MSPmentor

Much like the Dow Jones Industrial Average, our SaaS 20 Stock Index has fallen off a cliff and is nearing bear market territory this year. Indeed, our index — which tracks the software as a service industry — slid another 3.89% for the week ended July 3, and it’s now down 19.63% for 2008.

Here are some of the recent low points — and some reasons to maintain your long-term faith in SaaS.

Of our 20 index members, four companies saw their shares slide more than 10% last week: Athenahealth Inc. (ATHN, -17.2%), NetSuite (N, -11.8%), Concur Tech Inc. (CNQR, -10.64%) and RightNow (RNOW, -10.61%). Dell (DELL, +2.52%) was the only index member to rise more than 2% on the week.

So, what’s ailing SaaS companies? Some of the problems are tied to 2007 hype vs. 2008 market realities. Concur Technologies, for instance, hit an eight-year high in December, notes TheStreet.com, amid all the SaaS hype.

But now, investment firms like Piper Jaffray are downgrading Concur shares because of economic weakness. Piper Jaffray’s downgrade of Concur, which occurred July 2, noted that Concur enjoys “routinely strong earnings performance.”

Translation: Some SaaS companies continue to enjoy strong business models, but not even the on-demand software industry can fully escape from the economic slowdown.

Should managed service providers worry about a SaaS market slowdown or implosion? I don’t think so. Rather, I think SaaS represents a critical land grab right now, especially as managed service providers sort out new opportunities to host Microsoft Exchange, SharePoint and Dynamics.

Still, there will be plenty of turbulence ahead. NetSuite, for one, went from Wall Street darling to dud in a matter of weeks as this stock chart shows.

SaaS certainly won’t lift all boats. But I think survivors in the SaaS market will perform far better than traditional software companies.