Is the era of traditional enterprise software (Hardware, Software, Configure, Integrate, Test, Deploy) ending? Our customers think it is, we think it is, and now Wall Street is coming around, too. In an article on thestreet.com called "Software’s Eve of Destruction," Kevin Kelleher talks to Gordon Ritter – a Partner at Emergence Capital (one of our investors) – about the downfall of the old, expensive enterprise software model that’s already underway.

From the article: 

"The whole software industry is being disrupted by the software-as-a-service approach," says Gordon Ritter, an Emergence partner and a former vice president at IBM . Ritter says that the rise of Salesforce.com came shortly before the decline of Siebel, and its subsequent purchase by Oracle — and it’s no coincidence.

"Salesforce.com is taking down Siebel and pulling biz from it. You have a giant coming to its knees with a start-up disrupting them with a better value proposition," Ritter says. "We see new entrants coming in with this software-as-a-service approach. We see a giant industry with disruptive forces hitting it."

Software as a Service (SaaS) is a catchy way of describing the model that companies like SuccessFactors and Salesforce.com use to deliver our applications. But, the important part is not the name. The important part is the reason that the model is so disruptive – that customers get a total experience that is simpler, less costly, less time consuming, more usable and generally better than the old way.

SaaS companies have to work harder to make sure their customers are happy. You know why? Becuase if the customers don’t like it, they SHUT IT OFF.  They export their data and move along. Of course there are some costs associated with switching, but they aren’t abandoning some huge implementation investment like they would be with old school enterprise software.

SaaS companies are often compared to utilities becuase you switch on the services when you want, and shut them off when you stop needing them. But SaaS companies are innately more customer focued and friendly. They have to be – you can’t shut your electricity off, can you? Or your gas? Of course not. You can’t switch, or do with out them. But with SaaS, you can shut off your CRM system and move to another one you like better.

So what we’re left with is that SaaS is a business model that’s completely dependant on customer satisfaction. Traditional enterprise software meant that customers spent so much money implementing and customizing (see the difference between customizing and configuring) that the cost of switching to another system was so high that it virtually never happened. They had you locked in.

On the other hand,  SaaS companies MUST do what they do faster, simpler and better. Saas companies MUST stay focused on keeping their customers happy. Saas companies MUST provide real value consistently – or else their customers shut them off. How’s that for a win-win proposition? That’s the real value of SaaS for customers and at least one reason why SaaS is becoming such a disruptive force in software.