The real significance of the SaaS movement is that it fundamentally changes the vendor-customer relationship. 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.
This means that the software has to work to be successful. This wasnt always the case in the past when many software applications were plagued with bugs that needed to be rectified before they were fully functional. It was often up to customers to identify these problems and wait months for a series of updates to resolve the problems.
If a SaaS solution doesnt work, customers are not obligated to continue to use it because they havent made a significant upfront capital investment that needs to be amortized. Instead, vendors are under more pressure to ensure their solutions satisfy their customers requirements or they risk abandonment.
This also means that the application should be able to work without having to be significantly altered or customized to fit into organizations business processes. Again, legacy applications typically need extensive customization in order to operate within many businesses, often multiplying the cost of the software deployment and complicating the maintenance process.
Speaking of maintenance, since many organizations have been forced to customize their legacy applications extensively to meet their specific needs, software vendors often face serious challenges satisfying their customers support requirements because they arent fully aware of their software configurations.
Customers are also reluctant to adopt software updates or upgrades because they are afraid they will seriously disrupt their operations. This means many organizations are unable to take advantage of the software vendors latest innovations.
The one-to-many, multitenant approach to SaaS enable every customer to benefit from the latest updates and upgrades simultaneously. This approach even gives customers with the simplest needs access to the same functional capabilities as those with the greatest demands. For instance, small companies using a customer relationship management (CRM) solution from Salesforce.com can get the same level of reliability, performance and security as major financial institutions with far stricter requirements.
Legacy software vendors have also had a difficult time properly gauging how to improve their applications because they are disconnected from their customers. They rely on their customers, or a myriad of channel partners and outsourcers, to deploy and maintain their software.
This means they get limited visibility into how their applications are actually being used and must guess at how they should be improved to meet their customers changing requirements. The direct connection created between the vendor and customer in the SaaS model gives the vendor greater insight into how end-users are actually utilizing the application so the vendor can continuously enhance the application to meet their customers evolving needs.
As SaaS vendors expand their customer base, they can also accumulate user activity data to generate useful benchmark statistics that can give their customers additional perspectives on industry best practices. This represents a new level of value which isnt possible in the fragmented world of legacy applications.
An indication of the success of this new vendor-customer relationship is the impressive customer satisfaction, renewal and referral levels in the SaaS market.
THINKstrategies latest survey, in conjunction with Cutter Consortium, conducted in Q4 2008 found that well over 90% of SaaS customers were satisfied with the quality of their solutions, planned to renew and expand their use of their SaaS solutions, and would recommend SaaS to their peers. These are levels seldom found in the legacy software world.
As a result, the major analyst firms are forecasting double-digit growth in the SaaS market over the next five years while the legacy on-premise software industry is expected to stagnate.
Customer-vendor alignment has always been a nice idea, but seldom a reality in the past. But, in todays SaaS environment this promise is finally coming to fruition.
Jeff Kaplan is Managing Director of THINKstrategies (www.thinkstrategies.com), an independent consulting firm focused on the business implications of the on-demand services movement. He is also the founder of the SaaS Showplace (www.saas-showplace.com). He can be reached at firstname.lastname@example.org.