What everybody Doesn’t Know about Software-as-a-Service!

The Software-as-a-Service industry must be looked at seriously by the rest of the world, and for many reasons beyond speculation.

First, it’s the same industry affected most by the Internet bubble era, and therefore has been the black sheep of the IT industry when it comes to VC money. We all remember when the term ASP (as in Application Service Provider) comes along, it usually strikes in our minds, more often than not; a picture of a failing business with a worthless business model, doesn’t? This sector has been neglected.

Second, the SaaS model has proven successful in the business software world, when many companies such as Salesforce.com, Salesboom.com, Netsuite and RightNow were able to offer on-demand, hosted and cost-effective CRM and ERP solutions to small business over the Internet. Theses companies have hardly penetrated 1% of the small, medium and enterprise level companies and the best is yet to be seen. This Industry is Booming!

Third, the SaaS industry has been at least doubling in revenues year-over-year since 2003 and considering the low penetration it has now, even higher growth levels can be sustained for years to come. The SaaS Industry can grow by 5000% in 10 years!

Fourth, most if not all mega enterprise software vendors such as Oracle, SAP, Microsoft, PeopleSoft (Now Oracle), Siebel (Also now Oracle) have never thought of offering their enterprise software solutions such as CRM and ERP as a service, and all of them are anywhere from 5-7 years late to the game. The SaaS industry has taken everybody by surprise, which means pure play vendors are innovative companies with innovative management behind them. SaaS companies represent great investment opportunities for VCs, Funds and private angel investors.

Fifth, you guessed it! All the giant enterprise software vendors announced plans to introduce software-as-a-service business solutions gradually over the next few years. All major traditional vendors are very late to a market that requires an extensive development cycle and precise business knowledge; acquired only by experience gained from repetitive customer interactions. The small SaaS of today are the Giant software vendors of tomorrow!

Sixths, the industry’s disruptive model prohibits traditional software vendors from extra-marketing the model. A traditional CRM license by Oracle should cost over $5000 upfront. A similar on-demand hosted web-based solution from Salesboom.com should cost $40/month. These numbers can seriously damage yearly revenues for these larger publicly-traded vendors and therefore you should never expect Microsoft, Oracle or SAP to offer a high-end CRM or ERP solution on-demand because it will cut into their bottom lines.. Pure-play SaaS vendors have the best products at the best prices.

Seventh, pure-play SaaS vendors have build their systems with pure standard Internet technologies that build on the ideas of structured data, sharing & collaboration as well as standard web services APIs (Application Programming Interface). Such Internet-as-a-Platform approach makes it easier for corporations to do business with SaaS companies, since there are standards that are followed. Traditional systems think of themselves and prohibit access via standardized methods, in order to force customers to pay for expensive implementations, deployments, customizations and integration projects. Software-as-a-Service is the most IT-friendly route for business solutions.

Eighth, by switching from an installed-base traditional in-house solution to a software-as-a-service solution, provided a multi-tenancy architecture is in place; much of the carbon dioxide released into the atmosphere by millions and millions of unneeded servers and hardware equipment would be eliminated. From my conversations with some CEOs of such vendors, some have applied that their hosting facilities in the future will be run by solar and wind power only, to add to the drama! Software-as-a-Service is Environmentally Friendly.

Ninth, from eighth; we can see that by purchasing millions less servers and IT equipment, we can help balance the trade with the world especially china! SaaS can reduce the USA Trade Deficit with China!

Tenth, The American Dollar is at an All-Time-Low, which means American products are now almost 40% or so cheaper than they were in 2004! This also represents a tremendous growth opportunity not only for the SaaS industry but to America in general. Americans will see more prosperity!

The End of Salesforce.com?

Frankly; the end of SFDC is on the horizons. So why do I believe that the end for them is near?

Although Salesforce.com is the major on-demand CRM player, they share the market with other prominent leaders that generated hundreds of millions of revenues in 2006. When you take a close look ate other on-demand CRM Software solutions you will immediately notice the lack of features and tools in SFDC. For instance Netsuite and Salesboom.com offer a complete business solution: CRM and ERP out-of-the-box; Salesforce.com can only be integrated with other ERP solutions but don’t have their own.

Also, all the big rivals are releasing similar products in some cases with better pricing as well. Microsoft has just announced Live CRM, with a 20% cheaper price tag. SAP early in 2007 also announced similar solutions.

Oracle has been gobbling market share with acquisitions (Siebel & Upshot) also Larry Alison owns majority shares in Netsuite, and 5% stake in SFDC!!!

In order to keep up with all this, SFDC must grow at 100% year-over-year for the next few years, can they? Will they?

Tough question to answer, but the sure thing is, the on-demand market can’e keep growing at a 100% rate for ever.