RightNow announced a new licensing model today, one that is part marketing hype and part true value add. I applaud them for both efforts and wanted to take a moment to highlight the good, the bad, and where I would like to see this go in the future. Keep in mind that I am a CTO at a company that offers SAAS services and I have delivered on the SAAS model since the beginning of 2000. In other words, I understand the challenges of the vendor side as well as of the buyer side.
What is the Cloud Challenge?
RightNow has clearly laid out the cloud challenge on its web site and I would urge you to read through it. At a high-level, however, it addresses the following problems with SAAS pricing:
- Shelfware. Too often customers end up buying more product or usage than needed. For example, a company may need 1500 licenses of a product during peak season but only uses 1000 licenses the rest of the year. The problem, most vendors will force the buyer to buy 1500 licenses to account for max usage, leaving unused licenses on the shelf during non-peak season.
- Lack of certainty in pricing. Hidden costs, ever-changing prices, they are the negatives you must be aware of when buying SAAS software.
- Contracts lock-in. Want a better deal? Buy three years of the product and you’ll get a discount. We’ve all seen this (and yes, have worked at companies that sell this way) . Lock-in, while great for vendors, leaves customers unable to change vendors when their needs change.
These are real issues with the traditional SAAS licensing model.
How is RightNow meeting this challenge?
The details are on their site, but the key points are:
- Annual usage alignment up/down (No more shelfware).
- 3 year renewal price cap, 3 year of price caps. RightNow customers will know what they will be paying for the next 6 years.
- Annual termination for convenience. Customers can walk away annually, no long-term contracts.
- Annual pools of capacity (rollover usage).
- Cash credits if RightNow does not deliver on committed SLAs.
A quick complaint
My one complaint is that the opening and closing videos hammered on the competition: Oracle, Salesforce.com, SAP. RightNow, if you believe you are delivering real value you do not need to bash the competition. Differentiate, yes. RightNow’s CEO, Greg Gianforte, noted, and I paraphrase:
Oracle is the poster child for bad customer relationships.. Not just oracle, its offspring as well… Salesforce.com
Greg, the challenge and licensing model you are promoting stand on their own. Enough said.
This is good, but…
Great first step, but, if you want to really want to change the world:
- Work to bring other vendors into the game. This is an undesirable model for most vendors. As you noted, Enterprise SAAS Software providers will probably go under if they adopt this model. That means…. drum roll please, that it’s not yet right. Consider:
- An independent group made of up buyers and sellers should be created to hammer out a framework for SAAS pricing. Ray Wang of the Altimeter group would be a great leader based upon his work with the SAAS Bill of Rights.
- This group should include major and minor vendors including RightNow, Oracle, Salesforce, SAP, and others. This group should include a mix of Enterprise and SMB customers.
- Call me, would love to take part.
- The pricing framework should make sure vendors and customers win.
- Add a non-negotiation clause to your challenge. To truly reduce buying cycle time, a noted goal, state prices as they are, no negotiation.
- To support the above, ensure pricing is flexible enough to meet the needs of small and large customers.
- Support the model with a public facing dashboard highlighting the following:
- If you do not offern a non-negotiation model put your average prices on the dashboard. If the price is per seat, document your average cost per seat (that customers are paying at that moment) so that your customers will know if they are getting a good deal.
- Document average amount of shelfware. In other words, document on the dashboard the number of rollover seat months.
- Document renewal numbers. How satisfied are customers with your service?
- Take the shelfware revenue and either give back to your customers or to a charity.
Keep in mind, I like the first step. However, it is not yet a game changer, more work is needed. What do others think?