Q. Where do you think the SaaS industry is now?
A. We’ve seen the industry evolve from the standpoint of ‘this will never work’ to ‘it’s the future of software’ so it’s been a great ride. Our strategy hasn’t really changed. The original idea is still the same: to build an application designed to run a business, everything you’d need to run an end-to-end company.
Our market hasn’t changed, although as we’ve built up the functionality of the application over the last 10 years we’ve sold to larger customers. When I joined the average deal size was $447 per company for a three-year deal, so our annualised revenue was about $120 or $130 per company. Now the average transaction size is closer to $100,000 per company.
I think we’re just at the beginning of the adoption curve of SaaS and cloud computing, so the next 10 years will be as interesting as the last.
Q. Is it a much busier space now than 10 years ago?
A. There were a lot of competitors in the early days, because that was the first wave of Application Services Providers (ASPs) so there was a lot of venture capital investment. But the VC community underestimated the amount of money it took to build a SaaS business; I don’t think any successful SaaS company has been built with less than $15m of investment.
Because of the breadth of the application we were building, we raised $125m before we went public in 2007.
A lot of the companies that were starting to compete with us in the early days died off and then as the SaaS model began to prove itself, only ourselves and salesforce.com emerged out of the initial group.
Q. So it was beneficial to have a backer like Larry Ellison when things began to tail-off?
A. Absolutely. During the dotcom bust, it not only took more money to fund a company, it also took more courage. The economy of 2001/2002 was a bad as it gets in Silicon Valley.
Q. Worse than it is now?
A. I think the dotcom crash will help Silicon Valley weather this far better than most industries. I think we had to reign in expectations and I don’t think we got out of control as we rolled into this bubble. Other industries like financial services had not experienced the downdraught that we experienced, so I think Silicon Valley companies are better equipped to withstand this because of the dotcom experience.
Q. What do you make of SAP’s cloud/SaaS strategy?
A. I think at the highest level they underestimated what it took to build a product like NetSuite – which is what they’re trying to do with Business ByDesign. From all indications the first iteration was not very good, once they build the product they then have to deliver it on the Internet rather than ship it to the client on a disk. You then have to sell to the midmarket and SAP’s entire sales model is built on big deals, $3m rather than $30,000. The final issue is developing a new service delivery channel.
I think they maybe felt that this was a simple problem to solve, but it’s a multi-variant problem. That’s the code we’ve cracked.
Q. Lawson’s CEO Harry Debes said a while ago that the SaaS industry will crumble in two years. What do you make of that?
A. For his business it’s an awful model. For us it’s a fantastic model – we’re built for it. Anyone who says that it’s a smaller upfront cost but you end up paying more in the long-run is wrong. Running your business with a SaaS solution is, and always will be, cheaper than managing applications yourself. It’s a shame for Lawson customers that that is their prospective, because it’s wrong. Even SAP now believes it’s the future of software.
Q. Why do you think there has been a shift to SaaS over the last few years?
A. The cost of maintaining applications from the likes of SAP and Microsoft far outstrips the initial purchase of them, and companies realised that. So they got excited about the ability to run applications over the Internet, but back in 2000 the functionality wasn’t very high because they were only a year old. Fast forward 10 years and we have a huge amount of functionality and can solve more business problems. The customer can combine the excitement about reducing the cost of IT infrastructure with products that solve complex business problems.
I think cloud computing is the last computing architecture, it’s where it’s been heading for 50 years.
Q. How is your business in the UK?
A. The economy has slowed growth throughout EMEA, but the great thing we saw when we came here was that the UK market was just as hungry for our product as the US market. About 20% of our business is now outside North America and about half of that comes from the UK.
Interestingly, some of our largest customers and implementations are in the UK, with multi-thousand user deployments. The appetite for SaaS is the same in the UK as the US, but the fact that we have more large companies here is really more of a function of our organisation here. Our employees in the UK have more experience of selling to larger companies.
