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SaaS: Diamond Or Dud?

Why rent when you can buy? Why lease when you can own? My accountant's smacked me around pretty good on both these questions over the years. Luckily we're not the target market for EMC's new online backup service, or other offerings envisioned under its newly formed software-as-a-service division.
Why rent when you can buy? Why lease when you can own? My accountant's smacked me around pretty good on both these questions over the years. Luckily we're not the target market for EMC's new online backup service, or other offerings envisioned under its newly formed software-as-a-service division.The move was neither a surprise nor unexpected. Hopkinton officials tipped their hand to this development last November, about two months after acquiring the parent company of online backup service provider Mozy. Under the plan revealed today, the MozyEnterprise backup service will be ganged together with EMC Fortress for high-end storage customers, beyond Mozy's entrenched SMB base. Leading storage VAR Verizon Business will pitch in here.

By some accounts, SaaS has awakened EMC (and other storage hardware vendors like Sun) to the revenue potential of software. The truth is, when storage hardware became a commodity game almost 10 years ago, EMC and the other large storage players began a frantic search for software-based products. It reached its apotheosis a few years ago when EMC spent billions to acquire VMware, Documentum, and nearly a dozen other software complements to EMC's disk and array business.

And done right, services can be a huge cash cow, as IBM has demonstrated for years. EMC has made it a stated goal to derive more revenue from services for some time now. Art Coviello, head of EMC security unit RSA, said a year ago that his division would be working closely with EMC to sell authentication, security management, and other synergistic offerings.

Recall that Microsoft a couple years ago also got squarely behind SaaS, and seemed to find a helpful advocate in the form of consultant Jeff Kaplan. Kaplan's still at it, and in fact makes some pretty good points about the overall benefits of the rent-don't-buy concept (not Microsoft's particular implementation of it).

And after all of today's many interesting economic developments, EMC and others may get to test Kaplan's theory that services are recession-proof. While an economic contraction doesn't mean that every managed service provider will collapse, it's likely to create quite a shakeout.

And that will be my accountant's cue to say, "I told you so."

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Sara Peters, Editor-in-Chief, InformationWeek / Network Computing
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Sara Peters, Editor-in-Chief, InformationWeek / Network Computing
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Carrie Pallardy, Contributing Reporter