Buyers Scrutinize SaaS Contracts More in H1 2011, As Deal Sizes Grow

The growing realization for SaaS buyers is that if they overlook the details of their SaaS contracts, chances are they’ll pay for it later. Forrester analyzed the thousands of inquiries we receive every quarter to understand the hot button topics in the SaaS space for the first half of 2011. When it comes to on-demand services, we found that people paid more attention to the following three factors in the first half of 2011 than ever before: 

  1. Pricing and discounts. It came as no surprise that people are most concerned about money and are looking for guidance around SaaS pricing and discounts more than anything else. Many of our clients want to benchmark themselves against peers. For example, one client asked, “Is there some benchmark data to compare pricing on B2C web portal (PaaS or SaaS) solutions?” Forrester’s take? Unlike traditional software, most SaaS pricing is publicly available on vendor websites. However, pricing and pricing models are still in flux for many emerging areas of SaaS. Even in more established areas, like HR and CRM, discounts can range as high as 85% for large or strategic clients.
  2. SLAs.  A very close runner-up to the issue of cost is the need for information on service-level agreements (SLAs) and contract terms. One client asked us, “What are the typical service availability and service-level agreements? Up times, scheduled outages?” People are becoming aware that they can avoid future problems by detailing expectations in areas such as uptime and performance. Buyers seek guidance early on and hash it out in the contract negotiation process. Forrester’s take? Most SaaS vendors guarantee 99.5% to 99.9%, outside planned maintenance windows. Clients should put uptime and performance in perspective with what their own IT departments or other alternatives would be able to guarantee. Sure, your SaaS vendor might only guarantee 99.5%, but what is your IT department doing?
  3. Exit strategy. The third inquiry category we’ve been seeing relates to how to protect your company from failed solutions. What exit clauses and exit strategies should be set in place before entering into an SaaS agreement? One client asked us, “What are the typical exit strategies for the cloud?” Another client asked, “What should we expect to pay for early termination fees?” Forrester’s take? Firms should have an exit clause, both for cause and for convenience. For cause, they should not have to pay any fee. For convenience, the vendor may reasonably expect them to pay some fee, but no more than 50% of the remaining contract value. SaaS users should be consistent with backing up data and should have a contingency plan in case of vendor failure. 

To learn more about what our clients are asking in these areas and to read more detailed recommendations, look for our upcoming report “Inquiry Spotlight: SaaS Pricing And Contracting, Q3 2011.”

 

Categories: