What happens to SaaS in a tough economy?

October 17, 2008

What happens to SaaS in a tough economy?

I participated in a SaaS event this week that was sponsored by IBM.  It was sort of a funny feeling to be at a very good, positive event that focused on SaaS as a platform right in the midst of an economic meltdown.  In some ways, I had one of those out of body experiences. What am I doing talking about the future of SaaS when the world seems to be crashing and burning. As we sat listening to speakers and talking to each other the stock market went down 700 points. I met many different software executives from companies that are creating very significant SaaS based offerings — and they are getting good traction from their customers.

But the question remains and one that I will attempt to answer is what will happen to SaaS in this economy. I think that SaaS is going to be hugely successful in this economy. First, it is clear that customers are growing increasingly comfortable with the idea of using software that is managed by a third party vendor and hosting provider.

Now not all these vendors are equal. It is actually tricky to ensure success in a SaaS world.  After all, if you buy a regular software license and then decide that the software is not as good as you thought, you are stuck. Now, next year you might forgo the maintanance fee, but you still own the code.  It is different with SaaS. If you decide to take on the 30 day free trial there is no guarantee that you will become a life long customer. Likewise, if you do take the plunge and sign on for a month or two, there is also little guarantee that you will become devoted to the application. My point is that becoming a good, profitable and predicatable SaaS vendor is harder than it looks. Basically, you’ve got to be pretty good to make it.

Now, back to the economy and SaaS. Customers who will still need software even in a horrible market are going to think twice about captial expenditures.  Do you really want to spend a lot on servers and storage and the like? I predict that in tough economic times paying someone a monthly or even a yearly fee and letting them buy the capital intensive stuff will be just the ticket.

So, I think you will see the really smart SaaS vendors that know how to proactively nuture their customers so that they will really use their technology will win.  These smart SaaS vendors will also figure out the meaning of scalability, performance, and managability.  They are already figuring out how to make their software configurable and they are even creating versions that appeal with vertical market segments.

This economic climate may be making us all a little crazy and scared but there are some nice opportunities for those who are willing to solve customer problems. This will be the beginnng of the SaaS renissance and I think it will be a positive move for customers and the market.

About Judith Hurwitz

Judith Hurwitz is an author, speaker and business technology consultant with decades of experience.

  1. […] pundit Judith Hurwitz (http://jshurwitz.wordpress.com/2008/10/17/what-happens-to-saas-in-a-tough-economy/), regarding a tight economic climate, expressed it this way:  “Customers who will still need […]

  2. Great post. The key is to deliver value, but also to ensure process transparency, and to ensure that customers have the opportunity to participate in the product development process – especially for enterprise applications. For enterprise applications, the cost differentials are most dramatic because of the high development costs.

  3. You make a great point about SaaS providers proactively nurturing their customers so they will use their product. I think there is a lot to expand on here. “Nurturing” could include a whole bunch of practices that turn your customer into a “raving fan” and not only love your product, know how to use it, and get high value from it, but love to tell their friends and colleagues about your product without any extra incentive on your part. We normally refer to this type of nurturing as “White Glove Support.” It means you proactively manage every aspect of your customers’ experiences to give them the most value as early as possible. Think how happy (and probably shocked) you would be if you ordered a new cable and internet service and the company called you up to help you install it, set it up, and make sure you knew how to change the settings and get more value from it. You would probably tell your friends about it and you would definately be a long-term customer. The same thing applies to SaaS providers trying to get ahead, and with the current economic problems, making sure every single interaction with your customer is what it should be is more important than ever. andy[dot]ridinger[at]muralconsulting[dot]com

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