2008: SaaS will soar, SaaS will surge

SaaS Bloggers’ 2008 predictions have started to emerge. Jeff Kaplan has written his Top Ten Reasons Why On-Demand Services Will Soar in 2008, quickly followed by Phil Wainewright‘s Eight reasons why SaaS will surge in 2008, and the picture is very positive.

Despite forecasts of a recession, both Jeff and Phil suggest economic factors will favour SaaS. Jeff writes:

“… many companies could hold back on their capital investments to mitigate their risks. The ability to adopt on-demand services on a pay-as-you-go basis will be a perfect sourcing strategy for businesses seeking greater cost-controls and flexibility.”

Phil adds:

“Although a recession — if that’s what’s on its way — will pose challenges for SaaS vendors too, the majority of observers seem to think conventional ISVs will be worse off. InfoWorld, counting down the “top underreported software stories” of 2007, goes as far as holding SaaS largely responsible for the pricing pressures ISVs will face in the coming year. Certainly, the low-risk, pay-as-you-go model will give SaaS vendors a big competitive advantage if capex budgets are slashed, according to Goldman Sachs: ‘The ability to quickly and easily turn on new applications with a significantly lower initial cost of ownership makes SaaS an attractive offering … these benefits are likely to be key in a slower economic environment where purchasers of software may be increasingly skeptical of significant upfront investments which we anticipate to characterize 2008.'”

I followed Phil’s first link to the Seeking Alpha article SaaS Companies Vulnerable in a Recession, and concluded that its forecasts will not impact equally across all SaaS businesses, including those in my target sector: construction collaboration technologies.

First, some vendors (eg: [my employer] BIW Technologies, 4Projects) do not charge on a per-seat basis, but on a per-project or enterprise basis. With no limit placed on the number of users – at least in part to encourage collaboration in a very cost-conscious industry – they will be relatively immune from any customer reduction in subscribed seats.

Second, the Seeking Alpha article points out that some early SaaS companies had a baptism of fire during the dot.com doom of 2000-2002, but this experience will prove valuable: “The few of these early SaaS adopters that are still run by the original management team are likely to do well if the economy takes a dip”. Again, this applies to several of the leading UK-based construction collaboration technology vendors.