Saturday, December 13, 2008

SaaS Customers Hold Hammer

Software-as-a-service vendors are exceptionally reliant on retaining accounts because they incur heavy up-front costs to sign up a new customer. They often don't turn a profit on a given account for several years.

Their competitors are well aware of this, and companies like Oracle put a full-court press on customers who have SaaS agreements up for renewal, knowing that even if they don't win the customer, they're costing the SaaS vendor that much more money to hold onto their account.

On the other side of the coin, SaaS vendors increase user fees and up-sell customers on new modules in the later years of their relationships with customers in order to make up the difference.

This is where an informed customer can help themselves. SaaS consultant Phil Wainewright makes the following points:

  • Inevitably, there are bound to be some discontented customers who want to evaluate alternatives
  • There will also be contented customers who are savvy enough to drive a harder bargain when renewal time comes around
  • As a trend, customers presumably are getting more comfortable with the on-demand model and therefore may be signing shorter contracts than they did when first switching from conventional licensed software with its three to five year upgrade cycles — thus giving more frequent opportunities to renegotiate renewals.
So on the one hand, SaaS vendors have successfully entered the mainstream, and no longer have to evangelize their business model. It's understood and accepted that it works. They have convinced customers that they no longer have to put up with conventional on-premise vendors who abandon them once the license fees have been cashed.

The flip side of this turn of events is that customers are now just as comfortable switching SaaS vendors as they were with switching from on-premise to SaaS in the first place.

This state of affairs gives customers, finally, the hammer over vendors that had for too many years over-promised, under-delivered, and only bothered communicating with them when it was time to sell them a new module.

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