Key Areas To Consider In SaaS Contract Negotiation

With the Sourcing and Vendor Management Forums coming up next week in Miami and at the end of the month in London, our team is busy finalizing content and rehearsing sessions. Personally the hottest question I have continued to get since the keynote I did last year on SaaS sourcing is the question of SaaS pricing and contract negotiation. So, what can you expect in the track session “Negotiating Cloud Pricing and Contracts” for those of you who can join us?

New data from the Q3 2011 services survey showing:

  1. SaaS is disrupting spend on traditional services. Nearly half of the firms we surveyed say that “as-a-service” spending has reduced spending on traditional on-premises IT spend. And, these firms also say that it will have a noticeable disruptive impact. Out of the firms who say “as-a-service” spending will reduce spending on traditional spend, 30% say this disruption will be 6% or more.   
  2. SaaS adoption has expanded into IT applications and industry-specific applications. Firms are now using SaaS for an increasingly wide range of solutions: horizontal applications like CRM and HR and collaboration applications like email still dominate the trend but now 13% of firms use SaaS for IT software such as asset management and 10% of firms use SaaS for industry-specific solutions such as insurance claims management.
  3. Firms are centralizing their approach to SaaS sourcing and vendor management. The recently gathered data shows a strong trend towards centralized SaaS strategy and formal multi-year plans around SaaS. Not surprisingly, this data also shows that firms expect to see a decrease in unsanctioned, business-led buying.  
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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.
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New Insights On Sourcing And Managing SAP Service Providers

Thinking about setting up a relationship or renegotiating a contract with an SAP implementation services provider? We have some exciting new insights on these third-party firms pulled straight from their customers' mouths.  We collected some great data when we surveyed 186 SAP customers using 19 of the leading SI firms for their implementation projects and saw some interesting trends surface. 

The report, Insights Into Real-World SAP Projects, highlights key areas that sourcing professionals should focus on when selecting a provider: pricing model offerings, SI industry expertise, and ability to measure business benefits.

Pricing Model Choices Correlate With Project Cost

We will be presenting more of these findings in the Insights Into Real-World SAP Projects Teleconference we are holding on March 11 at 11:00 a.m. Eastern time.  You can use the data from these customer interviews and the accompanying  Forrester Wave™ report on SAP SIs, which is due out at the end of February, as leverage for your strategic negotiations with these providers in 2011. 

Click here to register for the teleconference now.

Governing Large Implementation Projects: Execution Is Key -- Findings From Forrester's Recent Sourcing Forum

We met with 30 Sourcing & Vendor Management Professionals during an action session at Forrester’s Sourcing & Vendor Management Forum in Chicago to discuss how to improve governance for large implementation projects. Clients were looking for help across the sourcing life cycle – from determining who manages the RFP process, to determining scope with internal stakeholders, to driving governance after the contract is signed.

What tactics are Sourcing & Vendor Management Professionals using to tackle these challenges?

1. Renegotiate rates with current players. Forrester’s recent survey found that 68% of organizations are renegotiating with their existing suppliers. One attendee said, “This has always been a priority, now we are bringing more efficiency and innovation to the process.”

2. Drive innovation from vendors. Everyone wants innovation from their suppliers but few receive it.  Attendees shared tips for how they overcome major hurdles to achieving this in their supplier relationships:

a. Define what you mean by innovation. Many struggle to get innovation from their providers because they haven’t defined what that means — are you looking for idea-sharing or process improvements? Determine which type of innovation you need and communicate that to your vendor.

b. Identify metrics. “It’s not just how you measure innovation; it’s how you measure successful innovation.” Clients shared a variety of metrics such as:

i. Requiring the vendor to submit continuous improvement ideas they agree are impactful to your organization

ii. Number of ideas submitted for approval

iii. Number approved

iv.  ROI of implemented idea

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Sourcing Groups Prepare For 2011 -- Cloud Is Key Initiative

Sourcing executives are winding down 2010 and gearing up for 2011. Most of the sourcing executives we have spoken with recently are bullish about the year ahead, despite some looming uncertainty about the economy, particularly in Europe. Spend is opening up again, and buyers are investing in more strategic initiatives. But sourcing groups still struggle to balance low cost and high value.

Many of the sourcing groups currently working with Forrester are asking about cloud as a viable alternative to traditional deployment models. Cloud promises rapid deployment, potentially significant cost savings, and variable pricing in line with how buyers want to pay in the current economy. And cloud offerings continue to mature in areas where buyers previously had concerns (vendor viability, security, architecture, location of data). Cloud adoption is already over 25% in North America, and continues to grow in Europe (led by UK, but also growing in areas like Germany, France, the Nordics).

Most sourcing strategies around cloud consist of five key phases:

1.       Understanding the evolving supplier landscape and market maturity across cloud offerings.

2.       Educating business (and potentially IT) about the advantages and disadvantages of cloud.

3.       Building decision frameworks to support cloud purchases.

4.       Creating a contract negotiation and pricing strategy for cloud; building contract templates.

5.       Working with business, vendor management, and IT to routinely evaluate ROI and decide whether to renew relationships or find alternatives (potentially cloud, hosted, on-premise, or hybrid).

