Over a year ago, I stated that the Software-as-a-Service (SaaS) market would be recession-proof as we entered 2008. And, last year proved to be a boom-time for nearly every SaaS company with a quality service aimed at a legitimate business need. 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.
Fear, uncertainty and doubt–the classic FUD factor–has hit home in the SaaS community. 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.
The latest victim of today’s economic realities appears to be Salesforce.com (NYSE:CRM), which at the end of last week, acknowledged that three corporate executives, including the company’s president and chief strategy officer had recently left the company. Although the company was unclear about the circumstances of these departures, it appears these executives may have been let go because Salesforce.com is facing serious challenges. I don’t have any inside information to confirm this, but executive shake-ups are usually a sign of problems, and it is easy to see that Salesforce.com is facing a tough situation.
The company has been the poster child for the SaaS market since its inception, and it is now the most prominent proponent for ‘cloud computing’ in the corporate world. However, Salesforce.com is also facing the ‘law of big numbers,’ which makes it increasingly difficult to continue to achieve greater growth rates when the base of your operations is getting bigger.
Salesforce.com’s challenges are compounded when you consider the bulk of its growth has come from large-scale enterprises, especially in the financial services sector. Not only have procurement decisions among many major corporations ground to a halt, but many of the banking companies where Salesforce.com made tremendous inroads over the past few years are also now gone, or facing consolidation.
I’m convinced Salesforce.com will withstand the current crisis, just as I’m confident that the SaaS and broader cloud computing market will prosper long-term despite of today’s economic challenges. Salesforce.com is still the biggest and among the most influential players in the SaaS and cloud computing market, and I’d much rather be in the on-demand services sector than in either the housing or automotive industries.
However, the latest moves at salesforce.com are a clear indication that the boom days of the SaaS movement are behind us, and every SaaS company must buckle down in order to survive the current economic crisis. What this is means more tough decisions ahead for SaaS executives and tough times for people in the industry.
The keys to success and survival for SaaS companies will be emphasizing the tangible and measurable business benefits its solutions deliver, especially if the company includes greater cost-savings, higher sales productivity or better operating efficiency and customer satisfaction.