Internet Cash Machine

The core promise of SaaS is that it will help you deliver services more efficiently. Instead of trying to manage software projects (which can easily get expensive and out of control) a company can outsource non-core development and deploy an SaaS solution almost instantly. In the current economic downturn many people have been watching SaaS vendors closely to see whether they struggle or thrive. On paper they are cheaper and allow businesses to focus on their core strengths, but would companies shun the risk and element of change in uncertain times?

There have been a few earnings announcements over the last couple of months that are proving the SaaS backers right. Salesforce is the biggest ‘flag bearer’ for SaaS solutions, and it has exceeded analyst expectations and posted a 43% revenue increase from the same quarter last year. The good news doesn’t end there however. Concur, Taleo, RightNow and many other SaaS providers are also posting record quarters.

An article by Andrew McAfee triggered my interest today, what will happen to technology in a recession? Or more specifically, what technology actually excels in a recession? Some IT leaders have commented in the NY Times, but I would like to focus more specifically on software technology.

The most obvious answer is that the cheapest software wins. Deploying SAAS and other Web 2.0 models are not just about delivering new functionality; they are about driving down costs through low delivery costs and economies of scale. With employment at near record lows (and salaries at record highs, especially in IT) no-one wants to take on more staff.

I think that the silver lining to a recession is that the weak get weaker and the strong get stronger. A renewed focus on what works and how to efficiently deliver value is a good thing for any company. With SAAS systems now gathering widespread acceptance a recession will, in my opinion, accelerate the growth of these systems. The current financial crisis has also highlighted how interconnected the world is, and SAAS systems delivered from data centres thousands of kilometres away will again gain more acceptance.

Unlike the article I don’t think it is necessarily a case of socially driven applications gaining traction, I also think CRM and ERP systems will see an increase in popularity. Customers are no longer so easily separated from their cash, and every inefficiency in the supply line is being watched like a hawk. Adopting best practice from a new technology package is a great way to address these issues.