Assuming I could transfer the benefit of hindsight back to Joel's position in 2005, including all the knowledge of how the market has evolved over the past 10 years? I would've jumped on the SaaS bandwagon, hard, and converted the existing the existing VBScript codebase to a hosted solution, discontinuing support for the PHP/Linux version and freeing the company up to migrate code as it wished on its own servers.
I recognize that this would've been a huge leap for anyone in 2005, when 37signals was basically the only company doing small-business SaaS and the vast majority of companies insisted that with any software they buy, they actually buy it and the source code and data sit within the company firewall. Heck, when Heroku came out in 2007 I was like "Who the hell would use this, turning over all of their source code to some unnamed startup?"
But looking at how the industry's evolved, that's pretty much the only way they could've stayed relevant. Many companies don't even have physical servers anymore. That's the way FogBugz did evolve, eventually, but they were late getting there and had to back out all the existing Wasabi code and fixes they made for it to be easily deployable (which was one of their core differentiators, IIRC; they were much easier to setup than Bugzilla or other competitors).
It makes me appreciate how tough the job is for CEOs like Larry Page or Steve Jobs, who have managed to stay at the leading edge of the industry for years. Larry was pretty insane for buying a small mobile phone startup called Android in 2005, but it turned out to be worth billions eventually.
Tangent: Your description of how people resisted SaaS a decade ago makes me wonder if the only reason the industry did eventually move toward SaaS was that most on-premises apps were such a nightmare to deploy. After all, some of the disadvantages of SaaS, such as lack of control over one's own data, are real. If Sandstorm.io had existed back in 2004, might we have avoided SaaS altogether? (Of course, if Sandstorm.io had existed back then, Fog Creek would still have needed to port FogBugz to Linux.)
I think the move to SaaS was a combination of factors:
1. The primary product of many companies got too large to deploy on their own server farms, and so they started moving toward AWS etc. for scalable hosting. Once your product is in the cloud, it makes sense to deploy your supporting infrastructure & tooling there as well, because otherwise you're paying the support, hosting, & sysadmin costs for just your non-critical corporate infrastructure.
2. Bandwidth became a non-issue. In the 1990s there was a very measurable difference between 10BaseT internally vs. an ISDN line to your hosting provider. In the 2010s, there's little practical difference between gigabit Ethernet vs. 10M broadband.
3. HTTPS became ubiquitous, taking care of many security risks.
5. Employees started to blur the line between work and home, leading to demand for work services that could be used, encrypted, from a user's home network. VPNs were a huge PITA to set up. This was a big issue for much of the early 2000s; one of my employers made some clever network software to punch through corporate firewalls with a minimum of configuration.
6. Development speed increased. SaaS companies could push new versions of their product faster, react to customer feedback quicker, and generally deliver better service. Because all customer interactions go through the company's servers (where they can be logged), they have much better information about how people are using their products. Deployed services were left in the dust.
tl;dr: #1-4 made lots of businesses go "Why not?", while #5 and #6 made them go "Yessss."
It's interesting that many of the arguments about why you should not use SaaS businesses now (like privacy and security, and lack of ownership) were relatively minor reasons then. I do kinda wish (in an abstract way) that something like Sandstorm would catch on, but I think they may be early: SaaS just isn't that painful, and until we have a major shake-out where a lot of businesses get taken out because their dependencies go down, it seems unlikely that it will become so. Or the other way this could play out is that a new powerful computing platform comes out that lets you do things that aren't possible with thin clients, and you see a rush back to the client for functionality.
All very good reasons. I'll add another - accounting.
The monthly bills for small purchases of SaaS fits on what could be expensed on a corporate card. By the time IT gets wind, the product has already infiltrated the organization. If there's a very large up front cost, then IT is involved, you need a formal RFP process, lots of people weigh in, those opposed to the purchase can try and block it... As soon as "Put it on the corporate card" became viable, power moved back to the business units.
With Sandstorm, we could actually get that effect on-prem. Since no technical expertise is needed for deployment, and since the security model is so strong, and the IT department will be able to manage resource quotas on a user basis rather than an application basis, it's actually entirely reasonable that people outside of IT could be permitted to install software without IT approval.
Granted, it may take a while to convince IT people that this is OK, but fundamentally they have every reason to prefer this over people cheating with SaaS.
Actually, not that late. I think their main problem was that the environment changed around them. Besides SaaS, the whole developer ecosystem changed as well: when I look at who really won the bugtracking market, it's GitHub, who added it as a feature on code hosting.
If winning the bugtracking market was the goal, they probably would've taken VC money. You may notice that everyone who's in a position to claim that has done so (Github, Atlassian, etc).
They did learn from this, as you can see by the very different paths StackExchange and Trello are on.
Joel wrote an essay about this. [1] His basic thesis is that organic growth wins over VC when there are entrenched competitors, few network effects, and little customer lock-in. VC wins when there are wide-open markets, strong network effects, and strong customer lock-in. Stack Exchange's investment was consistent with this thesis [2].
The developer tools market changed from one with very few network effects to one with a large network effect around 2010. The drivers for these were GitHub, meetups, forums like Hacker News, and just its general growth - they made coding social. When I started programming professionally in 2000, each company basically decided on a bugtracker and version control system independently, and it didn't matter what every other company did. By 2015, most new companies just use git, they host on GitHub, and if they don't do this, they're at a strong disadvantage when recruiting & training up developers, because that's what much of the workforce uses.
Interestingly, both GitHub and Atlassian resisted taking investment for many years - GitHub was founded in 2007 and took its first investment in 2012, while Atlassian was founded in 2002 and took its first investment in 2010.
