Buying a SaaS product has become as frictionless as placing an order for a lunch sandwich on a meal-delivery service: choose the size, confirm the price, click, done. Soon the door knocks and the sandwich is downed with a can of beverage.
However, there is a subtlety with SaaS, a sandwich keeps coming every day whether you are home or whether you are hungry. It is left at your door. Depending on the terms of service, you may have to pay per month, per year, 3 years, whether you consume the sandwich or not.
If SaaS is not ordered thoughtfully, businesses face the following issues:
- Accumulation of SaaS shelf-ware
- Tier limitations and upgrade
- Long-term contracts
Accumulation of SaaS shelf-ware
The evolution in the agility of a SaaS product is not just in the online delivery of software. It is also in user-onboarding, customer management, sales processes, payments, integrations with other SaaS products. This makes it possible for organizations to assemble world-class products/services by focusing on the core activities, while “outsourcing” non-essential components to these SaaS vendors. This agility in the acquisition of SaaS, whether a single-seat license or a site-wide activation is the vulnerable spot in procurement.
The agility enables a buyer to bypass the traditional checks and balances that a product complies with organizational policies. Unchecked purchases lead to the accumulation of products. Industry experts have projected that up to 30% of SaaS purchases are never used.
Tier limitations and upgrade
While signing up for a SaaS product, a pricing tier is chosen. Each tier has its own set of features and utilization caps. For example, if you subscribe to an email delivery API, a medium tier could provide templating feature with an allowance of 100K emails per month at $50 – and going beyond that cap of 100K may incur a $0.001 additional. A growing business may not realize that if the email volume doubles, an additional $100 per month gets added to the bill, whereas the charges could be lower if a higher tier was chosen ahead of time.
More often than not, choosing a lower-tier leads to either low consumption or an almost immediate upgrade, thus adding more pressure to an already fragile procurement management system. An ongoing analysis, forecasting, and consumption monitoring are required to ensure systems provide elasticity of use while ensuring ROI.
SaaS businesses favor long-term contracts with their customers in order to have better predictability of future revenues. The flipside to this is customers getting tangled in contracts for products that they no longer use. This could be a change in business objectives, leadership, or failed procurement effort. In such cases, customers are left holding the goods that have no use and cannot be returned or resold.
A huge industry of tools, techniques, and processes have emerged along with their own set of dark practices around long-term contracts. These contracts are the perfect anti-thesis of pay-as-you-go SaaS, often month-to-month. But 3-year contracts are increasingly becoming common.
A careful analysis of past consumption, coupled with current business needs is to be made to ensure there is a middle ground of getting a preferred price along with short-to-medium terms business needs.
Moving to SaaS Consumption Measurement
Software Asset Management as a practice was born in an on-premise licensing regime, where vendors enforced accountability on the shoulders of customers. Audit requirements in software licenses forced customers to report discrepancies. We took a deeper look into the history of SAM in an earlier post.
The evolution of SaaS and Cloud alleviates the “asset management” pain by real-time activation and on-demand provisioning. This brings a newer set of problems with products and accounts activated but unutilized. This brings us to measuring SaaS consumption on an ongoing basis which alleviates the pain of long-term contracts and shelf-ware.
At Quolum we are solving this problem of tracking SaaS consumption by using a combination of signals from various sources:
- Finance, accounting systems, and data from payment sources
- Corporate Identity and Access Management (IAM) tools such as GSuite, Okta, and Azure AD.
- Feature-level usage data directly from SaaS apps such as Slack, Figma, Zoom, and Confluence.
To hear more about how Quolum can help you manage your SaaS consumption better, reach out to us at firstname.lastname@example.org
Feature Image: Meal delivery person by Tobias Tullius on Unsplash