For Small SaaS Vendors, The Benefit Of A Free Tier Is To Attract Partners

Recently, I published a report about a small software-as-a-service (SaaS) vendor, Dimdim, which is having success in the crowded Web conferencing market. Like many small vendors, Dimdim provides a free service tier, generously allowing up to 20 participants into the free meeting, to help drum up business. The report, though, did not simply highlight the number of users that Dimdim has captured in four short years of existence -- over 5 million -- but also its success in attracting partners like Intuit, Novell and Nortel CVAS. Why? For new vendors entering crowded markets, attracting partners is vital for two reasons:

  1. Partners open doors to new markets. In crowded markets, incumbent vendors and new entrants jostle to serve customer needs. For the new entrants, the customers that can be wrangled through media hype and analyst buzz is minimal. Mass appeal comes from firms with strong working relationships with a range of buyers in a number of markets -- e.g., oil & gas, healthcare, government -- embracing a small vendor's offering and introducing it to their clients.
Read more

A Switch And A Miss

You might be surprised to find out how worked up I can get about an issue like switching costs (a.k.a. lock-in). It's a question worthy of at least a little emotion, since it affects the fortunes of technology companies: Under what conditions would a customer switch to a different vendor for the same product or service?

The question has returned with a vengeance with the increased adoption of SaaS and PaaS technologies. Tech vendors are happy to use the cloud as an easy way to attract customers, as long as it doesn't turn into an equally easy way to lose customers. 

What gets my dander up is the simplistic, puerile way in which people sometimes discuss this issue, particularly in regard to SaaS implementations. Here are a couple of examples.

Cost Of Switching
How do the switching costs of an on-demand solution compare to an on-premise alternative? Clearly, the cost of switching from an on-demand solution is not zero, and yet you still find in some discussions of SaaS the assumption that customers will leave willy-nilly. Nor is the cost of switching the same as an on-premise solution, but you'll find people speaking about the two as if they presented the same migration and implementation challenges.

Read more