wonder if vc's look at pitches, realize that most of them have been tried before, and then ask "why is now the right time?"
— Aneel (@aneel) November 6, 2014
One of the things that we forget today about SaaS is that we tried it before, and it failed. Coined sometime in 1999 if Google is to be believed, the term “Application Service Provider” (ASP) was applied to companies that delivered software and services over a network connection – what we today commonly call SaaS. By and large this market failed to gain significant traction. Accounts differ as to how and when a) SaaS was coined (IT Toolbox claims it was coined in 2005 by John Koenig) and b) replaced ASP as the term of choice but the fact that ASP could be replaced at all is an indication of its lack of success. While various web based businesses from that period are not only still with us, but in Amazon and Google among the largest in the world, those attempting to sell software via the web rather than deploying it on premise generally did not survive.
A decade plus later, however, and not only has the SaaS model itself survived, but it is increasingly the default approach. The point here isn’t to examine the mechanics of the SaaS business, however; we’ve done that previously (see here or here, for example). The point of bringing up SaaS here, rather, is to serve as a reminder that there’s a difference between model and execution.
Too often in this industry, we look upon a market failure as a permanent indictment of potential. If it didn’t work once, it will never work.
The list of technologies that have been dismissed because they initially failed or seemed unimpressive is long: virtualization was widely regarded as a toy, it’s now an enterprise standard. Smart people once looked at containers and said “neato, why would you want to do that?” Two plus years after Amazon’s creation of the cloud market, then Microsoft CTO Ray Ozzie admitted that cloud “isn’t being taken seriously right now by anybody except Amazon.” In the wake of the anemic adoption – particularly relative to Amazon’s IaaS alternative – of the first iterations of PaaS market pioneers Force.com and Google App Engine, many venture capitalists decided that PaaS was a model with no future. DVCS tools like Git were initially scorned and reviled by developers because they were different on a fundamental level.
In each case, it’s important to separate the model from the execution. Too often, failures of the latter are perceived as a fatal flaw in the former. In the case of PaaS, for example, it’s become obvious that the lack of developer adoption was driven by the initial constraints of the first platforms; not having to worry about scaling was an attractive feature, but not worth the sacrifice of having to develop an application in a proprietary language against a proprietary backend that ensured the application could never be easily ported. Half a dozen years later, PaaS platforms are now not only commonly multi-runtime but open source, and growth is strong.
SaaS, meanwhile, would prove to be an excellent model over time, but initially had to contend with headwinds consisting of inconsistent and asymmetrically available broadband, far more functionally limited browser technologies and a user population both averse to risk and brought up on the literal opposite model. In retrospect, it’s no surprise that the ASP market failed; indeed, it’s almost more surprising that the SaaS market followed so quickly on its heels.
In both cases, the initial failures were not attributable to the models. There is in fact demand for PaaS and SaaS, it was simply that the vendors did not (PaaS) or could not (SaaS) execute properly at the time.
Given the rate and pace of change in the technology industry, it is both necessary and inevitable that new technology and approaches are viewed skeptically. As with most innovation, in the technology world or outside of it, failure is the norm. But critical views notwithstanding, it’s important to try and understand the wider context when evaluating the relative merits of competing models. It may well be that the model itself is simply unworkable. But in an industry where what is old is new again, daily, it is far more likely that a current lack of success is due to a failure of or inability to (due to market factors) execute.
In which case, you may want to give that “failed” market a second look. Opportunity may lie within.
