Private Clouds are SaaS’s future enemy

The Great Recession has taken its toll on IT vendors. Loads of companies have lost money. Too many to count failed to meet Wall Street’s insane profit expectations. Their layoffs put thousands of smart workers on the street. It’s been devastating.

Unless, of course, you happen to be a software as a service provider. SaaS companies, the poster children for cloud computing technology, have benefited from the downturn. Companies like, RightNow, NetSuite and others have all benefited from the Great Recession because CIOs have had their budgets slashed and are desperate to find cheap software for their companies. SaaS providers have been their answer.

In a recent chat I had with Bob Zukis, a partner with PricewaterhouseCoopers, and Vinod Baya, director of the center for innovative technology at the same consultancy. They told me corporate acceptance of SaaS and cloud computing technologies have been driven in large measure by our current economic reality.

Baya said, “CIOs have an economic incentive to look at the cloud.”

“We would have not gotten to where we are now without the economy,” Zukis added.

But how long will this “economic incentive” last?

Assuming there is a Great (or even not-so-great) Recovery to follow the Great Recession, can SaaS survive it?

The SaaS advantage is all about leveraging services in the cloud. SaaS providers have a first-mover advantage at the moment coupled with the Great Recession. But when the economic incentive to adopt SaaS goes away, as we all hope it will, CIOs may think seriously about bringing cloud-services inside the firewall, into the so-called “private cloud.”

Private clouds offer many of the advantages of SaaS. In place of the virtualized multi-tenant architecture, where one application is shared by many users, a private cloud lets a virtualized environment share many applications within a single user community. Both get the same benefits from automated IT operations, such as provisioning systems, which keep a lid on labor costs.

But the private cloud offers the CIO something SaaS does not: control.

Control is a long-time IT fetish, but it’s also a service to the business. It’s something IT is generally good at, too. It’s also something a company’s board of directors like. And if the private cloud gives the CIO the control of old with the benefits of the SaaS of today, CIOs will embrace it. They’d be foolish not to.

That’s why, I contend, that private clouds pose the biggest long-term threat to the SaaS business model. And, to the best of my knowledge, SaaS providers are not prepared for it.