The Argument Against Software as a Service

By Josh Catone
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A few weeks ago we wrote an article called The Downside of Free in which we talked about the potential downsides of offering a free version of your application. We concluded that in order to make money off free, you had to “find the sweet spot for the free version that offers just enough to keep people interested, but not enough that they’ll never upgrade.”

However, there’s another potential downside to free that we neglected to talk about: the potential risk for customers in using free applications. As the economy continues to turn south, many companies are starting to eliminate non-revenue producing business units, which often means free products. If your business relies too heavily on a free product you might find yourself up a creek without a paddle if support for that product is pulled overnight

A caveat here: this won’t apply to all free applications — many apps using the freemium model are successful and profitable.

But we have started to see free apps begin to get the axe. When he was (presumably) unable to keep up with the cost of providing free services, Rafael Dornfest took a job at Twitter, and his apps Stikkit and I Want Sandy will close for good in a couple of weeks. Mostly free service Pownce was acquired and will shut down (it was a case of hiring by acquisition). Even Google has started to axe under performing free programs (such as Lively).

Many of the apps we called “must have” in our list of communication tools last month have a free option. Some of these companies are probably in a good position to weather the economic downturn, but perhaps not all of them. We won’t speculate on which are best positioned to survive, but maybe it isn’t a great idea to have too much riding on free, online services. What could save a buck or two now might cost a lot in the long term if the service disappears with all your data.

In a recent article at WebWorkerDaily, Mike Gunderloy laid out three rules to live by when evaluating software for your business. We think it’s pretty good advice, so we’ve reprinted them below.

  1. Prefer in-house servers for mission-critical applications.
  2. Prefer portable data.
  3. Prefer backed-up services.

“In the current software and economic environment, I’m re-evaluating my dependence on free services, and pulling some things back to less trendy but more reliable client-side applications,” says Gunderloy.

It’s Not Just Free, It’s SaaS

We’re big fans of software as a service (SaaS) apps here at SitePoint, and use many on a daily basis, but Gunderloy’s concern could be extended to any SaaS application, free or paid. The more you rely on third parties to get your work done, the more difficult it becomes to stay afloat if those you rely on run into trouble. SaaS applications have allowed business owners to gain access to high quality software at lower prices and with a high level of convenience, but at what potential risk?

If all your customer and sales lead information is in, what happens if goes under? That might create a mess that’s harder to clean up than if your CRM data was stored locally, for example. Using Google Docs might save you a bundle on site licenses for Office, but if all your internal documentation is online, what happens if Google decides Docs isn’t worth it and axes the product line? It’s something to consider, certainly.

What about you? Are you scaling back dependence on free software or software as a service apps? Are you putting more effort into setting up in house applications to manage your business rather than relying on third parties?

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  • roosevelt

    When I look for something free I usually look for its benefits and flexibility. For example, salesforce can be used to store data. But I will only sign up with them if we, the clients, can backup our data in a regular basis on our own machines. So, in case they shut down overnight and use their TOS to defend themselves, I will still have a copy to move elsewhere.

    Similarly, when you think about using a free software make sure it’s flexible. Check and make sure you can make transitions to another program, if problem arise.

    As for expense goes. I usually look at the price of a software. Then, I look for a free alternative. If the free alternative is flexible, use the free version and save the money in case I have to switch.

    Thinking long term always helped me progress in my businesses.

    If you run a big company then it’s best to have in built-in technologies.

  • maybe i’m out of the loop, but i couldn’t find any mention of what the hell SaaS is…

  • @XtrEM3: SaaS = Software as a Service … I’ll update the article so that is more clear. Sometimes when you use a term so much you forget that it might not be as mainstream as you assume — sorry about that!

  • Well,

    Of course, an offline application has that advantage that it stays with you, even if its producing company goes bankrupt.

    On the other hand, you are always talking about free products, but the same bad thing can happen to paid products and services as well. They can still underperform and don’t bring any profit for their producers.

