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Do Not Assume SaaS is Pay As You Go

by Robert Desisto  |  October 16, 2013  |  1 Comment

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 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.

Category: cloud-computing  saas  

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 Do Not Assume SaaS is Pay As You Go

  1. Steven M. says:

    It would be nice if all SaaS was pay-as-you-go/pay-as-you-need.

    I have been a part of a few SaaS companies, most of them very small start-ups. I can attest to the need for stability at a company’s young age especially with the long wait to recoup investments in clients.

    Have you ever heard of a SaaS company jumping that gap and changing from one contract-use to pay-as-you-go?

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