Guy Creese

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Guy Creese
Research VP
4 years at Gartner
32 years IT industry

Guy Creese is a vice president and research director for Gartner Research, within the Gartner for Technical Professionals division. He covers a range of topics at the intersection of collaboration, content management, and communications. Read Full Bio

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SaaS vs. Software: Comments on the Pricing Comments

by Guy Creese  |  May 26, 2010  |  1 Comment

I’ve several posts comparing and contrasting SaaS and software. So far, the thread consists of:

I’ve had four comments on the pricing post so far, and I thought it would useful to comment on some of the comments:

I had pointed out that SaaS’s pay-as-you-go model avoided the big cost bumps that software often has and might make companies complacent and not rethink their purchase. One reader said, “I disagree with “point 4″ and think that SaaS actually provides MORE opportunities to rethink and evaluate the purchase. I think it is a great benefit that many cloud solutions have user ratings, reviews and comments capabilities built in, which allow companies to have to work less hard to “hear” what their users are saying.” Another reader felt that because SaaS was less capital-intensive, it would be easier to switch solutions.

I’m not sure about these points. While empowered users may use comments and tell their IT departments what they think about their SaaS solutions, I sometimes talk to IT departments who, truthfully, don’t care what their users think–or really even know what a typical day for a user is. Many IT departments care a lot about keeping the ERP and CRM systems running, but pay scant attention to how information workers collaborate. So while users may signal that they want a better or different system, some IT departments will just ignore them. In fact, many SaaS solutions got their start because disgruntled departments were tired of being ignored by IT, and went out and bought their own.

Not all IT departments behave this way; I’ve also talked to a lot of enlightened shops as well. Some are amateur anthropologists and follow users around for days, trying to figure out what systems would help them do their jobs better.

But when all is said and done, I think many IT shops are driven by the bottom line, and reconsider switching systems only when they turn expensive, not when they’re dysfunctional for the business. It’s easy to measure expensive; it’s not always easy to measure dysfunctional.

As for easily switching to a new SaaS solution, I think it depends on the application. I’ve seen a lot of companies switch web analytics solutions, which is relatively easy for two reasons: first, the required changes are minimal (a few lines of JavaScript pointing to a different server) and second, web sites change so enterprises don’t feel compelled to keep a lot of history around: they start fresh with a new vendor.

However, a SaaS application that stores tons of data that companies want to take with them (e.g., an online collaboration system such as IBM LotusLive, Google Apps, or Microsoft BPOS) I think is a different case. Furthermore, if there’s an embedded data model or taxonomy, it’s a lot of work to recreate that in a new system. I’m hoping that it does become easier to switch with SaaS, especially as standards make things more interchangeable. However, at this point some SaaS vendors will charge customers to extract/convert their data, and I don’t think we’re yet in the “easy switch” era–at least not across the board.

Finally, a reader commented, “The well stated points in this article aren’t so much a comparison of SaaS vs Software, as much as they are a comparison of a perpetual license vs. a subscription license.” Fair point. I can’t think of anything that’s actually preventing software vendors from moving to the subscription license model. I wish they would–it would give them a better feedback loop. At the moment, many vendors think their software is a rousing success due to large sales; but sometimes when I talk to clients I find out it’s actually shelfware. True, falling support revenue is something of a proxy for poor software, but moving to a subscription model would make vendors really pay attention as to whether they’re continuing to deliver business value to their customers.

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1 response so far ↓

  • 1 Su Doyle   May 26, 2010 at 5:10 pm

    Guy,

    Good points on the enterprise to SaaS transition.

    Having put together product plans for many software companies, I’ve observed that there’s a natural resistance to sacrificing “make the quarter” enterprise sales figures for slow burn subscription sales.

    Unless there’s a new division, new product set, response to competitive threat or the willingness to eat one’s own lunch, it’s difficult for many CEOs & CFOs to make the change. Not that it can’t be done, but it requires resetting expectations with investors and significantly changing the sales model. (and that means setting commission expectations for sales as well!).

    –Su Doyle
    @sudoyle