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Last week, Gartner attempted to derail the Software-as-a-Service (SaaS) movement by issuing a press release regarding its latest customer survey which found that SaaS users are

underwhelmed by their current experience of it and sense that SaaS is not quite the panacea it often promised to be.

For some reason, it took Gartner more than six months to interpret the results of its survey of users and prospects of SaaS solutions in 333 enterprises in the U.S. and the U.K. which was conducted in December 2008. Maybe because the data didn’t say what they were hoping and it took more time to twist the results into a story that fit their reality and could generate a few headlines.

Gartner’s press release starts by stating that “SaaS is more mainstream and less controversial than ever before”, an important admission from a research firm which a few years ago said SaaS would only represent 25% of software sales by 2011.

But, the research firm goes on in its survey announcement to play the role of contrarian, which is typically held by Forrester, and suggest that all isn’t rosy in the SaaS world.

Gartner’s research vice president Ben Pring says in the release,

“Our research findings did not exactly provide a ringing endorsement of SaaS, in fact I would go as far as to say that satisfaction levels among SaaS users are little more than lukewarm. Although macroeconomic factors would seem to favor SaaS providers, almost two thirds of respondents said that they planned only to maintain their current levels of SaaS in the next two years.”

Although the overall satisfaction level of 4.74 on a 7-point scale among the SaaS users surveyed by Gartner may not have been stellar, the other data revealed in the press release suggests that these ratings are also not as bad as they look. And, other realities of the market and Gartner’s world are also worth noting to bring the survey findings into proper perspective.

Given today’s turbulent economic climate in which many organizations are actually downsizing their operations, maintaining SaaS current levels isn’t necessarily a bad thing. Instead, it demonstrates the staying power of SaaS solutions and how the more flexible pay-as-you-go SaaS subscription approach is well-suited for today’s economic uncertainties.

But, more importantly, Gartner’s press release fails to emphasize the positive news that 90% of the survey respondents are satisfied enough to maintain or expand their use of SaaS solutions, and only 5% are planning to terminate their services, with the remainder considering reducing their subscription levels.

This latter group could be motivated by downsizing in their organizations and would not have had the same flexibility if they chose a traditional on-premise application with an upfront perpetual license fee.

Anyone familar with the economics of the SaaS business knows that 90% renewal rates are not only the norm for the industry but are necessary to maintain a positive cashflow and achieve long-term profitability.

Given that Gartner’s clientele and the primary respondents to its survey are generally IT people who are still learning about the benefits of SaaS and evaluating it from a traditional set of technical criteria, it is not surprising that they might be less satisfied with the SaaS solutions than their business end-users which the bulk of today’s SaaS solutions target.

In fact, there are still plenty of situations in which IT staff are particularly unhappy with SaaS solutions which were acquired unilaterally by individual end-users or business units without IT involvement or approval.

It would be interesting to do a cross-tab analysis of Gartner’s survey results to see if there is any correlation between the low satisfaction ratings and the level of involvement the respondents had in the selection processes.

It also would have been interesting to compare the SaaS satisfaction levels with similar satisfaction ratings among those users of today’s legacy applications. My guess is that their ratings would be well below the SaaS levels, especially given their added costs and inflexibility in today’s tough economic times.

Fortunately, a growing number of IT decision-makers and organizations are recognizing that SaaS is satisfying the needs of their end-users and corporate executives, and are doing their best to help their business users select the right SaaS solutions to meet their operating objectives.

THINKstrategies’ SaaS surveys, in conjunction with Cutter Consortium, uncovered the growing acceptance of SaaS among IT professionals in 2007.

These enlighted IT professionals are also discovering that there is a rapidly expanding array of SaaS-based IT management solutions available which are making it easier for IT organizations to perform their day-to-day responsibilities.

Unlike Gartner’s survey research, THINKstrategies’ customer surveys have consistently found SaaS satisfaction levels, renewal rates and willingness to recommend at or above 90% over the past three years.

Ironically, a week after Gartner issued its SaaS survey findings it announced that the worldwide market for customer relationship management (NYSE:CRM) applications grew 12.5% last year, fuelled by a 33% jump in SaaS-based solutions, which now represent 20% of the CRM market.

There is no question that as the SaaS industry grows, service quality will become diluted and customer expectations will vary more broadly. So, there is nothing wrong with warning customers and SaaS vendors alike to remain vigilant. I issued my own warning back in 2007. And, I continue to be concerned about the quality of support in the SaaS and broader cloud computing market.

But, when these warnings border on an indictment of the overall quality of SaaS solutions and the viability of this movement, it does a disservice to a marketplace which is fundamentally changing the way organizations leverage software to achieve their business objectives and the measurable business benefits they are experiencing.

Source: Why Gartner's SaaS Satisfaction Survey Is Misleading