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The number of negative predictions for the future of SaaS and Cloud Computing have reached a crescendo in recent weeks. There has also been a significant push back from both pundits and bloggers “in the field.” Is SaaS and cloud computing just more hype? Has it reached the level of being a “must consider” alternative?

Phil Wainwright summed up my reaction to the many statements, articles and blog posts that have greeted 2009 with negative reviews of SaaS and Cloud Computing:

“…being attacked is always better than being ignored. After years of indifference to SaaS, the conventional software world has suddenly woken up to the threat and started attacking it in the hope it will all go away.”

The most out spoken critics are among the leaders of the largest software companies. Bill McDermott, SAP America’s CEO, Larry Ellison, Oracle’s CEO and Lawson’s CEO Harry Debes have all made a point of giving some unusually negative assessments. The desperation driving them seemed to be particularly apparent in this statement from Harry Debes:

“Getting signed up as a SaaS customer is fast, but getting out is just as fast. Whereas traditional software is like cocaine–you’re hooked. It’s too difficult and expensive to switch providers once you’ve invested in one. If it were easier to jump ship, a lot of people would’ve hit the eject button on SAP a long time ago.”

I don’t know how Lawson markets to its enterprise customers, but I don’t think they would take the drug user analogy too well. It is true however. Investments in hardware, data center infrastructure, IT staff, process change, integration and software licenses are a barrier to exit for many enterprise customers. But in this economy – does that mean it won’t happen? I doubt it and that isn’t even the biggest objection to his statement. What about the millions of SMB (and Debes was quoted as saying for Lawson, anything under $50 million is SMB) companies that have no desire to invest in additional infrastructure or skilled IT staff? Will they pass up the benefits of a good product that doesn’t require the capital outlay? What about the “line of business” (LOB) units that have limited budgets and no desire to engage their corporate IT to install an application for 20 to 50 seats?

He had one other comment that bothered me greatly. He said Lawson had started a SaaS application some years ago and then “did the math” – finding it would “be 10 years before we made any money!” I have to ask – what were you building that would cost so much? Did you consider leveraging any tools or frameworks that might lower the development cost? I am sure if you were trying to reproduce all the functionality of SAP in one application as an example, it would be a huge undertaking. But if you were to go the route of NetSuite and modularize your approach, it should never reach a level that requires that much investment before you have a strong product for release. A poor choice for the initial feature set is not a case strong enough to proclaim all SaaS products are doomed to failure.

The recent system-wide failure at Salesforce has spawned many comments that it was the sign that SaaS and cloud-computing projects were about to sink. I enjoyed JP Seabury’s write-up on Force Monkey. His account of how he had built a simple application to access their local copy of their Salesforce data was a good example of exactly the sort of business contingency planning that needs to be done regardless of where an application is deployed. And his justification for depending on Salesforce rather than his own resources was spot on:

“When the Salesforce.com outage started, dozens of IT engineers jumped into action, working to first isolate the problem and correct it. In the aftermath, today and for the rest of the week, dozens of technical teams will be working to understand what went wrong, how it went wrong, and what they can do to prevent it from happening again.”

“The best part? None of those people are on my company’s payroll. It’s a good thing — I couldn’t afford that many IT and support staff. Yet I am very thankful that they’re on my “cloud”, helping me run my business. I wouldn’t be able to administer such an incredible CRM tool without their help.”

His account goes further to contrast that experience with their local problems during a four day ice storm on the East coast – during which their sales team continued to operate remotely because Salesforce was available regardless of their internal problems. For his company – the benefits of using a strong SaaS application have far outweighed their risks.

During the current recession, vendor viability has also been a concern. Regardless of the benefits of SaaS, if business spending is reduced, the uptake of new products will also be reduced. No ISV can guarantee they will always be in business, but Vinnie Mirchandani offered some best practices that should be adopted by vendors and required by customers regardless of the economic situation. With proper consideration and mitigation, there is no more risk in a SaaS company disappearing than a traditional ISV on a licensed model. In each case a failure will have consequences that need to have mitigations in place from the start. But as Frank Scavo points out - there are some sales teams for SaaS companies that are spreading their own form of FUD (fear, uncertainty and doubt) to retain customers. If you have strong agreements that make the mitigation measures clear up front – as features – both customers and vendors are on a better footing from the start.

So, in the long run – I’m with Jeff Kaplan – a lot of these idea are just silly – or perhaps intentionally misleading when they are voiced by CEOs of traditional vendors. There is no reason to believe that either the subscription model or Internet-based service delivery are going to go away. In fact, there is every reason to believe that they will only become a more important alternative as we go forward.

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