Cloud // Cloud Storage
Commentary
3/5/2009
09:01 AM
Bob Evans
Bob Evans
Commentary
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Do CIOs Want SaaS Contracts To Extend To 3-5 Years?

Blogger Vinnie Mirchandani says that while today's duration for SaaS deals averages 1.5 years, "the secular trend is towards higher renewals…and multiyear deals. SaaS will likely become like outsourcing contracts -- 3, 5, 7-year deals." Sounds good in theory, but will CIOs go for it?

Blogger Vinnie Mirchandani says that while today's duration for SaaS deals averages 1.5 years, "the secular trend is towards higher renewals…and multiyear deals. SaaS will likely become like outsourcing contracts -- 3, 5, 7-year deals." Sounds good in theory, but will CIOs go for it?Writing about disruptive trends and economics in technology on his deal architect blog, Mirchandani says CIOs will be more likely to accept longer-term deals if SaaS vendors "allow customers more expansion/contraction options over the term of the contract." With that, Mirchandani highlights another key issue in the bitter battle Salesforce.com is waging against Oracle, Microsoft, and SAP.

That could provide significant value for SaaS vendors for two reasons: First, it gives those vendors a more-predictable revenue stream and lets them step away from having to run a permanent campaign to re-sign customers year after year; and second, it gives Wall Street a well-grounded rationale to consider raising the valuations for successful SaaS vendors.

Under the current model, Mirchandani says, with signed SaaS deals averaging 1.5 years, "Wall Street does (and should) not assign a value to that 'likely' deferred revenue beyond that" limited term.

In return, SaaS vendors will need to give CIOs the type of flexibility Mirchandani highlights as well as perhaps a few other perks such as a limited degree of customization, or premium-level security assurances.

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