Software-as-a-Service Risk Is Real
The rub on software-as-a-service is that the software provider owns the relationships between the customer supplied data. This means that in the event that the customer wants to end the business transaction the supplier returns all the data, but not the relationships. This is like getting 10 years of family photo albums returned to you with all the pictures jumbled in a big box.
The Software-as-a-Service guys obviously want to understate the risk, but the risk is real. The current auction-rate note market meltdown offers a good parallel.
An auction rate note is an adjustable rate long term bond that come with the right to be sold early. The rates are re-set periodically at a dutch auction (start high and come down) which is when the bonds may be sold. The deal is good for the issuer because they get to issue debt at a lower rate (usually) than conventional means. The buyers like the investment because they are relatively secure because they are asset based, they can sell them quickly (usually) , and they offer higher rates of returns than other investments.
Everything in the market was fine until February of 2008 when there were suddenly not enough buyers to hold the auctions and sell the bonds. Now folks who wanted a short term investment in order to stay liquid are unable to sell their long term bonds.
Software-as-a-Service is seen as the next big Innovative thing, like trading energy ala Enron, and it does offer some very tangible benefits; A company does not have to invest in the computer or software infrastructure in order to enjoy the software benefits. But just because everyone says it's Innovative does not mean it's a good idea. Until the Software-as-a-Service industry enables the customer the ability to plug-and-play their data amongst all providers the risk does not outweigh the reward.
The Software-as-a-Service guys obviously want to understate the risk, but the risk is real. The current auction-rate note market meltdown offers a good parallel.
An auction rate note is an adjustable rate long term bond that come with the right to be sold early. The rates are re-set periodically at a dutch auction (start high and come down) which is when the bonds may be sold. The deal is good for the issuer because they get to issue debt at a lower rate (usually) than conventional means. The buyers like the investment because they are relatively secure because they are asset based, they can sell them quickly (usually) , and they offer higher rates of returns than other investments.
Everything in the market was fine until February of 2008 when there were suddenly not enough buyers to hold the auctions and sell the bonds. Now folks who wanted a short term investment in order to stay liquid are unable to sell their long term bonds.
Software-as-a-Service is seen as the next big Innovative thing, like trading energy ala Enron, and it does offer some very tangible benefits; A company does not have to invest in the computer or software infrastructure in order to enjoy the software benefits. But just because everyone says it's Innovative does not mean it's a good idea. Until the Software-as-a-Service industry enables the customer the ability to plug-and-play their data amongst all providers the risk does not outweigh the reward.
posted by Greg at 4:52 AM
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