I’m noticing a very interesting micro-trend in my inquiries this month. I’ve taken several calls from clients who are nearing the end of a subscription to a software solution and are now taking the opportunity to look around. Some are accessing their solutions via hosted delivery, others via SaaS. Either way, the impetus for the market survey is the same: when access to a solution is about to end, few organizations these days can justify simply “renewing” an arrangement. Cost-cutting is driving a fresh look at pricing, even when the client is satisfied with the vendor. Whether an organization is cost cutting or not, reviewing the options and testing the market is a best practice before rolling over ANY contract.
The implication of this phenomenon is that SaaS/hosted vendors are likely to see greater levels of customer churn that traditional on-premises solutions providers. In a perpetual license deal, there is no corresponding natural “point” at which a customer would pause and contemplate their options. As a result, I believe that on prem users are much less likely to have a formal look around several years into their agreements.
The outcome of these subscription-expiration based sourcing projects will of course vary considerably from one product type to another. But in procurement, where alternatives are plentiful . . this phenomenon may spell some long-term pain for SaaS vendors.