Churn Rising Among SaaS, Hosted Subscribers: Gartner - InformationWeek
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3/23/2009
06:30 PM
Bob Evans
Bob Evans
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Churn Rising Among SaaS, Hosted Subscribers: Gartner

Subscribers to software solutions with a fixed duration are shopping around more vigorously for replacements and cost-cutting is a major motivator, a Gartner blogger says. The frenzy hasn't hit on-premises software companies nearly as hard because their perpetual licenses are, well, perpetual -- so in that universe the churn-and-burn season never happens.

Subscribers to software solutions with a fixed duration are shopping around more vigorously for replacements and cost-cutting is a major motivator, a Gartner blogger says. The frenzy hasn't hit on-premises software companies nearly as hard because their perpetual licenses are, well, perpetual -- so in that universe the churn-and-burn season never happens.Noting that she's taken several calls this month from clients whose subscriptions are about to end, Gartner's Debbie Wilson said this spring flinging is occuring at SaaS as well as hosted providers. "Cost-cutting is driving a fresh look at pricing, even when the client is satisfied with the vendor," Wilson writes, adding that "reviewing the options and testing the market is a best practice before rolling over ANY contract."

Insulated from these courtship rituals are the traditional on-premises vendors, because their contracts have no designated end-point to serve as inspiration for customers to evaluate alternatives and push for better deals. Not so for providers of non-perpetual solutions, Wilson says: "But in procurement, where alternatives are plentiful…this phenomenon may spell some long-term pain for SaaS vendors."

This "micro-trend," as Wilson calls it, highlights the widening gap between the subscription and perpetual models: as long as customers are willing to sign contracts that lock them in until the sun grows cold, on-premises vendors would have to be nuts to consider pushing alternatives to those converts. The predictable revenue streams from associated maintenance contracts, fed by an ever-widening circle of customers, are what led Oracle co-president Safra Catz to tell analysts last week that she thinks Oracle can push its margins above 50%. In return, customers can be confident that their on-premises vendors have contractual commitments to support, enhance, and upgrade their products in perpetuity.

Meanwhile, it's ironic that the non-premises providers Wilson blogs about as coming under increased scrutiny for lower prices represent the enterprise-software channel that in fact kicked off the less-expensive approach. So, should Wilson's trend play out, it will indeed result in some very serious long-term pain for SaaS vendors.

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