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The Rise Of Cloud Sourcing

Enterprises are increasingly turning toward cloud deployment models (including SaaS, PaaS, IaaS, etc.), attracted by promises of fast deployment, lower upfront costs, and greater elasticity in pricing and consumption models. This trend has been further fueled by resource constraints (capital and people); cloud solution maturity (sophisticated functionality, customization, and integration); and “empowered” workers (seeking DIY technologies to drive business results). However, the growing use of cloud technologies creates new challenges and questions in areas like TCO, security, support, and vendor management.

Enter cloud sourcing. Cloud sourcing typically refers to a model where third parties play a broker and consulting role in helping firms leverage the cloud strategically across business applications.

Cloud sourcing provides alternatives to traditional outsourcing, packaged application implementation, and application development. Cloud sourcing spans applications, utilities, and services. Cloud sourcing strategies include both the use of cloud applications such as salesforce.com and Workday to deliver business applications as well as the sourcing of complete managed processes via cloud applications plus associated services, such as offerings from Capgemini and Wipro.

Forrester will be part of an upcoming panel at Global Sourcing Forum in New York City on October 13 that discusses key elements of and considerations for cloud sourcing, including:

• How strategic sourcing decisions can include cloud-based solutions.
• What SaaS, Paas, IaaS, and BPO mean in the cloud context.
• Practical lessons and best practices for adopting cloud solutions.
• Challenges with cloud sourcing and how to overcome them.
• Emerging providers and solutions for cloud sourcing.

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Forrester Inquiries On SaaS Becoming More Sophisticated, More Around Organizational Design And Skill Sets

Forrester received more than 1,000 inquiries on SaaS and cloud services to date in 2010. With SaaS gaining maturity and even becoming the more common way to deploy software in some categories, firms are increasingly opting for SaaS solutions in place of packaged apps.

With the growing uptake of SaaS, Forrester has seen a change in the nature of questions about SaaS. Firms are not only asking basics around the whens and whys of SaaS but they are also asking more strategic questions around SaaS sourcing and SaaS vendor management, as well as how to set up organizational structure and hire the right skills to succeed with SaaS deployments.

Stay tuned for the full analysis of Forrester's SaaS inquiry data for the first half of 2010, to be published shortly.

Also, for anyone interested in a more in-depth analysis of SaaS and cloud services trends and best practices, we are hosting our first full-day workshop on the topic in Forrester’s Cambridge, Mass., headquarters on September 16. For more details about this event, please click here.

Please share your thoughts and connect with me on Twitter @lizherbert.

Liz

New Global SaaS Adoption Data Shows Emerging Geographies Embracing The Deployment Model

Forrester recently surveyed nearly 3,000 technology decision-makers worldwide and found that emerging geographies -- Latin America, China, India, Russia -- are heavy adopters of software-as-a-service. [Source: Forrester's Enterprise And SMB Global IT Budgets, Priorities, And Emerging Technology Tracking Survey, Q2 2010.]

Latin America led with the highest rate of SaaS adoption, with 30% of companies reporting SaaS use. Latin America also reported a high percentage of budget going to SaaS at 12.4%. (For comparison, North America, where many SaaS deployment options initially saw traction, showed 25% adoption and represented 7% of overall software budgets.)

Other emerging geographies that reported high adoption included emerging Asian countries (China/Hong Kong/India/Russia). This group reported 21% SaaS usage and 8.9% of software budget going to SaaS. More established Asia Pacific economies (Japan/Australia/New Zealand) reported only 16% SaaS adoption and only 6.5% of software budget going to SaaS.

For more on the data including more details and more insight into additional geographies, look for our upcoming report.

Also check out our recent report, “SaaS Adoption 2010.”

Follow me on Twitter @lizherbert.

And share your thoughts!

Liz Herbert

SaaS Pricing Models In Flux

At Forrester’s recent IT Forum in Las Vegas, we conducted a roundtable with several leading software and services firms focused on SaaS around the topic of SaaS pricing trends. Key takeaways:

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SAP Shares Key Customer Initiatives: How Firms Drive Towards Real-Time, Mobile, And Sustainable

At SAPPHIRE NOW 2010, SAP's annual marquis customer event, SAP Co-CEOs Jim Hagemann Snabe and Bill McDermott share insights into how companies strive to align IT strategy with business goals. Three themes: 1) real-time 2) unwired and 3) sustainable.

  1. Real-time. Enterprises need information more quickly; daily, weekly, or monthly updates rarely suffice. At the same time, the amount of data that companies now have available to them is astounding.
  2. Unwired. Firms are increasingly leveraging mobile so that employees, customers, and partners are no longer bound by their IT systems and hampered in decision-making but instead empowered with information and decision tools anywhere. (SAP's acquisition of Sybase adds to their capability in mobile.)
  3. Sustainable. Not just goals towards green and reduction of carbon emissions, companies also want to make sure they get leverage out of their investments; today's technology decisions must make long-term sense on the IT strategy path.

Most organizations who speak with Forrester struggle to balance business goals such as real-time information, mobile access, and sustainability with cost pressures and management of existing IT investments. Firms strive to get the most out of their existing IT investments while balancing investment in newer technologies -- such as analytics, mobile devices, or GRC solutions. Increasingly, IT departments are also facing another challenge -- as businesses can easily go outside of IT to buy and often self-provision new tools to achieve their goals: SaaS and Web 2.0 solutions and mobile devices such as iPads or BlackBerrys.

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