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Feb 09 2009

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Deeper recession: SaaS and AEC

Since my post last month on the likely impact of the global financial crisis on the Software-as-a-Service (SaaS) market and on SaaS (and other ICT) providers in the architecture, engineering and construction (AEC) sector in particular, I have seen one or two other SaaS bloggers echo my thinking. The latest is Jeff Kaplan.

In Is the Bloom Off the SaaS Rose? he writes:

“Now that the economy has sunken into a deeper economic decline than almost anyone anticipated, the SaaS industry is feeling the same pain that has afflicted every other major sector. … Despite the compelling business benefits of SaaS, corporate and IT decision-makers are holding back on purchases. And, corporate layoffs are cutting into the subscription levels of current contracts.”

He discusses the difficulties at Salesforce.com, suggesting that its problems are compounded as most of its growth has come from large-scale enterprises, especially in the financial services sector. Jeff reckons Salesforce.com will survive, saying it is “still the biggest and among the most influential players in the SaaS and cloud computing market,” before adding: “I’d much rather be in the on-demand services sector than the housing or automotive industries” (my emphasis).

Of course, it’s not just the housing sector that is struggling. Great swathes of the rest of the AEC sector are also under great pressure, not least the commercial building sector, suffering through the withdrawal of projects from financial services clients, private residential developments and leisure schemes, among others. And this is not just a localised phenomenon.

As well as the downturn we’ve experienced in the UK, several overseas markets have been affected – most notably Dubai, but also elsewhere in the Middle East. Once a magnet for UK construction businesses, hundreds of expatriate workers are now being hurriedly laid off as some of the Emirates biggest developers scale down their property programmes. Nakheel, a client of [my employer] BIW Technologies has postponed work on several flagship developments, including Nakheel Harbour & Tower, although work continues on some of its less glamourous schemes, such as Jumeirah Village (which I visited last November) – see Construction Week article. Similarly, Construction Week has reported that Aldar Laing O’Rourke, a joint venture between Abu Dhabi’s largest property developer and the well-known UK construction company (and minor shareholder in Asite), is cutting a further 320 jobs, focused on its Al Raha beach project – a scheme managed using Aconex, I believe (see 20 June 2008 post).

As projects are mothballed or discontinued, and as staff are laid off, there will inevitably be fewer projects to be managed using SaaS-based construction collaboration software. This in turn makes it almost inevitable that the vendors working in this market will see turnover drop and will – just like Salesforce.com – have to make some difficult decisions in the months ahead if they are to remain financially viable. Private equity-backed SaaS firms may come increasingly under the spotlight as the challenges of servicing their debt grow, as may those still reliant upon loans from their principal investors.

Permanent link to this article: http://extranetevolution.com/2009/02/deeper-recession-saas-and-aec/

2 comments

  1. Jim

    Jeff Kaplan, has followed up with a more optimistic post here:
    http://www.thinkstrategies.com/blog/2009/02/bloom-still-on-the-rose.html

  2. Dennis Stevenson

    Looking at the market as a matter of supply and demand is helpful here. SaaS is subject to demand fluctuations just like everyone else. It is one of the boats on the ocean which is falling.
    However SaaS has the ability, the potential, to drive some supply-side growth just by its pricing and delivery model. This is something the traditional ISV doesn’t have available.
    I say it as the “potential” because this is by no means guaranteed. If the SaaS vendor has a good product (they don’t all have this), and if they have a good strategy (again not everyone) and if they have the ability to execute the strategy (which knocks out more), they may benefit.
    Lots of broad stroke statements about what *will* or *should* happen. Truth is there is no entitlement, only those who execute well on their strategic advantages.

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