I just stumbled across an interesting post – Why we compete with Google – written by Sridhar Vembu of Zoho who are into providing SAAS solutions.
What Vembu does is to compare revenue per employee and profit per employee metrics of major players like Microsoft, Google, Ebay, Adobe and few other to make his point that SAAS is not really a easy business to get into – Infact it is a low margin one that Google will have difficulty in adjusting to (given that they currently enjoy highest margins in the Industry.)
Here is an excerpt from his post:
Now it is clear why we compete with Google. Google is perhaps the most stunning technology success story ever, but we simply don’t believe Google has the rational business incentive to get too deep into the business/IT software category. The lower revenue and profit per employee figures would be tolerable if there were huge growth opportunities there, but when very successful companies like Adobe and Intuit pull in revenues well shy of a Yahoo, when even the enterprise software leader SAP is smaller, and slower growing than Google (Google makes nearly as much in profit per employee as SAP or Oracle Salesforce make in revenue per employee), it is fairly clear this market is not going to make a material contribution to Google’s growth and profitability objectives. So what is Google’s plan here? It is fairly obvious they are in it to put Microsoft on the defensive on its home turf, so that Microsoft’s offensive capability in the internet is diminished. It is also perfectly clear why Microsoft wants to be an internet player – as Google has shown, it is a higher margin business even than its monopoly-profit core business.
What is your opinion? Is SAAS market really a low margin business?