customer service / benefit or even fairness surprise anyone? After taking over a failing implementation project, I went head to head with him some years ago on behalf of my client in an attempt to help him understand that the product owned by the company he was running had decimated their operations with its faulty code, and ill designed / coded enhancements. In good faith and fairness, the client and I attempted to resolve financial and product issues with him, achieving minimal success. Though advised by many to sue this company, my client's CEO reminded us of the business they were in, and that he was only interested in getting his company back to what they were in business for, "making and selling their products". You know, that CEO provided a powerful lesson in restraint, the willingness to learn from mistakes, and focusing on what they really came to work to do. The client did move on. We worked through the all the issues and successfully re-implemented the system. So, I guess I should just say "Thanks Harry! Many of us learned a lot from you those days."

Ann Grackin said...

The economic models for the end-user are just too powerful to ignore SaaS. And they are not. Our research (ChainLink Research) is showing a huge upswing in SaaS/On Demand interest and adoption in most categories. ERP has been a hard one for companies to get their mind around, but with the current economy and a new generation of buyers who take all things on the web a 'normal' this market will only grow.
It is interesting to us that even in categories such as WMS, which our research back in 2004 predicted would be the 'last to go SaaS' now has an impressive adoption rate.
On premise providers have brooded on SaaS for several years. The challenge is how do you provide a pay as you go solution that take years to implement? And what do you tell your old and loyal customers who paid $10M and up that the new model is thousands per month?
There is much for to say about the challenges of going SaaS if you have spent 10 to 20 years developing code around an on premise solution.

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