How to Understand The New Area of SaaS Negotiation

Executive Summary

• SaaS negotiation has become an increasingly important area to understand.

Introduction

SaaS negotiation is sufficiently new that it does not have an entry in Wikipedia (as of this article’s publication).

What is a SaaS Negotiation?

SaaS negotiation is just the same process of negotiation that occurred with on premises software, except adjusted for SaaS or cloud applications, databases, etc.

SaaS negotiation has some major differences with on-premises software vendor negotiation because so much of the purchases of SaaS software is both impromptu and not done by the IT department.

What is Happening in SaaS Software?

SaaS software allows companies to access many more types of software, are “cornucopia” of different SaaS software that was never possible under the on-premises model.

This video does an excellent job of explaining SaaS vendor management and brings up some of the implications of using so much SaaS software.

Content Disclaimer

*The use of quotes or content from vendors should not be construed as an endorsement for any SaaS vendor management vendor. We are independent and include this material to provide a better understanding.

Hybrid On-Premises, Big Vendor SaaS, and Small and Medium Vendor SaaS

Currently, we have a hybrid situation where there are core and approved applications and then shadow applications. These are defined like this.

Application Type #1: Core Applications

Core applications of a company are a combination of on-premises and SaaS. However, the SaaS applications tend to be from prominent vendors like Oracle or Workday. These types of large vendors are what IT departments are comfortable with and incentivized to buy from.

Faux SaaS Selected by IT Departments?

While prominent vendors are called SaaS, upon inspection, most of these IT department-selected major vendors assert that they are SaaS, but they are not. For example, vendors like SAP and Oracle lock companies into six-year contracts, which removes the flexibility of SaaS, and neither vendor offers multitenancy. This is because SaaS does not fit the business models of the prominent software vendors, so they co-opt the term SaaS without actually being SaaS.

Application Type #2: Shadow Applications

Shadow applications are purchased by departments and not approved or supported by IT. Many people make a big deal out of this lack of SAP support, but most of these SaaS applications are so easy to use that they don’t require internal IT support, and of course, there is the support of the SaaS vendor.

Increasingly a company does not use one application for a requirement. But instead, different departments may use overlapping applications from other vendors. During the pandemic, with so many people working from home, SaaS applications only increased in demand, as remote workers felt freer to use the SaaS applications they wanted.

How We Live the SaaS Lifestyle

We have no IT department at Brightwork Research & Analysis, and in all the companies we have worked for we never liked the restrictions placed on us in terms of what applications to use. We have expertise in a number of applications that none of the IT departments we worked for had any clue about. So all of our applications are shadow applications. Airtable, Dropbox, Wordpress, Google Drive, Google Docs, Google Sheets, Grammarly, Pocket, etc... We also rent a dedicated server and have no servers on-premises. This is freedom, and this is how it should be.

We don't know how much longer IT will continue to serve its gatekeeper function for the core applications, but there is little doubt the control of the IT department has eroded. This is the present and more so the future, as SaaS vendors for every possible need continue to proliferate.

SaaS and Application Diversity

It means not only SaaS applications gobbling up more real estate from the on-premise application delivery but also many smaller SaaS applications gobbling up real estate from more prominent SaaS vendors.

The Outcome of SaaS on User Satisfaction and Productivity

The outcome is much more user satisfaction and choice for the users within a company.

There is very little research on the productivity of the increased use of more SaaS applications. However, one study showed that users are now spending more time trying to find things in different SaaS applications, as you can read about in the following article. There is debate on the overall productivity due to using many SaaS applications. Having more options can allow the user to choose just the more appropriate tool for the task.

However, one undisputed thing is that managing many SaaS applications has increased overhead.

More Overhead of Managing a Multitude of SaaS Applications

However, it also means more overhead in managing many more applications than ever before, and as mentioned, this trend shows no sign of slowing. But this means a large assortment of applications that must be managed. And this is where SaaS vendor management comes into play.

What We Do

We are knowledgeable about SaaS vendor management and the different SaaS vendor management applications.

Who Manages SaaS Applications?

The question is tricky because while some of the SaaS applications a company uses are purchased by the IT department, the SaaS applications from the smaller vendors tend to be bought by the business departments. Also, the budgets are local, so the finance department will care about the SaaS applications that it funds and will not care about the SaaS applications the marketing department funds.

This lack of centralization means that the use and funding of many SaaS applications mean that the SaaS negotiation system and the approach to SaaS negotiation are also decentralized.

All of this is still nascent, and the company’s ways of dealing with this are still evolving, with some companies doing it one way and others doing it another.

Remarkably, there is little written on this particular topic.

SaaS Negotiation Overhead for Non-IT Departments

With departments within companies taking control over their systems and relationships that are unsupported by the IT department. This means that with SaaS application proliferation, non-IT departments have more overhead than before. This is a distribution of knowledge and experience in vendor management outside the IT department. Non-IT departments may not want to do this, but there is no real alternative. If these non-IT departments reach out to IT for assistance, the IT department will demand to control the procurement process and force the purchase of applications that the business departments do not want. 

Business departments have begun to figure out that the more IT is involved, the worse the business departments’ solutions will have to use. And each IT-approved purchase comes with a lengthy implementation timeline and a corrupt consulting firm in tow.

The disregard by IT departments for the needs of business departments is something we have witnessed first hand due to our extensive experience working with IT departments. After seeing enough of them, it became apparent that they have their agenda and are easily controlled by corrupt consulting firms and mega software vendors. Our research was censored by IT departments who did not want the business departments to see our analysis.