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February 6, 2009

Knives Out

Lawson’s CEO Harry Debes has predicted the imminent demise of Software as a Service. Prescience, or just sour grapes? Jason Stamper investigates.

By Jason Stamper

Lawson’s president and CEO Harry Debes has an axe to grind. While Lawson is a customer, he wishes it wasn’t: “Can I justify writing a million dollar cheque to every year?” he asked when CBR caught up with him last month. “This is a cheque I am going to have to write forever, not just for two or three years. Is this really cost effective?” Indeed Debes argues that is heading for a fall, taking the Software as a Service (SaaS) market with it.

But with seeing stellar growth and client-server focused Lawson finding life more difficult, is there more than bad blood behind Debes’ prediction?

Lawson was founded in 1975 by Bill Lawson, Richard Lawson and John Cerullo to do consulting on Burroughs computers. Its custom software efforts turned into packaged enterprise resource planning (ERP) applications in the 1980s.

Pictured right: Lawson Software CEO Harry Debes. Image (c) CBR 2009. Illustrator: Julian Puckett.

Debes took the reins in June 2005. He orchestrated a reinvention of the company in 2006, when it merged with another midmarket software specialist, Intentia. After the acquisition Lawson aligned the combined products into M3 and S3 categories. Movex, Intentia’s flagship product, became the mainstay of the M3 line — M3 meaning ‘make, move and maintain’ goods and equipment. Software for service industries was grouped under S3 (‘staff, source and serve’).

Today Lawson says it has over 4,000 customers in the manufacturing, distribution, maintenance and service sector industries across 40 countries. It claims one of its big differentiators is providing applications tailored for specific vertical industries. It also claims to offer better ease-of-use than rival ERP companies, hence its tagline, ‘Simpler is Better’.

Until recently, it seemed Lawson’s merger with Intentia would become one of the technology industry’s few really successful mergers. Lawson had a record 2008, in particular the last quarter of that financial year (which for Lawson ends May 31). Revenue was up 9% to $233m, with increases in both maintenance and licensing revenues.

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Battling the downturn

But in the first quarter of 2009, the needle could be heard scratching off the record as Lawson’s results took a turn for the worse. Revenue, at $190.9m, was up just 2%. But worryingly, while maintenance was up 18%, software licensing (a barometer of new customer acquisitions) was down 17%.

When CBR caught up with Debes late last year, he described the run-up to those results: “Our full year 2008 had been the best in the history of the company. The last quarter had been spectacular. License revenue was up, maintenance, service revenue. We were pretty excited about where we were and the way people were reacting to our proposition. We were taking customers from Oracle and SAP.

“But it all changed in late August,” says Debes. “We started noticing some slowdown. We saw it first in our services business – we started seeing delays in services engagements. Then we started seeing it a little more in licensing, too. Ultimately we had to re-evaluate our whole fiscal 2009 budget to be more conservative.”

So what of the company’s most recent results, announced on January 8th? The company is not out of the woods yet. Total revenue was down 1% to $206.4m (at constant currency). License fees were down 4%, and consulting down 10%. Maintenance, at least, was up 10%.

“Lawson delivered solid results in the quarter despite the difficult economic environment,” said Debes. “We met our revenue guidance and the high-end of our earnings guidance. Our primary goal for the quarter was to improve non-GAAP operating margin. We accomplished that goal, and achieved the highest level of operating margin since the merger with Intentia in April 2006.”

Mid-market and up

But whatever Lawson’s challenges, and how much of them you put down to the economy, Debes remains unbowed. To his mind, the bigger ERP vendors like Oracle and SAP aren’t suited to the mid-market, and never will be.

“As long as they [Oracle and SAP] segment their products for the high end and the mid-market, it won’t work,” says Debes. “It’s like buying a Hummer for the average consumer: it’s not going to work. It won’t fit into the garage. And the great functionality has been thinned out of it.

“Mid-market customers have the same issues as large enterprises. We are able to provide for both because we are vertically focused,” he says.

But isn’t there an argument that companies’ processes are less dissimilar than they would like to think? That regardless of the sector, companies in manufacturing, or logistics face similar challenges and in reality have little variance in their processes? “There’s a big difference between a shoe maker and a shirt maker,” Debes argues. “Shoes are actually far more complex for lots of reasons. And one shoe manufacturer can say to us, ‘show me some other shoe maker reference customers’ and we can do that.”

“Some sectors are more services oriented, or more parts oriented,” says Dean Hager, Lawson’s SVP product management. “Most companies want to know what skills their staff have but hospitals have to legally certify what injections a nurse is qualified to give. In the food industry, we talk about solving challenges from ‘farm to fork’: from production to consumption. We take fewer industries but solve their challenges in a holistic way.

