Why SaaS is in trouble

One of my favorite (fictitious) stories is The Dentist Office Software Story by Fred Wilson. The takeaway is that software is a commodity. If a  product is not defensible people will leave when someone builds a better mousetrap. A recent example of this is companies moving from Hipchat to Slack. Slack is the better product, and the cost associated with leaving Hipchat was low. Many people have written about how to create defensibility (e.g. marketplaces, brands and data network effects) so I won’t talk about that. If you’re interested in the topic I recommend reading what Formation 8 writes about platforms as well as things written by USV and Fred Wilson in general.

But there is something about the The Dentist Office Software Story that doesn’t quite ring true. In the last part of the story an open source movement replaces the sexy YC SaaS startup. How often have we actually seen this happen? Not very often. Most industries are still dominated by, often non-defensible, SaaS products. That’s about to change, and the reason are containers.

The main selling points SaaS had over open source software was ease of deployment and automated software updates. Most end-users are not technical. They can sign up, perhaps enter their credit card, and they’re good to go. My mom can do that. Well, deploying software using pre-built containers has the same benefits. Lots is happening in the space and soon running a container will be easier than signing up for a SaaS product. Just imagine that with the click of a button you can deploy an application within your internal company infrastructure (which can still be in the cloud). You don’t need a credit card or create new credentials. But that’s not all. There are other things that containerized open source software has going for it.

You own the data

When you enter data into your favorite SaaS product you essentially give it away. Most SaaS products don’t give data back to you and some may use it to lock you in. Even companies that are not evil and want to provide access to your data may not have the resources, legal ability, or infrastructure to do so. APIs are a good step towards this, but you have no control over what exactly an API provides or when it changes (Hi Linkedin, I’m looking at you). Giving your technical team access to raw data opens up a whole range of possibilities. Migrating to another product, integrating with other services (both internal an external) and running custom analytics and reporting are some of the things that become much easier when you own your data.

Then there’s the issue of data privacy. You may not feel comfortable giving away confidential information to a third party.  At least that’s what I feel when someone asks for access to my email account. Sometimes compliance requirements prevent you from giving data to someone else.

Trust and Transparency

Signing up for a SaaS product means you’re taking a leap of faith. How long will the company be around? What does the product development roadmap look like? What happens to your data? How good will the customer support be?  Getting honest answers to these questions is close to impossible. No SaaS company will mention in their welcome email that they will be out of cash in 2 months. But that’s what I’d like to know. Branding is a way to convince potential customers that answers to these questions are positive. It acts as a proxy between the truth and what companies want potential customers to believe.

With open source there is full transparency. You know how popular a project is, what issues have been filed, and who’s working on what. If the project has one main contributor, no updates within 2 months, and no commercial backers you can be pretty confident that you’re entering unstable territory. With open source you can make decisions based on facts, not assumptions. Communities around open source software also tend to be much stronger than those around commercial products.

End of the SaaS management nightmare

Have you worked with a company that uses and manages dozens of different SaaS services? These days that seems to be the norm rather than the exception. Connecting these services, integrating data, managing who has access to what and keeping track of all of it is a nightmare. Yes, companies like IFTTT allow you to connect products, but that’s just adding to the overall complexity.

Containers have the ability to solve this problem from the ground up. All products hosted within your infrastructure can go through the same authentication layer and have the same login. They all write to and read from the same central data repository. Think of your own internal Google Apps, but with all apps you can imagine.

The road ahead

In the future many more businesses will be deploying their software internally. As container management becomes simpler it will become accessible to non-technical users. This is almost ironical considering that the “new” model looks a lot like  old model in the Oracle days before SaaS came around.

That doesn’t mean cloud services will go away, just that their main offering won’t be software. They may become hubs of data offering value-added services that rely on scale. For example, by connecting your own data to a cloud service you may receive additional features (like recommendations) that require access to the combined data of many users. Many SaaS companies will need to rethink their business models, or the last part of the Dentist Office Software story will come true in many industries.

For entrepreneurs this is a great time to start an open source movement that challenges one of the big SaaS companies out there. Open Source adoption has never been so easy.