“Bill of Rights” to Improve SaaS Vendor-Client Relationships: An Interview with Altimeter Group’s Ray Wang


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Inside Scoop with Bob Thompson

Ray Wang, Partner of Enterprise Strategy at Altimeter Group, with input from market influencers and vendors, published a “Customer Bill of Rights” for the Software-as-a-Service (Saas) industry on October 12, 2009. RightNow Technologies became the first vendor to implement many of the key provisions with a new Cloud Services Agreement announced March 4, 2010.

In this email interview, CustomerThink founder Bob Thompson asks Ray Wang to explain the rationale for the Bill of Rights and how it will impact the SaaS industry.

Thompson: What motivated you to develop a “Customer Bill of Rights” for SaaS?

Wang: The Cloud hasn’t fully delivered on its promises. Many providers still operate like on-premise vendors — e.g. nickel and dime for storage and avoid business SLAs. Customers are still making the same mistakes in contracts.

Now believe me, at first it seemed counter intuitive – SaaS was supposed to be easy. You paid an amount per user per month and that was it. But after walking through dozens of contracts, we realized there was a lot more to it than just cost per user. Clients kept asking us, “How do I evaluate a SaaS/Cloud contract?” We put 39 best practices from hundreds of contract negotiations into the report and hoped that it would set up an even playing field that would set expectations and responsibilities on both sides. This needs to be a partnership for both sides to succeed.

Thompson: What are the biggest customer “pain points” that the Bill of Rights attempts to remedy?

Wang: The Bill of Rights sets up a framework for vendors and customers to have an open dialogue. The key points focus on setting cost expectations on flexibility, transparency, and predictability up front.

Thompson: What are the big wins for vendors to implement the Bill of Rights into their contracts?

Wang: Vendors can expect a reduction in sales cycle times, less bargaining, and higher customer satisfaction. These results have been replicated anytime buyers know they are on an even playing field. They can also expect to automate sales contracting processes.

Thompson: How big a problem is “shelfware”—seats purchased but not used—in the SaaS industry?

Wang: Shelfware in the on-premise world continues to be a huge issue. Many clients have as much as 30% of their licenses sitting around collecting dust. In the SaaS world, we’ve seen 10 to 20% shelfware from customers who overbuy licenses. This is more the case in larger organizations than smaller organizations.

Thompson: RightNow’s Cloud Services Agreement allows customers to pay for what they use and gives more flexibility to rebalance usage. Why did it take 10 years for something like this to be offered?

Wang: Complacency, seems easier… frankly, clients/buyers hold some blame as well (want to negotiate). This requires real bold action. Until now, no one has had the guts to do it. But the reality is it will not only be valuable to clients, but help vendors sell more, be more competitive and accelerate growth.

Thompson: Which industry segments will more rapidly adopt the principles presented in the Rill of Rights?

Wang: CRM will probably drive this as it is the most ingrained in SaaS deployments.

Thompson: Given their current business models, how can Oracle, SAP and other traditional on-premise vendors adopt the Bill of Rights into their agreements without harming their financial performance?

Wang: This will definitely impact future revenues but we should consider this a rebalancing back to an on-demand approach. The good news is that SAP and Oracle have already embraced subscription models. Now they’ll just have to forecast shelfware reductions in their models.

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