Dive Brief:
- Growth plans in the software industry rely on cloud, according to Forrester. The consulting firm analyzed the last five years of earnings reports and other data from six major vendors, Adobe, IBM, Microsoft, Oracle, Salesforce and SAP.
- “The ongoing shift to the cloud remains a key initiative, at least for now — especially in laggard categories like enterprise resource planning,” the report said.
- Enterprise customers have had to adjust to cloud-based software and usage-based pricing for CRM and ERP solutions, as well as for supply chain and human resource management tools. “There isn't a whole lot of ability to avoid SaaS in most major categories of enterprise software,” Liz Herbert, VP and principal analyst at Forrester, told CIO Dive.
Dive Insight:
The shift from licensing software to pay-as-you-go SaaS models isn’t nearly as painfully disruptive as migrating from one enterprise system to another. But enterprise customers do have complaints.
More than 4 in 5 technology buyers are dissatisfied with their selected vendor, the report said. Cost is the top reason, according to Herbert.
“We rarely see the cost go down over time,” said Herbert.
Almost three-quarters of SaaS providers increased their prices over the last 12 months, according to Vertice data. Cost increases are baked into the SaaS model. Most vendors offer initial discounts that lift after a prescribed period.
Enhancements and new capabilities, like the generative AI tools most major providers have added to ERPs and other enterprise solutions, can bump up the cost as well, although many vendors use tiered pricing that lets companies pay only for what they choose.
Eagerness for innovation can drive companies to avail themselves of added SaaS features, a dynamic software giants are leaning on to drive growth, the report said. Productivity gains, agility and better customer-facing technology are the rewards that justify the expense.
“In enterprise software, it is not very common that you save money,” Herbert said. “But customers are getting a lot more by moving to these leading-edge SaaS products that can offer AI and continuous innovation.”
Doubling down on Microsoft, Salesforce, SAP or any other big provider inherently leads to some vendor lock-in, especially given the difficulty of enterprise migrations. But the stability of a large vendor, the breadth of offerings and the investments those companies make to bring the innovations to their platforms is hard for enterprises to resist.
Forrester recommends CIOs should assess individual SaaS offerings within the context of a vendor’s overall portfolio to determine whether the service is critical to the vendor’s business and whether or not the vendor is investing in complementary products.
