by Randall CraigFiled in: Blog, Make It Happen Tipsheet, Technology, ViewpointTagged as: Cloud, Technology
There is no doubt that software as a service (SAAS) has revolutionized almost every aspect of the IT world: from how software is developed, deployed, marketed, and supported. But are there downsides? Have we been so taken by the benefits, that we sometimes ignore the downsides?
If you are one of the very few who are not sure what SAAS is all about, it is the movement to rent software on a monthly basis, rather than purchase it outright.
For software vendors, the benefits are huge:
And for software buyers, there are other benefits:
Given all of the benefits, it isn’t surprising that SAAS has become such a gold rush, particularly for software vendors. And with Microsoft’s decision to focus on selling their Office software (“Microsoft 365”) using this model, it can be said that the SAAS market tipping point has finally been reached. But is all well in SAAS-land from a buyer’s perspective? Or are there rocky shores ahead?
Unfortunately, between vendor greed, many buyers’ unwillingness to commit to an ongoing cost model, and for those that do commit, a growing alarm at the sheer number of hits to their credit card each month, not all is well.
Vendor greed: As the functionality of the software is the very same for everyone, it seems only reasonable (from the vendor’s perspective) to price it the same for everyone. Yet, there are really two very different market segments for any SAAS product: new customers, and existing ones. The existing customers are the ones who have established the vendor’s brand equity, not just through their past purchases and their usage, but through their referrals, recommendations, and word of mouth. They have loyalty, and often feel a personal connection to the brand. When this is not acknowledged in any way – and pricing is very front-and-center in SAAS – there is a disconnection: brand equity (and loyalty) suffer. Pricing needs to be perceived as fair, and it must acknowledge loyalty. One only needs to look at Cable TV operators for an old school example: they routinely give massive discounts to new customers, while stealthily increase fees for their loyal subscribers. The result is zero trust, and a market that was keen to abandon when an alternative became available – such as Netflix.
Unwillingness to commit: In the olden days, organizations would do a lease vs buy calculation before any major purchase: it is no different today with SAAS, although not everyone recognizes the need to analyze it in those terms. Recently, a professional colleague was told that there would no longer be any upgrades for his purchased system (audience response “clickers” and the controlling software), but he could “upgrade” to a cloud version and get the needed upgrade that way. From the vendor’s perspective, moving to SAAS was a way to switch the business model from selling hardware (a one-time purchase) to selling software as well (an annuity).
The original cost was approximately $10,000, mostly for the hardware; the SAAS “offer” was about $4900, per year. Says the buyer: “for the number of times that we use the clickers, this isn’t feasible. Instead, we will sell the clickers, and use that money to rent a competitor’s system when needed, at a fraction of the cost.” In this case, perhaps vendor greed was also a factor, but the core of this customer’s decision was a desire to avoid any move into a SAAS model for a product they already bought. Or said another way, they had done the lease-vs-buy calculation years ago, made the decision to buy, and still felt that way.
Growing alarm: Have you looked at your credit card statement recently, and highlighted all of the SAAS charges? Were these charges there, even a few short years ago? (Likely not.) Here is a selection from my card:
In my case, I can absolutely say that there is value in every single one of these SAAS expenditures. But that doesn’t take away from my growing personal discomfort with how many are there, nor the growing aggregate monthly cost. Or that many of these are just simply not available in a “purchase” option, without significant downside.
Notwithstanding these issues, there is no question that SAAS is here to stay – but there still are many customers who have reservations. What might the future of SAAS look like? Here are 11 predictions:
Not all SAAS “businesses” are the same. Like the dot com crash of 2000, and the death of many social media sites 15+ years later, not every SAAS business will survive. SAAS customers must do their due diligence on the financial stability for any strategic SAAS relationship, and have a “plan B” in case of unexpected shut-down. It would also be worthwhile considering a “plan C” in case the SAAS vendor decided to change their business model to one that was no longer economically viable for you. (Yikes!)
More to do: SAAS has changed how organizations (and individuals) purchase technology forever. This week, inventory your current SAAS commitments: sometimes the reason for initial sign-up no longer exists, but the charges continue to pile on. And then look at your legacy software, and consider whether moving them to the cloud has merit.
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