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Current SaaS Vendors Could Become Legacy Dinosaurs Quicker Than You Think

by Robert Desisto  |  December 2, 2013  |  19 Comments

It has been popular to discuss the impending doom of on premise software business models. You often hear the on premise vendor’s dependency on large capital purchases make it difficult to transition to the smoother SaaS subscription revenue stream.  There is no dispute there is an issue with on premise vendors looking to make the transition to SaaS. The real question is: Are the current crop of enterprise SaaS vendors vulnerable themselves?

The short is answer is, yes. The reason is the vast majority of vendors who offer SaaS in the enterprise market do so with a fixed term subscription basis. This means there is no ability for a SaaS customer to pay for what they use, something we commonly see with infrastructure as a service or in many lower end consumer or SOHO applications.  This was supposed to be one of the foundational tenants of SaaS but has rarely been offered because SaaS vendors want large contract lock in.  SaaS vendors were also supposed to be agnostic to the end of quarter or end of year deals. Clearly, in my experience of reviewing 100s of contracts a year, SaaS vendor salespeople behave just like their on premise ancestors.

The bottomline is SaaS vendors will resist to the move to “pay as you go” because it will have a very big impact on their business model predictability. However, all it takes is one viable vendor to figure out the “pay as you go” formula for applications in a market. Once it happens, we will begin talking about those legacy SaaS vendors tied to a dinosaur business model and the whole replacement cycle will start over again.

Category: cloud-computing  saas  software-as-a-service  

Tags: saas-cloud-computing  

Robert P. Desisto
VP Distinguished Analyst
14 years at Gartner
24 years IT industry

Robert Desisto is a Vice President and Distinguished Analyst in Gartner Research. He is responsible for managing the software as a service (SaaS) research agenda. His research focuses primarily on the use of SaaS as a delivery model for applications. Read Full Bio


Thoughts on Current SaaS Vendors Could Become Legacy Dinosaurs Quicker Than You Think


  1. […] (who we deeply hope has collaborated with someone surnamed Cease) popped his thoughts in a blog post that lays much of the blame for the possible extinction event at the feet of sales […]

  2. Interesting view…. and very relevant to the on-premises SW vendors who are trying to switch to SaaS models … their sales organisations and rewards structures need a massive overhaul.

    On the other hand, you may have underestimated the impact of procurement processes and spend approvals on the client side. The decision to deploy a SaaS solution is more important than is indicated by the low cost of the pilot or initial implementation.

    Sometimes a large spend is the only way to recognise the importance of the decision being made… and to account for the cost of organisational change required to realise the full value of SaaS.
    The customers need to change too. My guess is that SaaS sales will evolve with customers buying habits.

  3. […] stock rocket to a $30 billion valuation over the past 10 years. And yet, as Gartner analyst Robert Desisto argues, SaaS companies like Salesforce are deeply threatened by the very thing that once set them apart […]

  4. […] its stock rocket to a $30 billion valuation over the past 10 years. And yet, as Gartner analyst Robert Desisto argues, SaaS companies like Salesforce are deeply threatened by the […]

  5. […] its stock rocket to a $30 billion valuation over the past 10 years. And yet, as Gartner analyst Robert Desisto argues, SaaS companies like Salesforce are deeply threatened by the very thing that once set them apart […]

  6. […] stock rocket to a $30 billion valuation over the past 10 years. And yet, as Gartner analyst Robert Desisto argues, SaaS companies like Salesforce are deeply threatened by the very thing that once set them apart […]

  7. David Rader says:

    Consumption billing can make it easier for an internal chargeback to user departments. Value based consumption is also easier for the customer to control. Resource consumption is a function of the vendor’s architecture and code quality – not controlled by the customer.

  8. New Relic is the SaaS software vendor who is breaking through the old pricing models. New Relic, which provides APM and software analytics to SMB to large, global enterprises, offers a free service, hourly and monthly rates and annual licenses for high volume discounts. The five year old company now has 70,000+ active customer accounts and has been growing its revenue year over year at 120 percent.

  9. […] on that a while ago here, but Gartner Distinguished Analyst Robert Desisto drove the point home in a blog post last week.  He pointed out that it’s not just the on-premises enterprise software vendors that are ripe […]

  10. […] Gartner analyst Robert Desisto notes that suppliers of software as a service (SaaS) for the enterprise continue to resist to the move to “pay as you go” because it will have a very big impact on their business model predictability.  As understandable as that is, SaaS suppliers are vulnerable to viable suppliers willing to offer true “on demand” pricing where users pay on a “usage” basis. Oddly enough, that’s the model some policy advocates think is so detrimental for consumer users. To be sure, there would be winners and losers in a “usage-based” enterprise software market, as there certainly would be in a “usage-based” consumer market for Internet access. Some lighter users would be better off with usage-based billing. Heavy users would pay more.  […]

  11. […] on that a while ago here, but Gartner Distinguished Analyst Robert Desisto drove the point home in a blog post last week. He pointed out that it’s not just the on-premises enterprise software vendors that are ripe […]

  12. […] on that a while ago here, but Gartner Distinguished Analyst Robert Desisto drove the point home in a blog post last week.  He pointed out that it’s not just the on-premises enterprise software vendors that are ripe for […]

  13. […] a while ago here, but Gart­ner Dis­tin­guished Ana­lyst Robert Desisto drove the point home in a blog post last week.  He pointed out that it’s not just the on-premises enter­prise soft­ware ven­dors that are […]

  14. […] on that a while ago here, but Gartner Distinguished Analyst Robert Desisto drove the point home in a blog post last week.  He pointed out that it’s not just the on-premises enterprise software vendors that are ripe […]

  15. Steve Jones says:

    Very interesting analysis and quite likely to be an issue for the elephant in the room, which is really a woolly mammoth in disguise.

    I’m working with a startup (a generic business application platform) that targets Enterprise customers and our intention is to have genuine Pay-as-you-go pricing. So, if ten people use it in January, you are billed for ten users. Later, fifty people might use it in June, so you pay for fifty.

  16. […] on that a while ago here, but Gartner Distinguished Analyst Robert Desisto drove the point home in a blog post last week.  He pointed out that it’s not just the on-premises enterprise software vendors that are ripe […]

  17. Paul Sweeney says:

    100% correct. Also, as functionality matures, there is structural equivalence between vendor alternatives, giving rise to extraordinary price pressure. Next generation SaaS gets paid not for what they do, but for what they know :)

  18. Anshu Sharma says:

    This is not really true. There is a lot of companies that are happy to sell you on a month to month plan if you pay full list price. You get a discount to sign up for longer term and it usually aligns well with how bigger companies make decisions – typically on an annual basis but often in 2 to 3 year cycles.

    And, even if the smaller startups offered this and it became a key factor – it is NOT disruptive because its relatively easy for bigger SaaS companies to offer this as an “option”. Not at all similar to SaaS vs on-premise issue where you have a business model capability mismatch, delivery capability mismatch etc. There is no room for real disruption here. Innovation, perhaps…

  19. […] Rob Desisto, my former Gartner colleague, observes […]



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