I was reading Bob Evans’ piece on salesforce.com and Marc Benioff and came across an analysis by Sunil Shah which can be summarized as “the customer traction depicts a markedly more somber picture, with a growth rate currently of 16%”
The ethos in SaaS for the most part has been “we re-earn our business every year”. While this recession will bring some cancellations, the secular trend is towards higher renewals (compared to on-premise maintenance, hosting and support it is typically a non-brainer) and multi-year deals. SaaS will likely become like outsourcing contracts – 3,5, 7 year deals.
But because today signed deals probably average 1.5 years, Wall Street does (and should ) not assign a value to that “likely” deferred revenue beyond that.
Of course, that understates the momentum SaaS has in the market. SaaS will become even more compelling as vendors allow customers more expansion/contraction options over the term of the contract.
One of the selling points for SaaS is the promise of turning fixed costs into variable. Buyers have a bitter taste about “shelfware” and continued annual maintenance from on-premise vendors. They do not want SaaS to turn into a similar, fixed cost.