Lesson learned from LucidEra

Posted: June 29, 2009 in CRM
Tags: , , , ,

LucidEra’s unfortunate announcement that it was suspending operations hits the SaaS industry hard.  The on-demand sales analytics company had a good record of providing valuable solutions for sales organizations and managers interested in better understanding their pipelines and deriving meaning from their SFA data.  But ceasing operations highlights one of the chief risks inherent in adopting a SaaS solution namely, that an application can become unavailable.

Fortunately, the people at LucidEra are classy people and they have spent the last week or two trying to ensure that their customers could migrate their data to another on-demand provider.  They called it an “orderly transition.”  That’s about the best you can expect and if every SaaS provider that goes out of business in the future did that we would have the rough equivalent of the scenario when a conventional vendor goes belly-up or stops supporting a version.

The conventional software model leaves you with the software that will run as is regardless of whether its vendor is solvent.  Support and upgrades are a separate issue and they do not materially differ in either case.

So to the voices that have said LucidEra’s demise is proof of why conventional software is better, I say not so fast.  Throughout the SaaS era — roughly ten years — the SaaS industry has had to cope with numerous similar situations where there were no precedents.  Up-time, security and disaster recovery all had to be re-thought for SaaS and vendors invariably found solutions.  LucidEra is providing another example of a SaaS provider figuring out a solution to a tough problem and I think they should be applauded.

Nonetheless, the SaaS industry should not act like this kind of thing could not happen again and it would be wise to consider contingencies for a SaaS company going down in the future.  It may be wise for customers to consider requiring that SaaS providers carry insurance against failure or, more precisely, insurance to cover the contingencies associated with shutdown.

Surely some big insurance company would be happy to underwrite the risk in the same way that multiple insurers already provide business insurance against all sorts of calamities including errors and omissions.  Such insurance might not have been feasible ten, five or even three years ago.  But the popularity of SaaS and the business advantages it offers clients says that the risk pool is reaching critical mass if it has not surpassed that threshold already.

Let’s say insurance against a SaaS company’s demise costs a dollar per month per seat declining for really big implementations or customer bases.  Who couldn’t or wouldn’t afford that, especially in this market?  A dollar isn’t much but given the market I can’t see how it wouldn’t be a profitable business.

I don’t expect that any SaaS company will rush out and advocate for insurance and, as is often the case, demand for such insurance will have to come from the customer.  But all of the pieces seem to be in place and, like mirrored data centers and SLAs (service level agreements) I expect transition insurance in the event a SaaS company goes out of business will become standard fare in this still evolving industry.

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