Last week when Entellium's CEO, Paul Johnston, and Senior VP Parrish Jones unexpectedly stepped down and the company subsequently began to lay off staff, many of us wondered (despite the inevitable reassurances to the contrary) if we were going to see the first significant failure of a SaaS business and the subsequent ghastly fallout among customers who may lose both their software and their information in one fell swoop. Considering the state of the market and the thin margins in the business, it seemed like this was the first of many economically driven SaaS business failures. It turns out it was something more sinister. Johnston and Jones are looking at federal wire fraud charges from the wrong side of the prison bars today, facing up to 20 years and $250,000 fines for "overstating" Entellium's revenue to investors. In the economic climate we're currently in, with people baying for blood over various forms of corporate mismanagement, it's unlikely they'll find much sympathy when the case goes to court.
But the criminal sideshow is distracting us now from what was at the forefront of people's minds last week: how will the financial collapse of the service affect customers (although apparently there were fewer of those than we had been led to believe)? Was there a plan of some sort for returning the information? Several other SaaS vendors commit to delivering data in pre-arranged formats to customers in the event they halt operations… did Entellium provide such a guarantee? Apparently there has been some discussion between Avidian and Entellium's investors regarding a potential purchase of the company. If another company acquires the assets, will they continue operations? Will customers feel confident enough to keep their business there regardless?
As horrible as this downturn is, it may provide us with some of the first real data on what happens when your outsourced software services disappear, a mostly theoretical threat to this point which has been held out by more traditional software manufacturers as theto keep customers away from SaaS offerings. It's obvious that things could go poorly in such a scenario; it's less clear that they actually will. I know of many businesses who have been bit by circumstances in which their traditional software vendor has closed doors, or simply discontinued the product, and it's a problem, but never an insurmountable one. What remains to be seen is whether SaaS failures will fall into that same vein (which is my suspicion) or whether they really are more risky for customers than traditional software company failures.