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Another consideration when shopping for Web-based software

Our book expends many pages covering the best Web-based applications (also called “Software as Services (SaaS)” and “Application Service Providers (ASPs)”). These run the gamut from accounting to graphic design to contract management to customer relationship management (CRM). In the book, we offer several pointers for choosing the right online software.

Of these pointers, the most critical is choosing software services from a company that’s going to stay in business at least as long as you are. Outside of the inconvenience of having your software go “pfft” one day when the ASP folds their tent, you stand to lose valuable business data at a potentially critical time.

The San Jose Mercury News has done a quick write-up on how the recession will affect Web-based software and SaaS companies. Many ASPs will survive the recession just fine, thank you, because their product offers significant cost savings and efficiencies to companies scraping the bottom of their bottom line. However, more ASPs will walk off the cliff than not over the next few years:

But a recession figures to cause a SaaS shakeout, executives agree. “There are plenty of these little sub-$20 million revenue companies. Those guys are going to have a hard time surviving,” said Zach Nelson, chief executive of NetSuite, regarded as a leader among SaaS companies, along with Salesforce.com. . . .

Kaplan, the SaaS consultant, said the uncertainty feeds on itself. Many companies “are going to be apprehensive about buying from SaaS companies because they’ll be concerned about the long-term viability,” he said. “Even good companies can be washed away in this tsunami.”

Okay, so where does this leave you? How does this affect your choice of ASPs?

All the recession is up the bar. Our book discusses how you should evaluate the subscription base, size of the company, number of years in business, and so on. The larger ASPs are going to weather the recession better than the smaller guys; the older ASPs better than the younger; the ASPs with large subscription bases better than the little dudes. That doesn’t mean you should automatically reject the newer and smaller ASPs. It means you must balance your choice against three considerations: data storage, criticality, and standards.

You’re concerned first and foremost with your business data. One type of SaaS involves storing your business data; another type of SaaS is “data” free, such as some virtual PBX or virtual faxing services. If data storage is involved, that data can be stored on the ASP’s servers, on your server, or on a local computer.

Say you choose a newer, low-cost CRM Web-based application over Salesforce.com. The ASP will save your customer, contact, project management, and other data to its own servers. In order to mitigate the risk you’re taking (the ASP, after all, could be out of business before Rudolph turns on the fog lights this year), you should only sign on if it allows daily backups to your local computer in a universal format (say, Excel) and is fully compatible with a major ASP or proprietary standard (such as SalesForce.com or ACT!). If the company goes out of business, you fork over a few more dollars to SalesForce.com, upload your backed up data, spend a few hours getting up to speed on the new system, and there you go.

In general, the more valuable the business data, you should be willing to spend more money to go with a bigger, more solid player in the marketplace.

However, if it’s a relatively data-free SaaS, such as a PBX or virtual fax solution, then the long-term viability of the company is a lesser concern.

Once you’ve busted your brain on the data part, you should consider the mission criticality of the function. Faxing is a relatively low critical function. Accounting, however, is the cardio-pulmonary system of your business. If it goes down, well, you go down. I would seriously rule out the small players in the accounting SaaS world. Take out your wallet, remove what’s left in it, and spring for proprietary or online software like QuickBooks or PeachTree.

And if you decide not to take my advice and do go with a small player for mission critical functions, then you should closely examine how “portable” the data is. For instance, you don’t want to sign on to any accounting system that does not allow for local storage of your business data and easily ports that data to QuickBooks or PeachTree.

Lastly, look for standards that will be left standing when the recession ends. What the San Jose reporter misses is that a shakeout in the SaaS world will mean the migration to standard ERP and CRM standard applications. Right now the SaaS world is a cutthroat, Barbary Coast world where anyone with a waterlogged pistol, a jackboat, and the hygiene of a pirate can sail the waters. But, like proprietary software before it, the SaaS world will eventually tame down to a few standard applications in each ERP and CRM area. For those of us who were around in the eighties, the proprietary software world looked much like the SaaS world now. There were all these spreadsheets and word processors; none were standards. It may be hard to believe now, but there was a time when Word and Excel and Outlook and Photoshop had some pretty serious competition.

For instance, I can predict right now — and this takes all of two neurons to correctly predict — that Salesforce.com will become the de facto standard in operational CRM. It has officially passed the $1 billion revenue mark (the first SaaS software to do so) and the recession is going to tumble several of its competitors into the drink. If your business can afford it, then bite the bullet and sign up with Salesforce.com. By the time the economy is rolling again, they will be the operational CRM that everyone’s using, simply because all the other kids got thrown out of the pool.

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