RightNow’s kinder, gentler contract
RightNow fired what may be the first salvo in an escalated competition for customers in the SaaS market today. Other vendors and customers will have to decide for themselves whether to follow. Company CEO Greg Gianforte cited numerous ways other vendors were making life hard for customers saying that SaaS was originally supposed to be low cost, easy to get into and out of and a dream to deploy. In his estimate, the SaaS industry has not always lived up to all that.
First the good news. RightNow identified a handful of issues it thinks the SaaS industry could improve for customers and the company says it is writing all of the following into its standard contracts.
- No penalty for adjusting the number of seats a customer buys. The company said it would let customers adjust up or down the number of seats it buys with no penalty. Currently, most agreements operate like Hotel California, you can add seats any time you like but often you can’t rev down if, for example, economic conditions deteriorate.
- Three year price commitment plus a three year renewal cap. Gianforte said this would give customers six year price stability. This needs details. You can always say you won’t increase prices 50% but that’s not very comforting. Hopefully, there’s something like a cost of living adjustment tied to core inflation or something like it.
- Annual termination for convenience. There’s no lock in and customers can leave any time they want without cause. No complaints here.
- Gianforte also introduced the concept of seat month — like rollover minutes in the cell phone industry. The idea has merit especially for companies with big seasonal swings in the number of agents it employs.
- Cash service credit for not meeting service levels. This is a biggie since a lot of vendors don’t offer SLAs.
RightNow conflated some issues blaming traditional vendors for perceived SaaS problems. For instance when it talks about other vendors it focuses on SAP, Oracle and Salesforce. Gianforte said SAP has a 60% shelfware rate. That might still be true, I know it was pretty high a few years ago but that was for conventional software. SAP is not a SaaS powerhouse the last time I checked. The same is true for Oracle, the announcement didn’t make any distinction between Oracle’s premise and SaaS business. At one point Gianforte called Oracle the “Poster child for bad customer relationships”. Ok, maybe, but I’d like to see some stats. I was at OpenWorld the last few years and it looked like there were thousands of reasonably happy people there. Interestingly, there was no mention of Microsoft as a competitor. Whatever, at the end of the day you need to filter.
But the interesting point for me is that none of this preamble was needed. The SaaS industry could certainly use some of these adjustments to the basic relationship as Ray Wang noted in a recent paper titled a “SaaS Bill of Rights”.
It’s too bad Gianforte doesn’t run an airline. Imagine an airline CEO saying bags fly free (Southwest does that but who else?), you can have enough room for both knees and we’ll feed you. For some people, that’s about what the RightNow announcements amount to.
The adjustments Gianforte introduced amount to risk sharing between the vendor and the customer. That was what SaaS was supposed to be but the original benefits have commoditized so a new round was needed, at least according to RightNow.
This risk sharing is something I think we will see a lot more of and it won’t be in software only. I expect we’ll see some creative forms of risk sharing in all sectors just to keep the gears moving in a tough economy. Risk sharing started with the reintroduction of layaway by Kmart at the start of the recession and I think we’ll see more creativity in the B2B space.
RightNow’s announcements also reveal a turning point in the SaaS industry. When the industry was younger, vendors needed as much revenue as they could get to build infrastructure and to plant the idea that SaaS was safe in people’s minds. For many that’s mission accomplished at this point, so they probably have a little excess cash flow to fund these initiatives. But that also closes a door for the industry. These givebacks will reduce the cost of a seat (seat-month as RightNow would say) and act as a barrier to entry for other vendors.
It had to happen at some point. From here if you want to be a SaaS application provider you might have to layer on someone’s platform such as Salesforce.com.