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SaaS: A View from the Front Lines

By Kent St. Vrain, Vice President, Marketing and Business Development, Paxonix

Much has been written about web-based applications, regardless of what you call them, Application Service Provider, on-demand, online, web-based, Software as a Service, etc. The concept has been discussed and written about from many angles, many from an academic or philosophical position. This article is an attempt to apply some perspective from the front lines – those who are out talking to prospective customers about these solutions every day.

We will discuss the difference between currently installed applications that are making the transition to SaaS and those SaaS applications that are completely new to prospective customers. We will also to talk about SaaS concerns that seemed to have lessened in intensity over time and those roadblocks that still exist. Finally, we will examine a new set of items that slow down the sales process; they are only being uncovered as SaaS applications become more prevalent.

Certainly the most recognizable success of an SaaS application is SalesForce.com. But this success is both a blessing and a curse to many SaaS application suppliers. On the pro side, SalesForce.com has given prospective buyers some comfort and confidence in the SaaS concept; on the con side, the success of SalesForce.com can cause some buyers to believe that all SaaS applications have the same characteristics as SalesForce.com. Unfortunately this is simply not that case and this misconception can create significant delays in the buying process.

Perhaps one of the major differences that causes confusion is that SalesForce.com is performing a well-known function that has been well used throughout the industry long before SaaS was even a nascent business model. Most large organizations have had some version of Customer Relationship Management (CRM) for many years. Some used paper and pencil, some used homegrown applications, some used client software that did not contain any centralized database such as ACT or Goldmine, but the application space was well known. Some would argue that SalesForce.com changed the ‘how’ more than the ‘what’ in the CRM space by moving CRM to the SaaS business model. For many vendors who are offering SaaS solutions that are not only ‘new’ due to the SaaS business model, but are also ‘new’ applications that have not been previously available, the level of difficulty is increased since buyers have some degree of knowledge about SalesForce.com. In these cases, the SaaS vendors offering new applications must help prospective buyers ‘unlearn’ what they may already perceive and help them understand not only the ‘how’ but the ‘what’ as well.

Some previous areas of concern are seemingly of less worry today. While there is still very significant scrutiny, as there should be, on security, backup, disaster recovery, etc., there seems to be more interest in understanding the capabilities themselves as opposed to looking for ways to prove that the capabilities are not sufficient.

Some issues remain and will require considerable energy to explain and clarify. The difference between configuration and customization is difficult to portray to prospective customers. Some buyers are conditioned to expect that ‘their version’ of the software will conform exactly to their requirements in both functionality and user interface. And while SaaS vendors are making great strides in the configuration and user interface areas, the SaaS business model continues to be built on the premise that it is basically the same product for all customers.

Total Cost of Ownership (TCO) continues to be executed as a mathematical exercise, which it is at one level. What the arithmetic does not take into account is the risk mitigation that accrues to the buyer because much of this risk is transferred to the SaaS vendor. Should conditions inside a user organization change and necessitate the curtailment or discontinuance of a software solution, the difference in cost to accomplish this is dramatically in favor of the SaaS model. While there may be some cancellation charges, these costs pale in comparison with downsizing and restructuring costs, excess capital expense, and sunk costs such as consulting contracts and development expenses that are incurred when a traditional software application is decommissioned.

Interestingly, as those of us in the SaaS market have more and more success in the market, we uncover a completely new set of speed bumps and challenges. These issues are not insurmountable by any means, but they certainly slow down the budgeting, purchasing, contracting, implementation and adoption of SaaS applications.

All of these issues revolve around, not surprisingly, the only context customers have for the procurement of a software solution: Traditional, behind-the-firewall, on-your-own-servers, years-of-consulting software procurement.

Early in the process there is an issue of simple budgeting for SaaS solutions. Customers traditionally budget a very large amount in the first year to account for traditional upfront software license fees. For subsequent years, they budget a smaller amount to account for the 20% or so of the license fee for traditional maintenance. This is generally incompatible with the SaaS business model’s subscription-like pricing. This may create issues in that once the budgets are cast it is difficult, in most large companies, to make budget adjustments that move budget money between fiscal years.

We know that there are many different pricing models in use by SaaS companies. Subscription pricing, concurrent user pricing, per transaction pricing, pay as you go, metered usage, etc. are all appropriate for different SaaS companies who are in different businesses. This is, again, incompatible with traditional software purchases that are, for the most part, structured in a consistent manner across almost all traditional software applications.

The procurement and contracting process is a significant hurdle, in our experience, since nearly all terms and conditions documents as well as virtually all contracts are boilerplate that are based on – you guessed it – traditional software structure. Delays of more than 90 days are not uncommon as both the SaaS organization and the buyer’s organization try to deal with the differences in expectations. Simply understanding and defining terms can be a daunting task. There is no nomenclature related to software licenses in the documents that need to be signed for SaaS solutions, but there are large sections on intellectual properties. These differences are foreign to most buyers and require many hours of discussion to resolve. The customer’s customary purchasing and contracting boilerplate does not contemplate these factors or the various pricing methodologies currently in use by SaaS vendors. And, as we all know, customers are loath to use boilerplate that is created by vendors. Again, not an insurmountable task, but one that slows the procurement process.

Success breeds success. As more SaaS applications are being successfully sold and implemented, the potential buyer’s confidence level increases and we all benefit from this change in mentality. As we are more successful, we will undoubtedly uncover additional areas of concern and difficulty. It is incumbent on us to simplify our pricing structures and to simplify, as much as possible, the procurement and contracting process.

In short, we all have the ability to help our potential customers to learn how to procure, implement and increase adoption of SaaS applications. The sooner we each accomplish this goal, the better it will be for all of us. Good Selling!

Kent St Vrain is Vice President of Marketing and Business Development of Paxonix, a company which helps drive business success by accelerating branding and packaging processes across the entire enterprise, improving quality and reducing rework. He is responsible for the company’s partnering and marketing activities. Kent started his career in sales at Lanier Business Products and held a variety of sales, marketing and sales management positions in both the Dictating and Word-Processing Divisions. Subsequently, he spent 16 years with Digital Equipment Corporation in a variety of management positions in the Educational Services, Marketing Communications, Channels Management, Systems Integration and Corporate Accounts organizations. Most recently, Kent served as Vice President, Corporate Accounts. He also served as Vice President of Sales and Marketing for Polaroid Identification Systems and has been involved in start-up companies as well as having founded a sales consulting organization. For article feedback, contact Kent at kent.stvrain@paxonix.com

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