  • Anonymous

    Wonder if we’ll see more air applications internally on the companys own server now that people are getting more suspicious of cloud services going down.

  • I always thought it was just plain common sense to have off-line back-ups, “just in case”?

  • Donna

    The iwantsandy / stikkit story goes to show the strength of Free/Libre Open Source Software (floss) and open data standards. If the code was made available, or the data stored in an open accessible standard users could set up their own servers, perhaps banding together, or at least export their data and import into another application that supports the standard.
    Google Docs at least supports ODT (open document text) which means files can be saved locally and edited in a range of ODF supporting applications.
    But overall, yes, this is a problem.
    Thanks for the article. It perfectly articulates the unease I have with “Freeware” and Web2.0 – when the emphasis is on “Free as in zero fee” rather than on “Free as in Freedom.”

  • TheBuzzSaw

    I understand that free software is susceptible to such financial downturns, but this article places too much emphasis on free products being eliminated. Are paid-for solutions not also suffering? Online software solutions that are free do not suffer as much during economic downturns because MORE people turn to free alternatives to save money. The paid-for solutions suffer a noticeable loss because they depend directly upon revenue from licenses.

  • I’ve always wondered how a backup can save you if the app is closed. Anyone?

    I mean, OK. A backup saves you if the sever gets hacked and/or the data is gone, but if you’re making a copy of a DB of some sort, you’re depending on its processor. Unless maybe it’s a standard form of represenation, but is there (for example) a standard DB schema or an RDF vocablulary or… anything standard… that can represent (say) notes or calendars or whatever.

    Even if the authors of the most popular apps of this sort can establish a standard, other kinds of apps must still establish their own.

    And in establishing a standard, SaaS vendors are practically limiting their feature set, giving them one more reason NOT to estabilish it.

    Yes, *someone* can potentially write a program that would read that other (proprietary) data, but without a solid documentation (ala spec), who will bother creating a convertor for every “legacy” format?

    I have yet to hear a success story like “X had a backup feature, they closed, but Y accepted X’s format, so I quickly and easily switched to Y with X’s data”.

  • Crazyegg have also dropped their free version :(

  • Josh, this is a good eye opening article. Although we like the flexibility Google Apps brings to the table, and also that is unlikely to fail, we are taking a bit of a risk in that we could be greeted with a 404 Error one day. Kind of freaky, isn’t it?

    Anyone got a good system in place of backing up Gmail or Google Sites?

  • Marc

    When you think of it, all commonly used free email services (e.g. hotmail, yahoo, gmail) can go down at any time as well, right?

    I think this article highlights the fact that this new breed of free services/apps will have to invest more in automatic backup systems (perhaps emailed to the user on a schedule) and ’emergency rescue plans’ in order for us to be more confortable with them.

    Not quite the tool to back up emails or app data, but iterasi is a nice free tool for saving web pages (although it too can go 404 one day;).

  • John Roberts

    Wow, I always thought of software as a service.


  • Rubin

    This is exactly why I think the best option is locally stored software and data replicated and accessible from the cloud (e.g. Dropbox).

  • tmsbrdrs

    Gmail, I’d just have a secondary email account that you forward to as you read. The other Google sites I never use, but I’d think an approach like this would be a good start. You find a secondary free site working on a different principle of free, such as fully open source or even a paid alternative if you really want to go that route. For every service there is at least 1 competitor, but usually there are multiple. I currently am using 3 different email sites including Gmail and Yahoo, funny though, the best of the three is the one that’s never advertised to me, Instead of using a web app for storage, why not archive with zip files using a free zip program, then move the files to an external HD, most small businesses won’t have enough files, even after a year, to fill up a standard external HD, but there are some with huge amounts of storage space, up to 1 Terabyte last I looked. In addition, backup to burnable DVD anything more than a few months old that you’re sure you’ll need again and label what’s on the disk. If all your information is in one spot, you’re very lucky to be in business at all.

  • Morbo

    FOSS (Free Open Source Software) makes all of these points irrelevant, which means that this article is fail!

