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.

Can Free Be Enterprise Class?

One of my early mentors, Jaz-Michael King, once explained to me that all "enterprise level" means is that the product includes various pricing levels.

It was not meant as a joke.

Josh Greenbaum, a terrific analyst who makes his money consulting in the world of enterprise software, notes that free software of the sort offered by Google doesn't always work properly, and that companies who rely on free software get what they pay for.

There are lots of other examples of getting what you pay for: I recently went on Facebook to actually try to conduct some business (as opposed to the unrepentant socializing I normally use Facebook for.) That happened to be one of the moments Facebook was performing like one of the kids it was originally intended to server: balky, recalcitrant, and, in the end, largely useless for the function I was trying to get it to perform. I’ve seen Gmail do some similarly amazing things, not-ready-for-primetime things, including resetting my password randomly and being plain unavailable at the very moment I need it the most.

There are several problems with that position, one of which being that I've never seen Gmail behave the way Josh describes. Earlier in his post, Josh also described a glitch involving Google Calendar that could just as easily been user error--which is what SAP would have said if the problem had occurred on its watch.

Which brings me to the next problem with Josh's argument: enterprise software vendors have done such a good job of proving that you don't, in fact, get what you pay form that SaaS vendors like Salesforce.com have been able to bust into the market with unexpected ease by exploiting the foibles of licensed software vendors, and the anger they have engendered in their customers.

No doubt that free software has its issues--but so does software that companies pay for. Customers need to ask themselves which form of troubleshooting they'd rather pay for.