David Linthicum makes a good point (and a very dramatic one) about VCs getting overexcited and jumping on SaaS like a pack of wild dogs (vivid visuals here) without truly discriminating their potential which is bound to result in some disappointments down the road.

It is true that some VCs could be getting antsy hearing much of the similarly spectacular hype-talk. But the truth remains that many still remember the painful lessons of the early 2000. SaaS may sound like a way of life in a tight SaaS evangelist crowd but the general public still largely lacks awareness, and VCs must (hopefully) be aware of it. Finally, exciting as it may be SaaS model requires has some buying into from the companies used to traditionally lower IT overheads, occasionally lower breakeven volumes and lucrative maintenance contracts enjoyed by many of the enterprise players.

As was explained to me by one VC company, SaaS has “huge, recurring IT costs, requires hoards of clients to break even, and maintenance eats up the rest of the margin”. I don’t think it is quite as bad, but to be fair, these are valid concerns that are true to the business model in general. If nothing else, they must be addressed first for any long-term promise.

With respect to the critical points (I think David’s focus shifts somewhat to consumers from VC)… the answer to the question of what criteria should matter on whether to invest or not is “it depends”.

When selling a low cost service to the large market it may take some time to get to the ROI. But that should not be discounted. Surely, there are plenty of companies that still regret not getting into the Pay per Click space.

Similarly, granularity is important, but as long as the company needs and is able to function effectively (and efficiently) using multiple SaaS solutions, specific number of them is not very important. Remember that SaaS is a very broadly defined industry. Your electronic banking, online shopping portals, news subscriptions, calendars, many other things as Saas. So you cannot stop at some magic number.

Certainly the will be disappointments in the future and it is important to (try to) maintain a realistic (and even at times pragmatic) outlook on the industry in general.

The question what happens with the data if SaaS vendor flops or has a devastating outage keeps coming up. Here is some feedback on that based on my favorite session from recent SaaSCon conference. For a little under an hour three SaaS PPM clients were grilled by SaaS vendors in the audience on this and similar issues.

Their responses were: store the source code for technology in escrow, back up, and develop scenarios for emergency situations. They admitted that none of them actually has gone through emergency drills. One company also commented that data preservation was not mission critical for their specific setting and it is important distinction to keep in mind.

When working with SaaS, client companies need to develop awareness on how important is the data preservation and/or availability for the specific Web-based service they are using. In some cases periodic lack of availability (and even possible loss of the data in its entirety) will not disrupt operations, and thus may not be worth increased concerns and resulting costs. However, when the data is vital, it is worthwhile to at least minimally go through the steps that these client companies went through. I would argue that when data is critical they should try to go further and run through at least some of possible outage scenarios.