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Predatory SaaS licensing isn’t okay just because it’s better than purchased software

Mike@msn commented on my earlier post suggesting that SalesForce.com customers should be very careful when adding licenses by saying that:

It’s definitely a risk reward proposition, but at least the Saleforce.com licenses are only annual and carry no infrastructure costs.

Consider the downside of purchasing 100 *perpetual* license seats, a server, and Sys Admin for an on-premise solution that goes seasonally unused.

The perpetual license fees are amortized over 3-5 years, whereas the ROI of sForce is usually achieved within the year.

Mike makes a good point, but I do think it’s kind of like saying after the car accident: "Hey, you lost your leg but look at the bright side, you are still alive!

As a counter example, take a look at Sun Grid Compute Utility promising to sell computing like electricity is sold; i.e. pay for what you need, and only when you need it.  That’s how SalesForce.com should be sold!  Add a user, increase your invoice.  Delete a user, lower your invoice (or get a credit.) 

Imagine if your local electric power company was allowed to charge each of it’s customers a flat rate equal to the rate for the peak amount of power they used during the prior "contract" period?  Their customers would be in the poor house, and they’d probably be making more profit than Exxon Mobil did in 2005!

So in other words, comparing SaaS to packaged software is not the point. Just because a specific SaaS provider offers a cost that is only marginally better optimized for customer’s needs than packaged software doesn’t mean they have optimized for customer’s needs. Maybe it is only me but I don’t think we should just accept predatory licensing simply because it costs slightly less than a less evolved alternative.

2 Responses to “Predatory SaaS licensing isn’t okay just because it’s better than purchased software”

  • nicko responded:

    Hi Mike Schinkel,

    You provided many examples and for a moment I really believe you but as I read on, I believe you are really bias against salesforce.com. It seems that any positive comments will be totally crush by your comments that “they are bias”, eventhough they make sense.

    There are many services out there that have minimum licenses. example : email spamming services also have a minimum and do a quarterly review to add but not subtract till the contact is over.

    What Mike@msn said is also true, there are many other cost that is also associated if you purchase a *perpetual* license, not forgetting that you still have to pay for maintenance of the software, time spend to upgrade and update, infrastructure etc. You mention about costing about 7000-8000 for about 13 or more users but can u imagine the cost if you were to invest it yourself. It would easily cost you 10K-20K. As for backup, it would cost you another 5-10K for a really small system.

    What salesforce is providing is giving a more cost effective software service. If you feel that using salesforce.com is too expensive for your salesteam. Why are you using them in the first place? And spending so much time complaining again and again… I believe you did so because despite all the complains you still feel that it is value for money !

  • Mike Schinkel responded:

    Nicko: Thanks for the comment. Am I biased against Salesforce.com? Yes, in all the ways I write about. I believe their sales approach is predatory. Why do I use them? Because you don’t learn these things until after you become a customer, and then you’ve got your entire sales operation running on Salesforce and, well, it’s too late.

    I rant because I want to see them improve, not fail; just read my blog’s tagline above.

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