Software-as-a-Service Gets Strong Loyalty Marks

Need more evidence of the traction gained by software-as-a-service (SaaS)? Nearly nine out of 10 organizations expect to maintain or grow their usage of SaaS products, citing cost-effectiveness and ease/speed of deployment as primary reasons for adoption, according to a recent Gartner survey of 258 firms either currently using SaaS, or planning to use it within the next 12 months.

The key drivers behind the use of SaaS, according to survey respondents, included:

• total cost of ownership,
• unmet performance expectations with on-premises solutions, and
• changes in sourcing strategy.

With the economy weak and financing difficult to obtain, companies are looking for ways to reduce upfront costs as well as total cost of ownership for technologies needed to run their businesses. North America was an early adopter of solutions delivered through the SaaS model, with more than 20 percent of respondents indicating use for five years or longer and 60 percent having adopted it in the last three years, according to Gartner.

Whether a software vendor provides its wares as an on-premises offering or via on-demand delivery, though, the keys to maintaining strong customer relationships are still the same, according to Gartner research director Sharon Mertz.

"Customers are looking for functionality and for excellent service," Mertz says. "Some clients want an on-demand solution like Salesforce.com, others want an installed solution like Microsoft [Dynamics] CRM." In either case, she adds, success in maintaining an ongoing software-as-a-service relationship depends on how the vendor works with the customer.

Though the keys to maintaining customers may be the same, a client opting for SaaS is unlikely to go back to an installed solution, according to Mertz. "Once a company uses SaaS, it becomes part of [that company's] process. If the solution is used and well received, customers tend to expand [SaaS] use to other parts of [the] business. More than 40 percent of organizations have used SaaS for more than three years."

Mertz adds that users are beginning to demand higher levels of functionality for SaaS solutions, sometimes prompting an organization to renegotiate its vendor contract before the term is up, either to opt for more feature-rich solutions, or to add more users as the organizational footprint expands.

The affinity for SaaS solutions is likely to grow even stronger in the current economic circumstances, Mertz says, due to the resulting need among small- and midsize businesses (SMBs) to carefully manage costs. Looking to the future, respondents cited two major drivers of upcoming SaaS deployments:

• replacement of on-premises solutions and
• net-new implementations.

In fact, more than one-third of respondents indicated plans to transition from on-premises software to SaaS.

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