In recent conversations with Gartner clients I was surprised to see clients are stunned that SaaS vendors do not provide ”Pay as You Go” contracts. SaaS contracts are typically per user per month price with a minimum annual or multi-year volume commitment with no ability to reduce users. In other words, if a you sign contract with a vendor for a 1000 users for a three year term, you will pay for those 1000 users over the term of the contract regardless of actual usage. In addition, clients are also surprised that a vendor often requires a pre-annual cash payment (again not all vendors but most).
I am not taking the vendors side but I clearly understand the vendor’s motivation. A SaaS vendor needs predictability in their revenue and want cash to fund future capacity expansion in front of demand. The fact is vendors are driven by maximizing shareholder value. Cloud purists like to site vendor examples where there is “Pay as You Go” and state vendors who don’t conform to this are not true cloud providers. Really? So does that mean salesforce.com and their billions of revenue is not cloud? I am not willing to go that far, in fact, if you look at most enterprise SaaS providers they do not do “Pay as You Go”.
The fact that the vast majority of enterprise class SaaS vendors don’t provide “Pay as You Go” is no reason not to use them. There are other benefits from SaaS such as time to market and agility. The point is one should not base their decision to move to SaaS because they believe they will gain flexibility that for the most part is not available.