  • Zachary

    Commercial/open-source offers a good solution to this. If the Saas offering fails, you can always host it in house. SugarCRM, for instance.

  • pointless

    The nature of using SaaS is that you run the risk of the provider closing down the service for whatever reason (it’s not just because of the current economic situation). It has NOTHING TO DO WITH FREE OR NOT. If it’s really something that important to you to have the application/service, then you should always host it yourself on your own server.

  • Guru

    It’s called a “Service Level Agreement”, folks, or an “SLA”. It’s a contract that guarantees a minimum level of service, and a consequence if that minimum level of service isn’t maintained.

    If you don’t have an SLA with any “mission critical” SaaS vendor, you are asleep at the wheel! An SLA costs money; that’s how you ensure that the provider of your service can continue to do so.

    If your business relies on services that costs you nothing, you deserve the inconvenience when your “free vendor” goes belly up!

  • him

    You are equating SaaS with free online services. SaaS is a system architecture, encompassing free, non-free, open source, and closed source. Couldn’t your company write its own SaaS… your employees access data through a web browser… does that make SaaS bad or risky?

  • Saul

    From now on, it’s self-hosted or GTFO! Web 2.0 is for suckers.

  • Nick

    I run a SAAS business called

    We had a free version for over 2 years. The free version offered 1 free operator seat, and all the stuff you find at this link:

    It was that way for a long time. Guess what, we almost went out of business. The rate of purchase was great, at about 20%. But when you consider the overhead for decent servers, Programmers, and staff, it was just not enough to get by.

    Then the hackers came. They used our software for phishing, porn, and crap sites. We would ban them, they would create another FREE ACCOUNT with NO CC.

    We then removed the free seat, and started charging 20 per month per operator.

    Since that time, we are now making enough mnoney to greatly improve our software, and our customers like this. We are now growing again.

    I hope my insight helps somebody.

  • boen_robot, a backup can save you if the app is closed *if* you took the time to choose a service provider who supports Open Standards. There’s a great little OSX app called “TaskPaper”, for managing To Do lists. I keep all my “To Do” items in that app, and although they’re a tiny company, I’m not afraid of them going under. Why? Task Paper stores its data in good old plain text. If they went bankrupt, my data is still totally accessible. 37Signals is another company who does a great job at this. You can export ALL your data from their applications in XML format any time you want.

    I’ve written a little blog post going into some detail about how how developers can use abstraction layers to mitigate the risk of SaaS providers dying. Check it out and leave a few comments please :)

  • bakcup, backup backup.

    Whether your data lives on your desktop, in your server room, or on google’s server there is one basic reality that you must accept.

    If you do not back up your data, you will lose your data.

    I am not sure about sales force, however Google docs DOES provide a functional export system allowing you to keep offline backup copies of everything.

    Additionally, Google provides a wealth of programming API’s which allow world+dog to automate such a backup. This goes for your email and IM logs as well as documents.

  • @Guru: An SLA isn’t worth much if the service goes out of business.

  • Bliss

    Some valid points in this article, but stirring up claims that maybe Google will “axe” docs was sensationalist and frankly bad for the industry. Google is not going to “axe” apps any sooner than the are going to “axe” adwords. Bloggers and people in the industry should be saying “Well, at least we can count on Google’s SaaS products.” If you can’t count on Google (and citing the piece of crap Lively is not an example of not counting on them), then what SaaS can you count on? Lame on you.

  • From-TR


    Backups, SLA’s, other special contracts will be reducing the risks obviously however I already don’t believe SaaS is more risky than inhouse systems. These guys are really spending time and resource on how they can improve their systems. Nobody can say that SaaS is less effective or less secure. Be sure you need to choose your supplier wisely.

    Maybe there are currently lots of risky SaaS providers which are too custom and with no compliance without standards, but there are also good examples like and Google. Microsoft, Oracle and SAP are also working on this. This means basic platform requirements will always be there. If we speak about specific stuff then there is always a risk of services disappearing.

