SaaS Jenga - the time-bomb at the centre of your stack
Software-as-a-Service ("SaaS") has mostly delivered on the promise of zero ops, zero maintenance software. But what happens if a core service your business relies on disappears overnight? What happens if it doesn't come back? And in the current Venture Capital downturn, how likely is this to occur, and what steps are you taking to mitigate this risk?
As it stands, many businesses rely on not only one, but frequently a handful or more SaaS products. Some of these products are so central to a company's business, that they would not survive without them. Unlike with Commercial off-the-shelf software ("COTS"), if the company behind the service goes away, you don't get to keep running the software. Once the service is switched off by the SaaS-company's Cloud provider, it is gone forever.
The reality is, as it stands, many companies are playing Russian Roulette, or, Saas Jenga if you will, with their entire businesses, by relying heavily on services that may be gone tomorrow.
VC downturn, a clear-and-present danger
Many VC-backed SaaS companies have long burned cash for growth like there is no tomorrow. $2 spend for every $1 in revenue, or worse, is not uncommon. But in the current climate, very few VC-backed, or even listed SaaS companies without a clear path to profitability have a realistic chance of further funding. In the next 18 months, we are likely to see many high-profile, and even more less well-known SaaS companies abruptly cease to exist, going away overnight, as founders cling on to the hope of funding until the very last moment.
There is even the possibility of chain reactions, one SaaS taking down a handful of others.
What is the cost of zero ops and zero maintenance?
Do you know all the SaaS services that you currently use in your tech stack? Do you know which ones would cause you to have an outage if they disappeared? Do you know how long it would take you to get back online? Hours? Days? Weeks? Months? When you think about it, and the coming SaaS mass-extinction event, are you comfortable with that risk?
While zero ops- and maintenance, combined with a provider to shout at when things go wrong, is an alluring prospect, in hindsight, it might not be all it was cracked out to be.
What should I do?
We would suggest you at least start doing the following:
- Inventory the SaaS services you use.
- Inventory the financial health of the providers you use, where that information is available - at least try to classify companies into "unknown", "unprofitable" and "profitable".
- Map them on an X/Y axis based on potential impact on one axis, effort to replace the other axis.
- Now highlight all the companies where the financial status is "unknown" or "unprofitable".
What picture does this paint for you? Anything highlighted that is more than low-impact, or low-effort could be a potential existential risk to your business. We would urge you to, if not make plans to replace them, at least make plans for serious mitigation: consider how you can isolate the risk better, what potential redundancies you could put in place to avoid an outage.
And if you decide to do nothing, at least be honest with yourself that you are playing SaaS Jenga - if you're lucky, nothing might happen. But if you are unlucky, one randomly placed piece being taken out, might cause a total collapse that is irrecoverable.
What does the future hold for SaaS?
Our belief is that a reckoning is coming for SaaS, VC funding drying up will cause a mass-extinction event of SaaS startups in the next 18-24 months, and there will be collateral damage. How high profile that collateral damage will be, remains to be seen.
What is likely to come next, is a re-emergence of business models based on open source that partially or wholly mitigate the risks that will have become apparent with SaaS. Some examples may be Open-Source products, provided as a managed service, a return to traditional licensing models, escrow source-code guarantees for SaaS products and many other constellations.
We are bound to see a lot of business-model innovation in the coming years. As SaaS retreats, Open Source will advance. What comes out of it will be interesting to watch. But first, we must prepare for what is soon to come, or risk ending up collateral damage as the Jenga-tower built on SaaS falls.