11 January 2008

A/K/A timesharing

The Economist brings its customary skeptical perspective to the software-as-a-service market:
The biggest doubt is whether you can make much money selling software this way. Vendors of conventional enterprise software made a killing by requiring customers to pay a high licensing fee upfront and then charging them for maintenance. Web-based firms, by contrast, have to make do with subscription fees. This means they are not able to grow as quickly: both NetSuite and Salesforce have been around for almost a decade. They have had to invest a lot in attracting customers and building data centres to supply their services. As a result, NetSuite has never posted a profit; at the end of September, its accumulated deficit amounted to nearly $242m. Salesforce is barely profitable and boasts an otherworldly price-to-earnings ratio of around 660.

The article includes some forecasts (courtesy of Gartner) for the size of the SaaS market through 2011.