IDC forecast that 2019 would be the year when enterprise IT spending by departmental managers overtook spending by the IT department itself.
Cloud-based on-demand services have become the norm by lowering barriers to technology purchases and enabling cost centre managers to quickly and easily deploy the software of their choice. Flexible subscription contracts gave access to an almost unlimited bank of resource to accommodate seasonal and periodic spikes in demand.
In contrast, legacy enterprise products are notoriously bigger investments; harder to rollout and requiring multi-man-years of effort to integrate and customise. They may be a tough sell but, once integrated, they tend to stick for the long term – if only to recoup costs.
Yet, while the SaaS model received acclaim for its ease, agility and scalability, when uncertainty strikes these same characteristics also make it an easy target for cost cuts. In times of economic turmoil, this is its “Achilles heel”.
SaaS customer retention got trickier
As often seen in economic downturn, the current situation will hit the SMB market harder than large corporates and churn in SaaS SMBs was always higher than in enterprise SaaS anyway. But now SaaS companies across the board are reporting typical monthly customer churn of 3-5% has increased to 10-20%!
Not many SaaS companies existed during the 2008 recession and, for many, traditional debt financing has never been an option. This has led to commentators believing that the SaaS model could be somewhat protected against recession.
But it is not funding that is going to be the biggest challenge for SaaS in times of the coronavirus – it’s stickiness.
When budget cuts force survival of the fittest amongst SaaS subscriptions, the stickier the product and the more value it delivers for the business, the more likely companies will retain it. Anything that is challenging to implement or integrate is unlikely to go ahead when staffing resources are low and pressure to reduce costs is high.
SaaS products that quickly entrench themselves deeply within the enterprise architecture can satisfy on all counts.
By building universal integration capability into SaaS applications, products will retain the speed advantage of cloud as well as the stickiness of on-premises. Developers can offer a new kind of one-size fits all product that can be joined up with the applications around it to entrench it quicker and deeper into the IT ecosystem.
Native integration capabilities are key
Embedded integration reduces the need for specialist SI (systems integration) resources and speeds the application’s ability to prove value and return. It provides a platform for quicker user engagement with the application and greater agility in collaboration with neighbouring systems in the company’s ecosystem. Therefore, SaaS vendors need to consider embedded integration as part of their SaaS customer retention strategy.
Long before we had heard of the coronavirus, elastic.io encouraged application developers and SaaS vendors to view ‘stickiness’ and integration as a way to decrease customer churn and increase revenue secured over a longer lifetime subscription. Now, the same advice may help more SaaS companies to survive the current economic turmoil.
Whatever happens in the post-virus world economy, in technology it has always been survival of the fittest. For SaaS companies, it will be ‘survival of the stickiest!’