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| Home - Industry Article - Mar 06 Issue |
SaaS Not a "One Size Fits All" Paradigm |
By Yuchun Lee, Co-Founder and Chief Executive Officer, Unica Corporation
The general paradigm shift will correct itself this year when software-as-a-service will become part of the entire ecosystem. It's a very beneficial option for the market, but it's definitely not a "one size fits all" paradigm. Software vendors that will be successful in 2006 and beyond are those that can provide both on-premise and on-demand solutions, in one form or another. Companies that can't offer both are foregoing half of the market and will start to see challenges to their growth and leadership in the future.
Around this time, last year Q1 was a strange quarter – there was a notable slow down in the software industry during the last 2 to 2-1/2 weeks of that quarter in March. More than 30 software companies went on to miss their estimated numbers in the March quarter, but Unica was fortunate to perform well during that timeframe. For a while, it made the market very jittery about what was going to happen next. Fortunately, it turned out to be a blip on the radar and for the rest of the year business seemed to come back on track.
I think the biggest lesson is around the theme of "back to basics" – back to operating income growth and EPS growth. In 2005, the companies that delivered in these areas did pretty well and strengthened their customer base.
Just growth alone without strong customer success eventually catches up to most companies. Siebel being bought out is one perfect example where they had strong growth for a number of years but eventually, the lack of customer success in several areas of their market caught up with them. Their business started to flatten out and that hurt the company's fundamentals and then they were ultimately acquired.
Expectations
I think there is a natural imbalance in the market today with the affinity towards software-as-a-service versus on-premise software.
There's a very strong buzz around software-as-a-service, viewing it as a cure-all, end-all solution for the customer, for the vendor and for Wall Street. When in reality, there are many companies that frankly can't deal with the integration complexity that comes with a software-as-a-service solution. So I think the general paradigm shift will correct itself in 2006 when software-as-a-service will become part of the entire ecosystem. It's a very beneficial option for the market, but it's definitely not a "one size fits all" paradigm.
I believe software vendors that will be successful in 2006 and beyond are those that can provide both on-premise and on-demand solutions, in one form or another. Companies that can't offer both are foregoing half of the market and will start to see challenges to their growth and leadership in the future.
I think 2006 will be a year in which we'll see a natural evolution of the market in terms of consolidation. Companies don't want to deal with a hundred different vendors; they want to buy from fewer vendors. So the consolidation of the market is going to be helpful for the customer buying process. But buyers won't make a complete to shift to just one vendor – they can't get all they need to differentiate their business, nor do they want to be beholden to just one behemoth vendor. We'll see balance.
The consolidation will also will be good for companies like Unica where we have a commanding position in the marketing software space. Our goal is to provide an even broader marketing suite and be highly differentiated from the new start-ups as well as other companies who are now focused in this area.
The bar to succeeding in the software industry has risen quite a bit in the last three to five years.
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