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More than a quarter (27.8%) of enterprise applications are expected to be SaaS-based by 2018, generating $50.8 billion, up 16% from $22.6 billion in 2013.
Christine Dover, research director at IDC, said that “demand for SaaS enterprise applications is accelerating and exceeding the demand for on-premise applications by five times [through 2018]. Generally, wherever new enterprise application software is required, the expectation is that SaaS applications are preferred, particularly for customer relationship management and enterprise resource management applications.”
As the SaaS-based landscape grows, what’s interesting is what is happening with pricing. A recent Price Waterhouse Cooper (PWC) report, said that “for software companies hoping to pursue new markets and business models by introducing SaaS offerings, pricing management may be the crucial factor determining success and failure.”
A study by Seeking Alpha by Tomasz Tunguz looked at SaaS pricing models for SaaS companies during the year the company went IPO. In 2011 the median customer value of newly-minted IPO SaaS companies was $96,000. In 2014, the median customer value dropped to $13,000. The article attributes this drop to the ‘consumerization of IT’. “Instead of a centralized IT organization deciding which products to buy, product managers and marketers and engineers and data scientists determine which products they think would serve them best and buy them directly, often using a credit card… Buyers prefer buying this way – it provides them more control and less financial exposure. They are no longer locked into large, company-wide contracts with particular vendors. In addition, startups benefit by reducing their capital needs and creating faster, more repeatable sales processes that often look more like B2C sales than B2B. The impact is dramatic and startups have no incentive to reverse course.”