SmoothSpan Blog

“It should be the best of times, but it isn’t”, says fellow Enterprise Irregular Larry Dignan.  “Online software not recession proof”, echoes Ben Worthen of the WSJ.

They are taking delight in Netsuite’s recent announcement that missed analyst’s expectations by a penny and added insult to injury by downplaying the likelihood for renewed success in Q4.  Worthen adds to that Kenexa’s announcement, which predicts down revenue, something that only happens to a SaaS company if they lose customers.  Oddly, Larry Dignan views his impression (and I want to emphasize it is his impression) that there was no big news at Dreamforce as a data point to further this curmudgeonly hand wringing.

What the heck does one’s impression of what’s new at Dreamforce have to do with how good the times are for Salesforce?  That one’s a little week for me.  Perhaps it is a little more obvious as Dignan connects the dots from UBS Analyst Heather Bellini’s remark that, “Salesforce.com expects to derive revenues primarily from selling more seats of its core offerings,” with Dignan’s obsevation that:

Salesforce.com is increasingly going after large enterprise accounts. SAP and Oracle dominate those accounts. In addition, those large accounts are the same ones that are freezing IT spending. In theory, the money should bounce Salesforce.com’s way, but even SaaS is under pressure . The buying cycle is being delayed at best.

But wait, where was the evidence that Salesforce isn’t getting a lot of that business? 

Missing from the Worthen’s WSJ piece was mention of SuccessFactors great quarterly results wherein they posted excellent growth and even raised guidance.  For more on SFSF, check another EI, Dennis Howlett’s piece.

Meanwhile, i want to go back and look a little bit more to the evidence at hand and the arguments being made.  I’m not sure who may have said SaaS is recession-proof, but I wonder whether even they were saying it is proof against the worst financial crisis the nation has seen in 70 years.  Guys, I have a newsflash:  you are doing the financial crisis a real disservice by simply referring to it as a “recession” and wondering why SaaS companies are impacted at all.

I am tremendously impressed that any software company, SaaS or otherwise, can turn in a result like SuccessFactors has.  I would go on to argue that when Salesforce.com announces their results shortly, if they are at all positive, I would have to mark that up as another win for SaaS.

Here’s another one to consider that neither Dignan nor Worthen weighed in on: Taleo.  They beat analyst estimates by 10 cents, but, because they project profits will be lower in 2009, the markets gave the stock a haircut to the tune of about 10%.  Obviously more evidence SaaS doesn’t work in a recession, right?  But wait a minute.  Take a look at a 5 day chart for TLEO and you’ll see that the 10% drop was really just off the pre-earnings speculative runup.  They ended up far better than they had for most of the week before the announcement and are more like flat than 10% down.  I take TLEO as another company that seems to be doing reasonably well despite the incredibly bad economy. 

And what about the on-premise software world?  These articles are about the contrast between SaaS and the old school, yet neither actually tells us anything about the relative performance of the two.  It’s not hard to go through the last 2 reported quarters numbers for these companys and see how their revenues have grown (or not grown).  Let’s start with the two posterchildren for the on-premises world:

– Oracle managed to grow sequential revenue 0% for the last two quarters.

– SAP posted -4% growth.  Their cutbacks in the wake of this performance have been well documented elsewhere.

How does a small flock of SaaS companies fare by comparison?

– Salesforce grew 6% the last 2 quarters.

– Concur grew 2%

– Teleo grew 4%

– SuccessFactors grew 9%

– Netsuite, the company that prompted these two negative SaaS articles grew by 7%

Now which business would you prefer to be running?  Is it the best of times for SaaS?  Maybe not, but it is a heck of a lot better for SaaS than for the perpetual llicense world as far as I can see. 

If this were an ordinary recession instead of a once-in-a-century monster it might actually be the best of times for SaaS.