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SaaS Users Willing to Pay More, Survey Says
[March 13, 2007]

SaaS Users Willing to Pay More, Survey Says

TMCnet Contributing Editor

According to a recent customer survey conducted by managed Web hosting provider Rackspace Managed Hosting, nearly 36 percent of responding SaaS (News - Alert) customers do not know the uptime guarantees provided in the SaaS vendor Service Level Agreement although, the survey found, "security, application uptime and network connectivity are among their top technical concerns."

The survey also concludes that 49 percent of enterprise Software as a Service (SaaS) customers do not know where the infrastructure behind their SaaS application lies, whether it is hosted internally with the SaaS provider or through a third-party hosting provider.

John Engates, chief technology officer, Rackspace Managed Hosting, said "SaaS providers need to clearly communicate their hosting and infrastructure details in the Service Level Agreement, drilling down to security promises, uptime guarantees, network connectivity, data backup processes and more. This way, customers are aware of their SaaS provider's service obligations, and they can rest assured their mission-critical applications such as e-mail or Customer Relationship Management software will perform as promised."

The Rackspace's SaaS survey found that customers value application uptime differently for each category of SaaS application. E-mail and business productivity applications, such as spreadsheets and document creation, were listed as the most critical applications when it comes to availability with Customer Relationship Management (CRM) applications running a close second.

In music to some companies' ears, SaaS customers value application uptime enough to pay significantly more for increased uptime guarantees. The Rackspace survey found thirty percent of SaaS customers would pay "at least 25 percent more" for four extra minutes of guaranteed uptime per month, taking them from a 99.99 percent uptime SLA (i.e. approximately four minutes unplanned downtime per month) to a 100 percent uptime SLA (i.e. zero minutes unplanned downtime per month).

Overall, the Rackspace survey revealed that SaaS is making significant traction in the small-to-medium size and enterprise market with 51 percent of respondents using a SaaS application and 72 percent of those users considering additional SaaS applications. Rather than a brief IT trend, 69 percent of respondents believe SaaS is the preferred software delivery method of the future, indicating infrastructure scalability will be top of mind.

Detailed information and the full survey report can be found at

Earlier this month Gartner (News - Alert), Inc. reported that the worldwide SaaS market reached $6.3 billion in 2006 and is forecast to grow to $19.3 billion by year-end 2011.

SaaS is hosted software based on a single set of common code and data definitions that are consumed in a one-to-many model by all contracted customers, at any time, on a pay-for-use basis, or as a subscription based on usage metrics. The SaaS model is popular for CRM, among other technologies, such as human resources.

Why such success? "The dysfunction of the client/server era is driving alternative approaches to IT development, delivery and management, which SaaS is the most apparent version of," said Ben Pring, research vice president for Gartner.

SaaS adoption is broadening out from CRM and HR into new areas such as procurement and compliance management, Gartner has found. However, the scale of change involved in moving to a SaaS approach is proving hard for many vendors to manage. "Due to the law of large numbers, traditional IT product models are becoming victims of their own success, while the relative smallness of new approaches facilitates growth much more easily," said Pring.

David Sims is a contributing editor for TMCnet. For more articles please visit David Sims' columnist page.

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