I am not sure the following email (forwarded to me yesterday which I edited to removed the company's name) will make the headlines, but it illustrates the other side (much less publicized, although very real) of SaaS.
From: [XXXX] Team
Sent: Friday, April 13, 2007 11:19 AM
Subject: [XXXX] Service ends May 31, 2007
I regret to inform you that [XXXX] Inc. is closing its doors. As of today, [XXXX], is no longer being sold or supported. The service will remain available to existing [XXXX] customers until May 31, 2007.
As I’m sure you can appreciate, a hosted solution such as [XXXX] requires a large subscriber base to offset the development and support costs associated with it. We have spent the past 2 years building our subscriber base, but have been unable to achieve the critical mass necessary to ensure a stable future for the company, and recent attempts to otherwise rectify this situation were unsuccessful.
All of us who were [XXXX] thank you for the role you played in the development of our product and our company.
President & CEO
This is of course very common and not SaaS specific. I do not remember the stats anymore but we all know that only a very small fraction of all ventures end up being a financial success (regardless of what the press seems to portray). The difference is that on a "on premise" scenario, even if the vendor goes bust, the data you entered in the system sits somewhere in one of your databases and can be retrieved (relatively easily) if the data is still valuable to you.
I would be curious to know what will happened to the data hosted by [XXXX]; i.e. how easy it will be for current customers to get their data back? what will happened to "sensitive" data (e.g. personally identifiable information)? is there a regulation in place specifying how data (belonging to others) should be "wiped"? will it be controlled as part of the liquidation process? Should current customers take steps to copy locally and then delete all their hosted records, showing proactivity in the protection of their data?
A few questions (and many more) that will need to be answered (maybe) increasingly more frequently as there won't be shortage of SaaS companies biting the dust in the coming years. Not because the SaaS model is bad of course, new multi-billion dollars businesses will emerge / are emerging, but unfortunately it will not be the destiny of the majority.
Understanding how to take care of the SaaS data graveyard is an interesting concept, maybe it is paradoxically an idea that could be the base of a successful SaaS company. Startups would be able to take an "insurance" with this other company and if they go bust, this other company will guarantee the proper disposal of all their data, including restitution of the data to all the appropriate owners. Value prop for the buyer? They can tell their customers that if they go bust (which will never happen of course) they are insured, all their hosted data is safe and will be taken care of with the upmost respect. Hey, I even have a name for it; how about SaaSFuneralHome.com?! If you are a VC and think this idea has leg, let me know 🙂
Ironically, the email above was sent a Friday the 13th