RightNow promises an end to SaaS shelfware

RightNow promises an end to SaaS shelfware

Summary: SaaS CRM vendor RightNow today launched a new customer contract proposition that, to me, should always have been on the table from every reputable SaaS vendor. It gives customers a bit more of a break from the lock-in that SaaS represents.

SHARE:

I'm at the top of London's totemic Gherkin landmark tower listening to SaaS CRM vendor RightNow's announcement of what it calls the 'Cloud Services Agreement'. CEO Greg Gianforte is challenging SaaS and software vendors to emulate a proposition that, to me, always should have been on the table from every reputable SaaS vendor. Essentially, RightNow is promising not to take advantage of a buyer-vendor relationship where the provider, to be frank, has the customer's most sensitive parts in a vise. For all the rhetoric that SaaS customers are free to walk away at any moment because of its supposedly pay-as-you-go business model, the truth is that, once an enterprise commits to a SaaS application, it's very difficult to back out of that relationship. People worry about their data being hosted elsewhere, but what's far more critical is that the vendor owns the customer's business processes, and it's highly disruptive to move to another provider once an organization has made a commitment to a specific platform.

RightNow's Cloud Services Agreement makes several key commitments, such as forward price visibility, being able to adjust numbers of seats in line with usage, the right to walk if the vendor doesn't meet commitments and — most strikingly — cash refunds for breaches of the SLA. I suspect a lot of people's first reaction is going to be, surely I get that already from a SaaS vendor? Amazingly, this kind of proposition is a novelty in the SaaS industry. I should add, though, that this is in large part the fault of customers, who are so used to buying conventional licensed software with no guarantees, huge shelfware components and long-term contract terms that they blindly walk into the same arrangements with SaaS vendors without even realizing there might be a better way.

Enterprise buyers like to budget over one-year or three-year periods and in some senses it's more convenient to tie yourself into paying for too many seats because that's the way you've always done things. But SaaS vendors have been taking advantage of that, to the benefit of their bottom lines — RightNow's CEO Greg Gianforte quoted anecdotal estimates that as many as 30% of Salesforce.com seats are shelfware. Today's economic climate, however, forces buyers to scrutinize costs and value for money much more carefully and for that reason, the timing of RightNow's move is well chosen and it's quite likely I think that other vendors will now look at the contract offers they're making to customers and how they can make them more attractive.

I hope at the same time they will also look at some of the other points I've put forward in what I call my five-point code of practice for SaaS vendors. Perhaps I'll have to add a sixth point to bring in some elements of RightNow's new proposition, especially making a commitment that customers won't overpay for seats and usage ('no shelfware'), which is the standout element I think of this new announcement.

Topics: Cloud, Data Centers, Emerging Tech

Phil Wainewright

About Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

5 comments
Log in or register to join the discussion
  • Whats the difference in SaaS lockin vs...

    ...using an onsite third party solution? Can you jump from SAP to Oracle or Vignette to Sharepoint any easier? You're locked in to an extent no matter what type of platform you use so whats the difference with SaaS unless you can't get a mass dump of your data?
    storm14k
    • Difference Saas lockin

      For us that's the point - Saas essentially promised that you wouldn't be locked in (don't buy the hardware and software up front that you need to use for 3-5 years or take a write off). But many Saas vendors blew it and instead locked the client up by getting long term contract commitments. Clients had to choose risking that the vendor would get them "hooked" on the solution and then increase the price, or commit to a long term and know the price. By providing clients the ability to rebalance usage and ultimately terminate on an annual basis while still giving pricing certainty, the client has the flexibility to walk away if we're not delivering the value.
      scarstensen
    • You can indeed get a SQL dump...

      This is not part of the announcement because it as
      always been the case, but RightNow customers can
      indeed get a data dump (raw MySQL or generic SQL)
      at any time. FYI.

      Cheers

      Fabrice
      Fabrice Cathala
  • Packaging, metrics and licensing are key to SaaS success

    I agree with your assessment Phil. Using a "gas tank" licensing model where you buy more on an as-needed basis is a key innovation.

    More broadly, the issue is most SaaS vendors think in terms of the pricing details (price levels and discounts) and ignore the other elements of pricing.

    While these two elements of the pricing "mix" are important, the structural elements are far more important -- metric (what you charge for), packaging (how product is "chunked" up) and licensing (payment stream and rights to use).

    RightNow is a great example of how tweaking the payment stream and packaging will likely increase sales and maintain margin. The frequently-used alternative (tweaking price levels) may also increase sales but will decrease margin.

    I suspect all sorts of good things will happen to these guys -- and they deserve it.

    Jim Geisman
    jimg@...
  • How about base "commit" burstable pricing models?

    When buying bandwidth from a CDN (like Akamai) it's common to negotiate a price that's in the approximate range for a base-level commitment with negotiated burst/overage charges. There are additionally several contract terms that can be added - such as "no penalty to increase commit level during the term" and "annual average and true-up" - that can smooth the costs for variable-usage businesses.

    SaaS ERP and CRM products at first glance might seem to have stable usage over the contract (you don't have wild shifts in your sales or accounting staff in normal times), but even these core systems are used by roles that tend to have more episodic project-based work. Marketing, for example, doesn't run and monitor campaigns every day and have all their staff on board. Campaigns are often discrete events timed for a product launch or major tradeshow. You might need many more (contractor) seats for 2-3 months, then 2-3 months of limited use, then another burst of work.

    In general, any time there is a role that is episodic like this (where customers are tempted to share a single login and cycle it through multiple people) you have an opportunity to embed the product deeper via license terms that allow the customer to give every project employee a seat for that part of the year they're needed.

    Why? When everyone can be expected to use the SaaS product and has his/her own account, then the customer will start to see it as part of the "load factor" (like payroll taxes and benefits and overhead) for all employees. When the SaaS product is just there (like air) the customer can bake it into their stqndard operating processes and employees will tend to use it more.

    Of course, SaaS vendors have to figure out their internal and VAR commission models so "overage" and "mid-contract commit level upgrades" are shared between their hunters and farmers.

    I think this is the real reason SaaS companies tend to oversell blocks of licenses - to continue using traditional commission plans that the sales force understands!
    dstein42