“How could all these smart people have let this happen?” seems to be the question on everyone’s mind lately.  Obviously, I’m talking about the disaster created by mortgage backed securities linked to subprime loans.

The layman’s answer is that the smart people should have known better.  But they let greed and peer pressure (i.e. “everyone is doing it, don’t question, just come along”) get in the way.

I won’t touch the topic of greed‘, since my MBA colleague Vincent Wong keeps telling me it’s good.  I will however discuss peer pressure as it relates to the software market.

Two years ago I was taken aback by the intellectual peer pressure against questioning if open source software was truly the end game for the software market.  Thankfully, many of the myths associated with open source software have be revealed.  As a result, the open source software movement is stronger, because proponents now use logic-based arguments.

Via Shaun’s blog…we’re seeing the peer pressure led cycle repeat in the SaaS market.  I’m very impressed with Harry Debes, Lawson Software CEO who is quoted:

“as we did the maths, we realised we could get killed. It was going to take us 7 to 10 years before we made any money. That’s nonsense. So we reversed our plans…because all your costs are up front and your revenue is over a five-year period, the more you sell, the more you lose. You don’t break even till the four-and-a-half-year mark, but here’s a bigger problem: there’s no guarantee that that customer is still going to be yours in four years’ time.”

Whatever you think about SaaS, Debes has thrown down the gauntlet against those who strongly believe that the future of the software market has to be SaaS.  If you’re a vendor with private or public investors you are duty bound to think about a 7-10 yr payback.

Only when logic-based arguments, like the one from Debes, are on the table can the discussion progress.  Is there a way to ramp up the SaaS revenue earlier to offset initial development costs? Absolutely, but that question is irrelevant if you hold onto SaaS myths.

Kudos to Mr. Debes.  Let the (mythless) debate begin.  Hopefully we’ll arrive at a solution to SaaS as a component of the overall software market.