Over the past couple of weeks, I’ve posed an interesting conundrum to a number of decision makers involved in purchasing software applications for local authorities. All discussions started off on the premise that ‘cloud’ computing is the way forward, and the question was:
If you were looking for a new back office application, assuming the 5-year cost of ownership is the same, which of the following would have the greatest impact on your decision:
- the application runs in G-Cloud?
- the application runs in a supplier-managed cloud?
- the application runs on the LA-managed cloud/data centre?
- the licence agreement is on a SaaS basis?
In all but one case, the answer was a pricing based on SaaS, where the LA pays based on usage – there was little concern about where the application was run, the focus was on price and matching that price to usage.
To me this was a surprise, firstly, because LA’s have historically disliked the ‘blank cheque’ approach of true SaaS agreements, where if usage increases so does the cost – they have typically liked to budget for a cost and know that that budgeted cost will not be increased, come what may. In discussions, most did not expect transaction volumes to increase, and wanted the flexibility of SaaS agreements to allow them to manage and move their transaction volumes as the years progressed.
This led to discussions on the types of SaaS agreements being offered. Most said that they did not regard SaaS agreements that stipulated a minimum level of commitment as true SaaS contracts. They regarded volume pricing as acceptable under SaaS (i.e. if volumes decline below certain levels, then per unit pricing increases), but only if they were not punitive. (However, perversely, one person believed that suppliers should have a maximum cap on total annual cost - whilst not having a minimum level of commitment on the LA).
I was also surprised by the lack of emphasis on, or questioning about security levels. Either the messages about overcoming the security hurdles are getting through, or there is a growing cynicism about IT departments over-stating the potential problems to support their own preferred solution. Not surprisingly, the one dissenting voice came from Social Services who put security top of his list, and would insist on the applications only running under the management of the LA.
Although my survey size was not large enough to draw firm conclusions, it would appear that suppliers will need to look harder at their own commercial terms, rather than just the technical hosting solution, if they are to win over new customers in the future.