RightNow challenges SaaS market to provide clearer SLAs, fairer pricing

RightNow pledged no shelfware, the ability to flex up or down on licenses, and five-year price certainty. It called on competitors to do the same.

RightNow today issued what it termed a "Cloud Challenge" to the enterprise software industry, introducing the RightNow Cloud Services Agreement, a service-level agreement (SLA) providing standards on price certainty, the ability to flex up and flex down on licenses, and an end to shelfware.

While Software as a Service (SaaS) historically promised advantages over its on-premise counterparts in lower total cost of ownership, faster deployments and rapid innovation, it also promised flexibility in pricing and the elimination of shelfware, Greg Gianforte, RightNow's CEO said in a presentation at the Fairmont Hotel in San Francisco.

"We've only delivered on half the promise," Gianforte said. "We've solved the technical issues, but we've not solved the engagement issues. In fact, we've dragged … some of the worst practices of procurement into the SaaS world."

Among those worst practices is the preponderance of shelfware -- additional licenses bundled into larger software deals that often sit unused while vendors collect maintenance and support or subscription fees. RightNow's new services agreement provides an annual usage alignment, meaning, for example, that a company which went through layoffs during the recession could drop the licenses for the sales reps or contact center agents who are no longer using the software. Shelfware is a symptom of the software buying process not just in the on-premise world but in on-demand as well, and Gianforte was happy to take his competitors to task for it. According to some analysts, up to 80% of SAP's CRM software is shelfware, and up to 30% of Salesforce.com's software is "shelfware wrapped up in enterprise agreements," he said.

"The reality is even though we're in this SaaS world, SaaS vendors are masquerading in cloud clothing," Gianforte said. "Oracle, in particular, is the poster child for bad customer relations. We all know this -- contract lock-ins, unexpected fees."

Ray Wang, a partner at San Mateo, Calif.-based Altimeter Group, who spoke at RightNow's announcement event, said that while SaaS's low subscription-based pricing with a per user per month structure simplified the software buying purchase, there are still hidden fees.

"We found out people were getting nickeled and dimed on things like storage fees," Wang said. "They couldn’t flex up and down and [had] vague service-level agreements."

In fact, most enterprise agreements are not done month-to-month but as three-year arrangements.

RightNow's standardized SLA includes a three-year price commitment plus a three-year renewal price cap. Customers will receive fixed pricing for six years but only have to commit to one. Also, RightNow will provide "pools of capacity" similar to a wireless plan's rollover minutes. Customers can add or reduce licenses based on seasonal demand, something RightNow had already done on a limited basis with customers in retail who need to ramp up for the holiday season. Customers can also have the ability to terminate the contract each year.

The new structure offers an advantage over traditional on-premise software purchases because it encourages a partnership, said Jim Huser, CIO of Guthy-Renker, a Palm Desert, Calif.-based producer of infomercials, and Ken Harris, CIO of Shaklee, a nutrition company, both RightNow customers who spoke at the event.

"A lot of vendors have a lock 'em and leave 'em mindset in their business model," Harris said. "This is a pretty radical departure from that lock 'em and leave 'em mentality."

"You think you got married, but you were just dating," Huser said. "Most of the vendors sell productivity or order entry value. You want to say, 'Why don't you share the risk with us?'"

RightNow is also offering cash service credits. Should RightNow fall short of SLAs for uptime, rather than credits toward future purchases, it will refund customers with a percentage of their subscription fees.

"Honestly, it's time for other vendors to do the same," Gianforte said, taking a clear shot at Salesforce.com and its Trust.com website. "Some put up a website and say, ‘Trust us.’ We think there has to be cash service credits involved."

RightNow is offering the Cloud Services Agreement standard to all new customers, and existing customers can take advantage of it as their current contracts expire.

For RightNow, the deal offers the ability to significantly shorten their sales cycle. Harris estimated 50% of contract negotiation is spent on items the agreement addresses. It also serves as a competitive differentiator in the market.

"We're off to a very strong start for Q1 in terms of sales," Gianforte said. "We've already closed a handful of deals over $1 million, at least one of which is directly attributable to this cloud services agreement."

Harris agreed that contract negotiation becomes a key element in the software purchasing decision process.

"Over the last five years, I've done more than 10 SaaS arrangements," he said. "I can tell you that there's a number that I didn't do, including some very big names in this industry that didn't happen because we couldn't get agreement on a number of the things Greg is saying he's going to do automatically. Functionality is critical, but contract negotiations may trump functionality in key points."

Software contract negotiation has undergone increased scrutiny in recent years. A furor that erupted in the wake of SAP's decision to eliminate its low cost maintenance option and the subsequent reversal, and outages at Salesforce.com, led to some companies taking a closer look at their SaaS SLAs.

Part of the reason SaaS has not received the same level of scrutiny is that many customers thought they were already protected, according to Wang. RightNow’s announcement will put pressure on other vendors to provide the same level of service, he said.

Existing SaaS CRM customers are going to see this announcement and "their first response is they're going to say, 'Don't I have that already?’" Wang said. "They're going to realize they can't flex down and they're stuck on an annual agreement they can't get out of."

Salesforce.com declined to comment on RightNow's "challenge," and NetSuite had no response when this story posted.

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