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ERP Software Interviews

crm Lawson Software CEO Harry Debes Predicts the End of SaaS

The interview herein includes several excerpts published from a August 2008 interview with Lawson Software's CEO, Harry Debes while Mr. Debes was in Asia.

Just when software as a service (SaaS) business systems are considered mainstream by virtually every analyst firm, media organization and industry pundit, Lawson CEO Harry Debes goes on a limb to predict the end of the software as a service movement, or more specifically, that the SaaS industry "will collapse" in two years.

Never mind that the SaaS component has been the only star performing sector of the business software industry for the last five years or that analyst firm Gartner predicts a cumulative growth rate for SaaS of 32 percent per year through 2011 and that 25 percent of all new business software will be delivered by SaaS within three years.

Never mind that Tier 1 research reported in 2008 that while the traditional, on-premise software market has reached relative maturity and is expected to incur a slow 6 percent annual growth rate through 2010, the on-demand software market is expected to grow at a 41 percent compound annual growth rate through 2010.

Interview excerpts:

Q: All the other big players are going on-demand. Is cloud computing the next big thing?

A: This on-demand, SaaS phenomenon is something I’ve lived through three times in my career now. The first time, it was called ’service bureaus’. The second time, it was ‘application service providers’, and now it’s called ‘SaaS’. But it’s pretty much the same thing, and my prediction is that it’ll go the same way as the other two have gone - nowhere. SaaS is not God’s gift to the software industry or customer community. The hype is based on one company in the software industry having modest success. just has average to below-average profitability. People will realize the hype about SaaS companies has been overblown within the next two years. An industry has to have more than just one poster child to overhaul the system. One day will not deliver its growth projections, and its stock price will tumble in a big hurry. Then, the rest of the [SaaS] industry will collapse.

Q: Won’t people avoid the mistakes of ‘previous’ SaaS incarnations?

A: People are stupid. History has shown it repeats itself, and people make the same mistakes.

Q: But what about your competitors offering SaaS models?

A: Larry Ellison (CEO of Oracle) has the same perspective as I do. He accidentally funded the CRM product and NetSuite. He didn’t really mean to. They’ve had small successes but, overall, they’ve been spectacularly unsuccessful. And SAP’s Business ByDesign is a disaster. SAP said it would have 10,000 customers [for SaaS Business ByDesign] within a couple of years. And yet they have less than 100 today, after all that hype and marketing. We use, and I like it. But I would’ve bought the product even if it was not SaaS. The success of, in my opinion, has to do with their product being good, not because it’s SaaS.

Mr. Debes went on to provide additional interesting comments:

Q: Theoretically, the business case for SaaS seems fairly straightforward.

A: Yes, but because all your costs are up front, and your revenue is over a five year period, the more you sell, the more you lose. You don't break-even till the four-and-a-half year mark, but here's a bigger problem--there's no guarantee that that customer is still going to be yours in four years' time. 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. If it were easier to jump ship, a lot of people would've hit the eject button on SAP a long time ago.

Q: So is Lawson is looking to lock people in, this same way?

A: It isn't about locking people in. People lock themselves in! They see the software, like it, and want it. This is true of all professional software. The cost of moving is too high. As long as it's working, people are happy to stick with one product. When the sunk costs have been fully depreciated, customers effectively run the software for free, thereafter. Whereas if they went to, it'd cost them a million a year because they're paying for ongoing licensing and maintenance. SaaS is just a financing option for the customer. For that, we offer a hosting service. If the customer pays [over a period of time] through a financing entity, it's exactly the same [experience] as SaaS.

Q: What is your plan for Asia, a region with a large proportion of SMBs? Many don't have the capital for a big up front investment in ERP software.

A: There are still several thousand companies who fall into the revenue range of between 50 million and a couple of billion dollars. We sell into target verticals, not generically. Frankly, we can't compete against SAP or even Microsoft by being generic. They can outspend us and outmarket us. By being vertical-specific, that's the way we are leveling the playing field.


Perhaps Mr. Debes prediction for the end of SaaS will be correct and he may prove the majority consensus incorrect. However, its unclear if Mr. Debes' comments are simply self serving (as Lawson Software has no SaaS ERP product offering) or simply insulting. Categorizing your customers as "stupid" is a sign of immaturity. Recasting the success of others such as Larry Ellison as 'accidental' fails to give credit where due (by the way, Ellison made a billion dollars on that alleged 'accident'). Failing to recognize customer value, whether provided by SaaS or any other technology disruption, is short-sightedness. Sticking your head in the sand and ignoring the single-greatest market movement in the enterprise software industry for the last five years is at best a missed opportunity and at worst a corporate setback.

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