The tech team at Cowen & Co. on Monday published a note containing its picks for potential surprises in the technology business this year. One of the most interesting: “The Growth of On-Demand Software Vendors Hits a Wall.”

Analyst Peter Goldmacher, who has followed the fortunes of the on-demand vendors for some time, had this ugly bottom line: Share prices of Salesforce.com, Concur, Taleo and Vocus could trade down as much as 30% - 50% relative to the market as investors decide that these companies don’t really have bulletproof business models.

There’s an unpleasant corollary as well, although the Cowen team doesn’t mention it. Salesforce and brethren have been fertile fields for IT job seekers. That could change very quickly.

The conventional wisdom, Goldmacher says, holds that SAAS will do well even if IT budgets contract because “software delivered as a service can be deployed for such a minimal up-front investment that new customer signings and net subscriber additions will continue to grow at a rapid clip.”

But those claims have not been tested in a slowing economy, he says.

HR and marketing departments -- important consumers of on-demand software -- traditionally bear the brunt of corporate belt tightening early in a business downturn, and that could but a dent on new deployments, and the growth of seats at established accounts.

The exposure of SaaS vendors is heightened by the fact that nearly all are one-product companies and are fighting the increasing inclination of corporate IT buyers to consolidate spending with a few large vendors such as Oracle, the analyst writes.

None of the potential surprises are billed as sure things; the hit to SaaS is given a probablility of 30%. Indeed, to make Cowen’s list, events had to have a probability below 50%. Still it’s interesting reading and good food for thought.

Here’s the rest of the list. Items are listed in descending order of probability; the higher up they are on the list, the more likely they are to occur.

10 - The Telco Threat to Cable Becomes Glaring
9 - The Growth of On-Demand Software Vendors Hits a Wall
8 - U.S. Legislation Favorable to Alternative Energy Is Passed During an
Election Year
7 - Google Experiences Meaningful Adoption of .Google Apps. By Medium
& Large Businesses
6 - Qualcomm Abandons Gobi
5 - PlayStation 3 Fails to Achieve Critical Mass, Developers Shift Focus to Wii
4 - AMD Loses its Infatuation with 30%+ Market Share to Focus on a
Profitable Niche Strategy
3 - DRAM Market Conditions Turn Favorable by Mid-year
2 - Cisco Lands a Major Wireless Infrastructure Deal with a Tier-1 Service Provider
1 - Hollywood Studios Announce Intention to End Physical DVD
Distribution and Embrace Cable VOD and Broadband Downloads

I welcome your comments, tips and suggestions. Reach me at bill_snyder@infoworld.com

Posted by Bill Snyder on January 14, 2008 01:19 PM