General Consultant Discussion

At some point something has to give with these SaaS companies not showing a profit.

Exactly. It's just like 1999 all over again. Companies continuing to bleed cash going for more and more idiot investors while the industry hypes them to death. There will be a huge shakeout including SaaS erp vendors. I haven't met anybody, including any of you, who are saying that SaaS ERP is so hot (beyond hype) that it remotely endears the valuations we are seeing in these companies. Yea SaaS is growing, but growing from 0 always looks good. Plus I think we'll see a large drop off in a few years when people realize the fees are really high on an annual basis, the 'sweetheart' sign up deals start expiring, and the software is less flexible, slower and functional.

It's insanity. People pay $1400 per year for Salesforce.com. The company still is not profitable as all their cash goes to acquisitions and marketing. Hard to complain though. I bought Salesforce.com stock at $80 or so a few years back and it's now at $160. :)

Wayne, I agree with you. But I've never found any decent analyst explaining either why this no insanity, or what the market correctlon could look like. Profitability will arrive either through lower costs or higher prices. The former can happen only if server farm cost come down significantly, or if new customer acquisition costs come down. Customers will likely become stickier as the market matures, but I don't know if it will be enough. I think the larger SaaS offerings own their own cloud, so I'm skeptical that salesforce can cut that expense much. So, am I missing something? Does this mean that the offerings are fundamentally under priced?

I think it means its really no cheaper to move to a saas solution. It's like saying, 'owning your home is so quaint. You should rent instead' Why? Because landlords make alot more money long term than mortgage companies

I have always believed that a SaaS solution is ideal for certain target markets - startups, remote offices of larger companies. The remaining customers are those who choose not to have as much IT infrastructure or simply want to remove the substantial hassles of upgrades, etc.

I think it's a many nuanced argument and it boils down to personal preference of the business owners. In the early days, Salesforce grew quickly because no one was having these conversations and Salesforce could sneak in under the radar at the departmental level. They avoided budgetary and IT discussions. It was a disruptive sales model more than a disruptive technology. Oh how things have changed. Now ""Cloud"" is an entire philosophy.

Casting Peter and Mark's comments one read to this is, ""Segment your market."" Some customers will like some parts of SaaS. The degree of each will vary. The technology is getting close to the point where mix and match of elements with SaaS and On Prem is quite feasible (as Sage is trying to maximize). The biggest question for me isn't the tech. It is the financing. 10 yrs from now, do you think less than 80% of business apps will be paid for in monthly recurring fees?