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Bob Warfield

Is "myth" too strong a word to use for SaaS? It does make a good headline, I'll admit.

I think of pull as relative. Relative to perpetual license software companies, SaaS has pull. See my blog post for some numbers on that:

http://smoothspan.wordpress.com/2007/07/17/its-cheaper-for-saas-companies-to-acquire-customers/

I think you can convince yourself pretty quickly, as I have, that SaaS companies can acquire customers more cheaply, hence they have more "pull". Relative to a Web 2.0 play like Facebook, perhaps their pull is relatively poor. OTOH, they seem to monetize better. This is why I like analyzing the ration of Sales and Marketing spend versus Revenue. If I spend less than $1 of S&M to achieve $1 of revenue, I have to call that pull. Many perpetual license companies find that extremely hard to achieve unless they slow down their S&M to target only the absolute cream, and hence radically slow their growth.

MacKenzie is right that there are scale effects at work, but I think the scale factors are radically different for perpetual vs SaaS. The knee on the curves for SaaS companies are pretty cheap--less than $100M in revenue. On perpetual companies the knees is at almost $1B in revenue before sales and marketing per dollar of revenue go down significantly. This is one factor fueling the M&A frenzy as folks like Silver Lake will tell you.

I think the real rocket fuel comes when SaaS companies figure out how to really leverage the principles of Web 2.0, and make their offerings truly collaborative and viral. We're not there yet, but it will come.

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