SmoothSpan Blog

For Executives, Entrepreneurs, and other Digerati who need to know about SaaS and Web 2.0.

The World Wants Results, Not Promises

Posted by Bob Warfield on October 25, 2007

Nick Carr says platforms want to be free, but that title is a bit misleading.  His examples, Amazon and Google, are platforms that charge for results and not promises.  They’re not really free, but they match the expense a customer pays much more closely to the value the customer receives.  In Amazon’s case, there is no listing fee, only a 15% fee if the sale is made.  For Google, you don’t pay for the ad unless someone clicks through.

This is not limited to selling and advertising platforms.  SaaS and Open Source are using this disruptive model as well.  Let me explain.

The basic mantra behind commercial open source is that dabblers can play with it as much as they like and pay nothing.  I have mySQL installed on my machine as we speak.  I downloaded it from the Internet, I’m playing with it, and I pay nothing.  However, there are incentives so that if one wants to make a lot of money from open source, they need to pay.  This is accomplished in a variety of ways, and Joe Cooper has a great roundup of how Open Source vendors create these dual tracks where they can give away source code and let people use the software for free, but make money when others make money on the Open Source.

SaaS also matches cost to benefit much more closely than traditional Enterprise Software.  In a recent article, Chris Cabrera (CEO of SaaS vendor Xactly) writes:

In the on-demand world, the customer is truly in the driver’s seat. The software is “rented” on a per-month basis, and if a vendor does not deliver a consistently high level of value or fails to meet expectations, the customer can cut that vendor off in a blink of an eye — almost as easily as switching mobile phone services. Hence, customers need to be central to everything a successful on-demand vendor does, from product development and implementation to partnering with other vendors and customer care.

This approach contrasts tremendously with traditional enterprise software, with its lengthy implementation cycles, long-term licenses and enormous sunk costs that breed customer inertia. With enterprise software, customers wait months or even beyond a year for their application to be scoped, tested and deployed.

The customer may never be successful with the traditional enterprise software, but they’ve paid the big bucks up front.  They paid for a promise, instead of for results.

One Response to “The World Wants Results, Not Promises”

  1. Brilliant

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