Wednesday, March 10, 2010

SaaS Myths Series - Part 1

This post will be the first in a series designed to expose/discuss/debunk myths, or at least extreme exaggerations, about SaaS business applications. I am very much a SaaS advocate, but expectations are so grossly out of synch with reality that I felt it time to "bust" a few SaaS myths.

Myth #1

SaaS vendors have to earn your business every subscription period (month, year, etc.) or we will be easily replaced with a better vendor, therefore you can trust us to be more focused on your success.

The Truth

This is a particularly pernicious myth because it has its roots in a few grains of truth. Myth #1 is true, ONLY for applications that don't do very much or are used by very few people in a given organisation. However, if your SaaS application is strategic to the business, used widely, functionally deep, or heavily integrated with other IT assets, changing it will be far more costly than a few extra months of subscription fees to cover the overlap. And, the larger the organisation, the more costly it will be.

Don't think SaaS companies don't understand this either. You may not find it in their marketing, but quite often the SaaS business model is "acquire customers at almost any cost, retain them, and cross sell them your new products." It's lovely to believe that SaaS vendors have to "earn your business every day", but after you've spent five months and half-a-million dollars/pounds/euros implementing your shiny new SaaS HRMS, you won't be very keen on repeating the experience.

While I applaud RightNow for its aggressive approach toward giving customers more rights, I have to point out that absent pricing information, their marketing push is rather irrelevant in reality. Contract termination at customer convenience, marvelous, but at what price? RightNow is savvy enough to know that terminating is not at all easy for their customers nor anyone else's. Furthermore, after around three years, a SaaS vendor is really going to start making serious money compared to a traditional on-premise ERP type vendor over the long term.

One implication for all of us though should be the recognition that if a SaaS vendor is replaced or terminated, the state of affairs with that customer had to be very bad indeed. Buying organisations need to be aware that choosing a SaaS vendor for strategic business software is still a process of picking a long term partner that is not easily discarded. Choose vendors carefully and with proper diligence. It's just not that easy to get a new one.

Now for the good news. At least it wasn't eighteen months and three million dollars/pounds/euros spent implementing a dinosaur ERP like Oracle, PeopleSoft or SAP.

1 comment:

Anonymous said...

When can we expect Part 2?