SaaS, TCO, RoI and Billing Myths

Over on CloudAve, Krish posted about a recent Gartner report questioning SaaS adoption and return. In his post, which disagreed with the Gartner findings Krish debunks what he calls myths about SaaS adoption. Krish and I are previous colleagues at CloudAve and current collaborators at Diversity Analysis but I disagree with some of his findings – putting on my contrarian hat I’ll look at his three points one at a time.

TCO Myth. Krish contends that In today’s ultra-competitive market with increasingly difficult economic conditions, any business using an older version of a product with features not in tune with modern day business conditions… are sure to lose out to their agile and smart competitors.

This is plain wrong. Yes I’m a hand waving proponent of SaaS and agree that it brings significant value to an enterprise. But there are a number of businesses who are more than satisfied using their “legacy” software and would derive little value from a move to SaaS. If their legacy product meets their needs, then there is no real need for them to upgrade their on-premise software and, as such, Gartner’s assertions about TCO being higher for SaaS are in fact correct.

As an industry we run the risk of sounding like snake-oil merchants if we sell a class of software as completely negating the validity of what has gone before. It’s very simple, there needs to be a business case for a move to SaaS and sometimes, quite frankly, that business case simply doesn’t stack up.

Pay as you use Myth: Krish contends that many SaaS companies prefer pay-as-you-go and that it is in fact business who are often the ones demanding an annual license fee. He says that “I would expect the SaaS vendor to offer both pay as you go as well as long term contracts.”

There are two issues here, customer ease and vendor systems. It is indeed correct that many customers prefer an annual billing cycle to ease the hassle of monthly payments, but it is also a rarely mentioned fact that many SaaS vendors are hamstrung by a lack of good subscription and billing services. It’s a topic we’ve written a whitepaper on but on a daily basis I hear of the turmoil that manual systems cause for vendors.

SaaS vendors need to appreciate that in a subscription economy it is vital to have tools and processes that allow customers to acquire your product or service in a truly subscription way – and that means mid-period scale up/down, automation of chargebacks and all the other complex stuff that the third party billing vendors do.

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