“SAP builds horizontal solutions and hopes that the partner community fills in the gaps,” says Hager. “Why does Lawson have a product called Stock Build Optimiser aimed at the food and beverage market? Because we are focused on that market, and our customers there said they needed it.”

Bye bye SaaS?

But Lawson’s Debes has even stronger feelings when it comes to competition from Software as a Service (SaaS) vendors, such as, RightNow Technologies, Workday, Salesnet, NetSuite and Success Factors. In a recent interview he went so far as to say that the SaaS market would crumble within the next two years ( While Lawson has a number of web-enabled applications, it is a client-server applications vendor.

It seems there are reasons for Debes to be envious of’s results, if not its business model. is the poster-child of the SaaS segment, and in its latest results it announced record revenue of $276m, up 43% year on year. In times like these, our value proposition of low start up cost, low risk, and fast results is resonating like never before,” said Marc Benioff, chairman and CEO of “In the third quarter, we continued to add customers at the same record level we did last quarter, at a time when the traditional enterprise software world was retrenching.

But according to Debes, SaaS vendors have a limited shelf-life. So what is his justification for this prediction? “There is an assumption that SaaS is cheaper,” Debes told CBR. “But is it cheaper to own a car or lease it? I know that it’s more expensive to build a whole bunch of interfaces and handle 15 or 20 ‘siloed’ systems. From a vendor perspective SaaS will go the same way as ASPs [application service providers] or service bureaus. They will only survive if it’s a win-win for both vendors and customers.”

But seems to be doing rather well so far? “They’re doing OK. You would think they were Google. But wait ‘til their revenue growth slows. Their share price has already fallen by over half to $30 [its 52-week high was $75.21].

“To be a true poster child you need to be an icon of the industry,” says Debes, “but they have no sophisticated algorithms, they just figured out how to deploy it in a SaaS model. In fact’s success is not because they did SaaS. The brilliance was their ease of use. They would have been even more successful as a client-server company. Their competition was Siebel, which was a ‘frickin’ nightmare to use, with its complexity and lack of intuitiveness.”

So why are so many customers still turning to and other hosted offerings? “Customers are looking for a short-term win: they have a pain, and they think they need a Bandaid, when in fact they may need a complete physical. Plus with SaaS, every single department is making these decisions independently because they can fund it through OpEx, but how much control do you ultimately have?

“And the idea it’s cheaper is plain wrong,” says Debes. “We pay $1m a year – that’s not cheap. It’s a bandage; something we needed to get addressed.”

Lawson’s Hager adds: “Plus don’t forget the fact that these SaaS offerings are not tailored for individual verticals. Take the example of bakeries. In a bakery in the US, there’s no meat in the equation.” Debes interjects: “Yes, here in the UK your bakeries have a meat pie, right – how is that possible? A meat pie!”

Into the cloud

Somewhat surprisingly, while Debes predicts the demise of the SaaS market, he is not nearly so cynical about the emerging cloud computing model, where IT is delivered on-demand as a service (see CBR’s recent cover feature, Is the Enterprise Ready for Cloud Computing, at

“SaaS is not the same as hosting, which I think is good,” says Debes. “We think cloud computing has legs. In terms of infrastructure backup, redundancy and so on, the customer doesn’t really care where the server is – that’s irrelevant. You can have it in your closet or in the Philippines.”

Says Hager: “We’re going to make sure we can run on that platform. There isn’t an SaaS offering today that can do ‘farm to fork’. In future, combining Lawson with cloud might enable that in a hosted fashion.”

In the mean time, Lawson continues with its vertical focus. The November launch of Lawson QuickStep Manufacturing, said to combine manufacturing-specific content with built-in business best practices based on Lawson’s knowledge of the manufacturing industry, is a good example.

For all his criticism of the SaaS model, Lawson remains a customer of However, according to Debes, “We won’t be for much longer.”

CBR Opinion

There’s little evidence that is about to crash and burn. But Debes is right that for a business model that is supposedly so good for both the vendor and its customers, it is surprising that there are not more salesforce.coms around.

However Lawson’s competition is not only from, but from the likes of Microsoft Dynamics, Sage, Infor, QAD, NetSuite, Workday, and indeed Oracle and SAP. The fact that some of these are delivered in a SaaS fashion is perhaps less interesting than whether, ultimately, it is those with a vertical focus that will beat those with more horizontal offerings in the mid-market space.

For customers looking for vertically-focused, client-server, ‘farm to fork’ type implementations, Lawson will almost certainly be on the short-list. Some time in the future, Lawson may even be in ‘the cloud’ too: at that point it will be more obvious why Debes has chosen SaaS as his whipping boy.


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