Keeping customers happy: On-premises software vendors such as Oracle and SAP are now honing their knowledge of something SaaS vendors such as NetSuite and Salesforce.com had to learn years earlier: How to run a software business based on annual subscriptions, not perpetual software licenses and annual maintenance.
The latter model provides companies with big one-time payments followed by highly profitable support fees. With SaaS, the money flows into a vendor's coffers in a much different manner, and it's arguably also easier for dissatisfied customers to move to a rival product compared to an on-premises deployment.
As a result, SaaS vendors have suffered from "churn," or customer turnover. In 2014, there will be increased focus on ways to keep customers happy and in the fold, according to Karan Mehandru, general partner at venture capital firm Trinity Ventures.
Next year "will further awareness that the purchase of software by a customer is not the end of the transaction but rather the beginning of a relationship that lasts for years," he wrote in a recent blog post. "Customer service and success will be at the forefront of the customer relationship management process where terms like retention, upsells and churn reduction get more air time in board meetings and management sessions than ever before."
Consolidation in marketing, HCM: Expect a higher pace of merger and acquisition activity in the SaaS market "as vendors buy up their competitors and partners," Martens said.
HCM (human capital management) and marketing software companies may particularly find themselves being courted. Oracle, SAP and Salesforce.com have both invested heavily in these areas already, but the likes of IBM and HP may also feel the need to get in the game.
A less likely scenario would be a major merger between SaaS vendors, such as Salesforce.com and Workday.
SaaS goes vertical: "There will be more stratification of SaaS apps as vendors build or buy with the aim of appealing to particular types of end-user firms," Martens said. "In particular, vendors will either continue to build on early industry versions of their apps and/or launch SaaS apps specifically tailored to particular verticals, e.g., healthcare, manufacturing, retail."
However, customers will be burdened with figuring out just how deep the industry-specific features in these applications are, as well as gauging how committed the vendor is to the particular market, Martens added.
Can't have SaaS without a PaaS: Salesforce.com threw down the gauntlet to its rivals in November, announcing Salesforce1, a revamped version of its PaaS (platform as a service) that couples its original Force.com offering with tools from its Heroku and ExactTarget acquisitions, a new mobile application, and 10 times as many APIs (application programming interfaces) than before.
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