    I see that the future of SaaS or cloud computing is a deregulated marketplace. Currently you can switch to another telecom supllier without changing the phone number or you can change your electricity provider whenever you want. This model will be possible for all SaaS services also. I think that’s why separated their services and called it PaaS (Platform As A Service) last year.

    Our CRM and SaaS Blog (Sorry most of the articles are not in English).

  • @lo_fye
    Is there anyone else that stores their data in the same plain text format as TaskPaper? Is their format an open standard that can be “plugged into” any other app that uses the same standard?

    If your asnwer is “no”, then your bakup is just as good as any other backup. You have your data, but it’s next to impossible to edit it or sort it out. In the case of a To Do list, this may not be a big deal (as there isn’t much data – worse case scenario is that you find, copy&paste your data into the new app), but data from any other more complicated app would essentially become useless (as there’s far more data and metadata – worse case scenario is the same, only this time you’re doing far more searching).

    The same goes for 37Signals. Is their apps’ XML format a standard RDF vocablulary or at least a standard XML format, or is it proprietary (XML != standard XML vocablulary)? Is there anyone else that uses the same XML format on their app?

    Again, yes, when backups are stored this way, there is the “potential” that someone can write aprogram to parse it, but who will bother creating a convertor for every legacy format? Even if someone bothers to create “a” convertor, how can you be certain up front that will conver YOUR app’s format?

    Scenario – you register at X, X and Y have a bakup feature. Both X and Y die, and Z is born. Because Y was more popular at the end, Z only creates a convertor for Y. You’re screwed. An even more likely scenario is that there won’t even be a Y convertor, meaning you’re screwed either way.

    Open standard or not, there still must be support for it – If CSS3 selectors were not implemented in any browser, they wouldn’t ever be used by web devs. Same deal – if a standard isn’t implemented (assuming such exists to begin with), it’s useless to consumers and they won’t use it or demand from SaaS vendors to support it.

  • dawgbone

    That’s why I’ve never understood all this talk about cloud computing.

    Why would you risk leaving all your data out there where it’s potentially out of your control?

  • Jasen

    It depends on whose hype you have been listening to. I think the appropriate target would be to have a mix of privately located services with some cloud services that operate off of that data. For large scale businesses, I can’t see them ever relinquishing the data due to security and corporate regulations. I.e. I don’t see Bank of America storing their customer accounts and offering real-time transaction services outside of highly secure data centers…

  • Anonymous

    I doubt that any of the “biggies” such as Google will do it, but as a small company, we routinely put our code into escrow so that in the event we fail, our customers have an alternative, however unpleasant. That relieves much of the concern that our customers will be left with absolutely nothing. We also stipulate that they own their data so there is no wrangling over that, either.


  • Typically, the applications are deployed by a third party that hosts, manages, updates software based services and solutions and distributes to clients from a central location. XML and HTML processes allow the clients to interact with the software.

  • Ken D

    Josh, I was asking the same question to my IT team when they first implemented Open Source version of for group collaboration requirement. It was easily adopted by rest of the users and since data security is more important than saving few bucks, we purchased the enterprise license and hosted the software on our own server. So it also about the available delivery model of the product.

  • psyche

    In my experience of selling ( -SaaS and virtual appliance offering), before investing in a software, enterprises get complete understanding of what is being provided to them in the support and the exit options, before buying. Besides, if its a mission critical software, companies just don’t invest in any software. they need a lot of credibility.

    Also, with the economic downturn and budgets cut down, I think companies will move more towards deploying and using cheaper software options including SaaS and open source.

  • Why does everyone seem to think their own organization is better at retaining data than an outside one? A company that does software as a service and only that will do it well.

    Hiring a programmer to write a program to translate data from one export program to another is a lot cheaper than hiring programmers to build the whole thing from scratch.

  • saas commentator

    Anyone interested in saas should check out the following forum thread,
    in which serious security flaws in the Sage Groups Sagelive Saas software is discussed.

    Security problems Sage Group Sagelive software as a service