Research Summary: Shape Your Apps Strategy To Reflect New SaaS Licensing And Pricing Trends

Published on April 16, 2009 by R "Ray" Wang

FORWARD AND COMMENTARY
“Shape Your Apps Strategy To Reflect New SaaS Licensing and Pricing Trends” represent the seventh report in an on-going series to provide clients with insight on how to better align their packaged apps strategies.  As more and more clients seek SaaS solutions as options to pipe in innovation and potentially control costs, clients should be aware of how to build a SaaS strategy that remains sustainable and prevents vendor-lock in.

Other documents as part of the ongoing series on packaged apps strategy include:

  1. Why You Need A Long-Term Apps Strategy
  2. Forrester’s Long-Term Packaged Applications Strategy Framework
  3. Does Your Apps Strategy Support Your Corporate Business Drivers?
  4. Packaged Apps Strategies Take A Back Seat At Most Enterprises
  5. The ROI Of Packaged Apps Instance Consolidation
  6. Five Steps To Building A Recession Proof Packaged Apps Strategy
  7. Shape Your Apps Strategy To Reflect New SaaS Licensing And Pricing Trends
  8. Third Party Apps Maintenance Rebounds
  9. Craft Your Negotiations Strategy To Reflect New Packaged Apps Licensing And Pricing Trends

RESEARCH HIGHLIGHTS

A. Introduction

Recessionary forces drive applications professionals to seek new delivery models such as software-as-a-service (SaaS), platform-as-a-service (PaaS), and other XaaS (X-as-a-Service) models. But with these options’ upfront benefits in choice, value, and predictability come new ownership risks that applications professionals and business stakeholders should explore. Forrester’s review of 11 vendors in SaaS enterprise resource planning (ERP), customer relationship management (CRM), and supply chain management (SCM) confirms that, motivated by heavy competition for new customers, these vendors remain vigilant in mitigating such end-user concerns. In fact, SaaS vendors continue to improve and refine subscription models for new buying scenarios beyond cost/user/month. Forrester recommends that all applications professionals include SaaS in their firm’s long-term packaged apps strategy and that they take five key actions to mitigate risk while avoiding lock-in.

B. Research Findings

The Recession Is Driving Increased SaaS Adoption 

Faced with impending IT budget cuts, increasing business demands, and the encumbrances of legacy packaged apps, enterprises are increasingly turning to true multi-tenant SaaS delivery options during the downturn.  SaaS adoption as part of a long-term apps strategy keeps growing because:

  • Subscription pricing reduces capital expenditures (capex).
  • SaaS enables more-rapid deployment.
  • Enterprises expect frequent updates with new functionality.
  • Business leaders drive more and more software decisions.
  • Vendor success generates buzz and increased interest.

Vendors Demonstrate Continued Evolution And Value of SaaS Pricing Models
Forrester analyzed the completed, work-in-progress, or ongoing initiatives for the latter half of 2008 for seven SaaS applications vendors. The software licensing and pricing trends Forrester found include refined pricing models, new bundling and unbundling options, and a focus on fixed-price implementations. Specific trends for these SaaS apps vendors include:

  • Amitive delivers a usage-based model to foster collaboration and community participation.
  • Intuit attaches a SaaS services model to on-premise QuickBooks Enterprise Solutions.
  • Intacct reduces the barrier of entry for SMBs while simplifying channel pricing.
  • NetSuite continues to expand vertical-edition bundling and flat-fee pricing for add-ons.
  • QuickArrow delivers choice with tiered and bundled user-based pricing models.
  • salesforce.com provides more value for existing license fees and more user tiers.
  • Workday maintains a simple subscription pricing model based on company size.

Recommendations – Adopt SaaS Benefits While Mitigating Risks In Your Long-Term Apps Strategy

Keep in mind that while cost/user/month SaaS pricing models may seem simple at first, factors such as connection points, storage, support, and module-based pricing can quickly add to their complexity. In addition, true multitenant SaaS models leave users without the software code should the vendor go bankrupt or the client choose to end its relationship with the vendor. While considering SaaS as part of a long-term apps strategy, enterprises should follow these simple suggestions to get the most out of SaaS and mitigate risk:

  • Balance pay-as-you-go month-to-month terms with long-term contracts.
  • Compare SaaS versus on-premise over an appropriate period.
  • Understand long-term ownership implications.
  • Seek more than just refunds for outages in service-level agreements.
  • Choose a financially viable SaaS vendor or seek a software escrow-like mechanism.

C. Report Links

Click on the link for the detailed report along with the “What It Means” and “Alternate View” for: Shape Your Apps Strategy To Reflect New SaaS Licensing And Pricing Trends. For media courtesy requests, please send me an email to rwang@forrester.com

Your POV.

Would love your feedback on the report.  You can post here or send me a private email to rwang0 at gmail dot com.

Copyright © 2009 R Wang. All rights reserved.

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