The SaaS Bubble Already Burst (But Don't Panic)

Examiner.com openly wonders if software as a service (SaaS) is the next tech bubble that will burst. The piece was written March 13 — a day after I asked if the MSP bubble would pop. But I think the Examiner’s views are painfully out of date. In fact, our own SaaS 20 Stock Index shows the SaaS market bubble burst in early 2008. Now, I think the SaaS  industry is on the road to recovery and doing just fine, thank you. Here’s why.

Rewind to December 2007. NetSuite was preparing an initial public offering and just about everyone was busy hyping SaaS. But the bottom dropped out on SaaS stocks during Q1 2008 and we’ve yet to see a recovery.

Still, there are at least five reasons to keep the faith in SaaS:

1. For starters, SaaS works: Just ask any MSP (managed service provider) or PSA (Professional Services Automation) software company. The vast majority of MSP and PSA software companies — from Autotask to Zenith Infotech — have successful SaaS business models.

2. Entrepreneurs Don’t Buy Software: As more small businesses launch during the recession, I suspect most entrepreneurs will demand SaaS applications because they don’t want to buy, build out and manage dedicated servers. Think about it: When you need a new application you look for it online — from a service provider.

3.  SaaS Can Be Profitable: Still skeptical?  Check out Q4 financial results over at RightNow, the CRM SaaS provider. While financial markets were imploding and businesses cut spending, RightNow grew its Q4 revenues 18 percent and generated a profit.

4. Everyone’s In the Game: From Microsoft to Google, major software companies are launching, polishing and refining SaaS reseller programs for partners. Those partner programs will experience growing pains. But they will grow.

5. SaaS Is Simplified: Even small VARs focused on open source are pushing SaaS applications into Amazon.com’s Elastic Compute Cloud (EC2). Still skeptical? Check out some recent work by OpenBI and Levementum, two integrators profiting from Amazon’s cloud. And keep an eye on startups like JumpBox, which are offering a range of turnkey applications in EC2.

The next time someone predicts the SaaS bubble will burst, tell them it already did — roughly a year ago. Since that time, SaaS has done nothing but gain momentum.

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