A lot has been written about the benefits of SaaS to customers, but Jeff Kaplan beautifully describes what I think is the KEY advantage in his Datamation article How SaaS Changes the Vendor-Customer Relationship.
Jeff says:
"SaaS shifts the responsibility of successfully deploying and maintaining software applications from the customer to the vendor. This moves the burden to the vendor to ensure the success of the application."
"...vendors are under more pressure to ensure their solutions satisfy their customers’ requirements or they risk abandonment."
SaaS vendors live or die on their renewals. It's not widely talked about, but since vendors don't collect big upfront license fees, yet still incur costs of customer acquisition, a customer often doesn't become profitable to a vendor until the second or third year. So if the customer doesn't renew after the first year, you got it, the vendor loses money.
With premise-based software, vendors aren't nearly as motivated to get customers up and running, which explains why so much of that software sits on a shelf. But with SaaS, if six months goes by and the customer still hasn't rolled out the application, then worst-case, the customer won't renew, or more likely, will negotiate a lower subscription fee to, in effect get another 6 months for free or pay for fewer users.
I'm seeing a trend building where SaaS customers are starting to push back on annual subscription fees in favor of utility-based pricing models that are more reflective of the actual usage and value the customer is getting from the system. For example, in a hiring application they want to pay by job post.
This means an even smaller, or no upfront subscription fee for the vendor, and revenue only when the system is used. With this model, the vendor is motivated to get it deployed, users trained, and the app ingrained as part of the business process it supports. Otherwise the meter doesn't run.
SaaS vendors should read Jeff Kaplan's article and arm their sales reps to talk about the REAL benefit of SaaS to the customer.
