The VAR Guy has spent the last two years evangelizing software as a service (SaaS) and open source as a killer combination that VARs need to master. But now Trip Chowdhry from Global Equities Research says SaaS and open source companies will suffer greatly amid the economic turmoil. Here are Chowdhry’s perspectives and The VAR Guy’s observations.
According to a blog entry posted on Barron’s, Trip says:
- “almost every” VC funded open-source company is struggling and will run out of funds within the next 6 months. He also says that “many VC funded Web 2.0 companies are shutting down…the Web 2.0 fad is now coming to an end.” He has a similarly dark view on the prospects for software as a service start-ups
- First-generation SAAS companies – NetSuite, Kenexa, RightNow, Salesforce.com, Rackspace, SuccessFactors, DemandTec – “continue to struggle and probably will not see any recovery in their business, irrespective of the economy.”
- Salesforce.com’s business “continues to deteriorate, the best is over, the worse is still to come.” He writes that one of his contacts describes the company as “a modern day Visi-Calc.”
Hmmm. The blog entry has several other bleak predictions. And in many cases, The VAR Guy agrees with them.
Misleading Picture?
Still, it’s dangerous to paint with broad strokes in the SaaS and open source markets. On the open source front, SugarCRM is well-funded and sitting on $20 million cash — waiting for the economy to recover enough before launching an IPO. And Openbravo recently raised more money had has achieved 1 million downloads. And the list goes on.
And in the SaaS industry, NetSuite’s quarterly revenues just jumped 44 percent to $40.4 million — though profits fell short of analyst expectations. Alas, NetSuite and other SaaS stocks have fallen sharply this year, according to the MSPmentor SaaS 20 Stock Index.
Balanced Perspective
So, what’s the truth: Will SaaS and open source companies implode or will they perform better than traditional IT companies?
Generally speaking, The VAR Guy thinks both SaaS and open source remain the path to long-term channel profits. Skeptics should check out all the consulting revenues you can make by supporting Red Hat JBoss middleware.
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Tags: Barron's | economy | Global Equities Research | IT spending | NetSuite | Open Source | Salesforce.com | Software as a Service | SugarCRM | Trip Chowdhry
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Trip is tripping. Let him continue to negotiate aggressive discounts on closed-source software. The rest of us will pay reasonable support fees for free and open source software.
CNet’s open source blog — Matt Asay’s Open Road — provides more proof that many open source companies are doing very well.
I firmly believe that SaaS is THE future of software, and not just because it is very cost-effective, row risk and quick to deliver value. SaaS can provide capabilities that on-premise solutions can’t as I outlined this in this post http://blogs.mydials.eastwick.com/?p=22.
VAR Guy I agree with you completely, Trip is way off base. SaaS vendors are doing pretty good this year and their growth has accelerated over the last 9-10 months. The current financial crisis will accelerate that growth. This calendar quarter will be tought for most businesses simply due to the “deer in the headlights” effect of all the negitive press but that won’t continue. While I think some on premise vendors may see a tough year next year (maybe 18-24 months) the SaaS vendors should fare well. Companies will not be that interested (or able) to expend lots of capital and will want to move expenses on new software purchases into operating expense, which of course bodes well for subscription based offerings. This past year SaaS has really moved into the mainstream and in fact upper mid market and enterprise purchases have outpaced small and medium businesses, this is a very strong indication and that trend should continue. Open Source Software, while still a small part of the market also has the potential to see accelerated growth this next year or two…in fact this could be the boost that OSS has been looking for.
Michael: Thanks for the note. The VAR Guy thinks SaaS will suffer a bit of a slowdown because of that “deer in headlight” situation you mentioned. But as a small business owner himself, our resident blogger uses SaaS whenever possible…
Trip does what he has to do to stay alive. Fear, uncertainty and doubt is his business model. And not only he most of the “elderly” analysts follow that model. I heard this when the PC came to market, when the Internet came to market now SaaS has grown to a 10 Billion $ Industry and 300 Million people use social media one way or the other. Give me a break who cares about those dinosaur predictions…
Axel Schultze, Xeequa
Trip is an absolute genius. He was dead right on this. If you look at cloud based startups – most of them are dead. Those big companies that survived however will make money.
Trip is definitely taking a trip to hall of fame in my opinion.
SaaS Man: Most cloud start-ups aren’t dead. The problem is everyone wants to be known as a cloud company. Cloud this, cloud that. Plenty are doing well. Scores aren’t. Are most dead? Too soon to say.
-TVG