Some of the smaller customers that could never afford buying BPM software can now rent it using the SaaS model.

Our customers are now able to run workflows using the BPM software on the SaaS platform.

http://www.pnmsoft.com/workflow-software-as-a-service.aspx

http://distincthoughts.typepad.com/my_weblog/saas/

I’m starting to wonder (maybe you’ve seen) a good post on whether the SaaS revenue model is a strategic advantage relative to perpetual license sales or just a by-product of an infrastructure legacy issue.

I think you nailed the key question: how much can be credited to Salesforce’s SaaS model when it came to customer acquisition and what sort of impact would maintaining two license models have on profit (the maintenance hit on maintaining both from a support and engineering perspective is huge)? All very interesting food for thought. Sounds like this conversation could lead to a follow up post!

Just for clarity, I was referring to the CFO at the procuring company. That is, someone weighing up a SaaS purchase vs a On Prem or perpetual license purcahse. I *think* your references in the last comment to CFO’s was from the perspective of the ISV at the company who is weighing offering a SaaS or traditional licensed model or both?

I’m a big fan of SF.com having used it now for work for probably 5+ years. My issue with the Gartner table is that it takes each individuals revenues then adds it up to derive their % of marketshare. That’s fine but it’s not really very telling about what’s going on in each’s underlying business. It doesn’t really speak to profitability etc. I don’t think that SF.com is buying marketshare but if it were (or any of the others were) this table would have no way to reflect that.

To keep with the theory I was discussing earlier, how different would the world be for SF.com if they could take more of that revenue up front? Would they have won deals they lost due to not having a traditional licensed model?

Thanks anyway for the constructive feedback.

Justin

As for your post, I’d definitely debate a couple of points. For example, Larry Ellison’s point of Salesforce.com not making a lot of money is silly. There is no SaaS market segment; SaaS is simply an attribute of how an ISV delivers their software. Larry should have compared Salesforce.com’s size to the relative size of other CRM vendors to accurately dissect “how big” Salesforce.com really is. Check out the “Market Structure” section: http://en.wikipedia.org/wiki/Customer_relationship_management
Salesforce.com has garned 8.3% market share and is the third biggest CRM vendor by Market Share as of 2007. That’s quite impressive, particularly against incumbents who have been at it for twice as long. Granted, net income is depressed compared to the “Big 3″ software companies, but capturing the market is arguably more important given that initiatives like focus on generating deeper economies to boost net income can be utilized once market position has been established. Once ramped up, the revenue model affords stability that is difficult to achieve via on-premise licenses.

With respect to the 3 year rule in your post, it’s a sticky problem. On premise requires you keep a well oiled pipeline that can match revenue targets so that budgeting can remain on track. Some CFOs will argue that on-premise models are much more difficult to plan around and the NPV problem might be a premium they are willing to pay for more predictable revenue. Second, for existing ISVs they may be backed in to a corner. If a newcomer who has no place to go but up starts off in a SaaS model, it puts competitive pressure on incumbents to follow suit (think of SAP and having to deal with SForce). Whether a CFO likes it or not, broader strategy may require they defensively transition in some cases so as to not suffocate under a model that generally will be more appealing from a cost perspective to the market.

You’re right in terms of recession proof. I wouldn’t use the word “recession proof”, but I think the trade-off tends to lean toward deeper stability and less churn when people don’t have a lot of money and still need/want the value of software.

Thanks again for the post reference!

I think what we’re guilty of is switching between news sales and renewals in this dialogue. The dropped seat example is really a “renewal” event. The ISV equivalent might be 25% in aggregate of people not renewing maintenance due to a down year vs the “they won’t get their big up front license fee” idea. That would be new sales and would be a different apples to apples comparison.

Also, I agree the 25% drop would be drastic, but I’d be willing to bet that on premisis software companies could experience a greater than 25% revenue loss given the relative price point of their software packages.