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5/15/2007
01:08 PM
David Linthicum
David Linthicum
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How to Survive the SaaS-Hype Hangover

Truth be told, there is SaaS everything these days, including pet management on demand, SaaS-delivered engineering systems, and, my all-time favorite, SaaS applications that track other SaaS applications. Indeed, it's difficult to find a software startup that doesn't have a SaaS strategy or that's not an "all in" SaaS player. So, is this a bad thing? Well, it can be.

I'm working with a few VC players who are considering investing in startups. So, what's all of the rage these days in the VC community?Why it's SaaS.

Truth be told, there is SaaS everything these days, including pet management on demand, SaaS-delivered engineering systems and, my all-time favorite, SaaS applications that track other SaaS applications. Indeed, it's difficult to find a software startup that doesn't have a SaaS strategy or that's not an "all-in" SaaS player.

So, is this a bad thing? Well, it can be.Like wild dogs, the VC community travels in packs. Where the pack goes, so does each dog. Thus, when investors began to target SaaS as the next big opportunity, start-ups ran back to the office to search and replace "SaaS" into their PowerPoint presentations. The end result has been a tidal wave of SaaS startups out there, huge hype around the space and perhaps some over investment.

Why is this bad? The fact is, only a limited number of SaaS players will catch the market wave - those that have good, solid ideas that address a real pain point that business is experiencing. Thus, many of the startups that get funded won't make it, and the VCs will consider it a "failed market" when the market is just victim of over investment in a hot space. We'll see the inevitable news articles and blogs highlighting SaaS failures, and many will feel that SaaS did not live up to expectations. I can point to a number hype cycles in the past the exhibited these same characteristics.

To limit the impact of the inevitable "SaaS hype hangover," those currently using SaaS or considering SaaS should follow three clear guidelines:

1. Consider the true value of a SaaS solution. The ROI should occur pretty quickly, and the business problem being solved well defined. If that is not the case, don't use that SaaS solution. Sounds like common sense, but I'm seeing some strange things out there.

2. Consider the granularity. It does not make sense for you to subscribe to ten SaaS players for your business processing needs when one or two will do. While there is a need for best-of-breed technology, you have to consider the integration issues and costs around managing several SaaS solutions.

3. Consider SaaS provider normalization. All of the SaaS players won't make it, and you need to put plans in place as to what happens if, say, your inventory management SaaS provider goes away. What are the alternatives with similar capabilities? What do they cost? What about synergies with existing internal business processes?Truth be told, there is SaaS everything these days, including pet management on demand, SaaS-delivered engineering systems, and, my all-time favorite, SaaS applications that track other SaaS applications. Indeed, it's difficult to find a software startup that doesn't have a SaaS strategy or that's not an "all in" SaaS player. So, is this a bad thing? Well, it can be.

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