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Software as a Service Hasn’t Caught On Everywhere

Sramana Mitra does a great job of summarizing several blog articles and discussions about companies that have pursued software as a service (SaaS) and the Extended Enterprise (EE, or, as he calls it, EE 3.0). You can find his summary here. Interestingly, he follows up this series with a snippet of how some of the SaaS stocks have performed over the past quarter. While its hard to draw long-term conclusions in a quarter, investing in those companies a quarter ago would have yielded nice returns.

What is interesting to me, though, is Oracle, while decrying software as a service, still managed to raise its year over year quarterly earnings by 35%. This says something, I believe, about switching costs, whether real or perceived. While open source solutions exist comparable to several Oracle products, users have a hard time going away from what they know. Unless an application looks, feels, and acts just like the one that they work on today, there will be some level of resistance to change.

Providers of software as a service cant just expect the user to come over to a new product because the application is free or cheaper. Going with what a user knows has some value, even if it is not monetary, and a key to gaining more adoption is to show the ease of switching and the gentle learning curve. Making the transition as easy as possible (a one or zero click switch with no retraining would be ideal, wouldnt it?) and having evangelists in an adopting enterprise will increase the chances of adoption.

Otherwise, as Oracles financial results show, people tend to stick with what they know.