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Economic situation good or bad for SaaS (Cloud) January 17, 2010

Posted by ranjitn in Uncategorized.
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This is a topic being discussed far and wide. And the politically correct answer is it depends! One look at this article (http://www.mercurynews.com/business/ci_11130755?nclick_check=1)  on the San Jose Mercury and the ambivalence is evident.

The logic favors SaaS companies in an economic downturn. Buyers do not incur capital expenses, instead they incur a recurring expense which is accounted for as an operational expense. A recent survey by ScanSafe confirms this sentiment. We have counter arguments from none other than Larry Ellison. I for one do expect that SaaS companies will do well, but then seeing is beleiving!! Surveys and opinions can only go so far.

However there is some truth to the argument that in general, SaaS companies will have lower revenues due to the economic downturn as all investments are put on hold. This is very disturbing because even good investments will now be stalled. The CFO’s mantra in uncertain times is cash conservation.

A blog post by Phil Wainewright even suggests that an acceleration of the SaaS market could be disastrous for the software industry.

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