From stickiness to gravity

   In the expanding age of software-as-a-service solutions, there’s a parallel, growing concern with which software providers must contend: the extent to which their products are fungible.
   The increased use of SaaS solutions—and American Shipper research indicates that growth is more measured than the buzz around SaaS may suggest—has led to the perception that one system is easily replaced by another.
   The theoretical thinking goes something like this: browser-based, SaaS tools require little upfront investment and typically implement faster than their on-premise counterparts.
   And part of the peace of mind in investing in such a relatively easily deployed system comes from the fact that if a company doesn’t like that system, it can switch out sooner (and at a fraction of the cost) than it would be able to under a licensed, on-premise arrangement.
   In a vacuum, that sounds like a rational case for investment in cloud-deployed SaaS systems. Within this same vacuum, it also sounds like a recipe for high customer turnover for SaaS solutions providers.
   But systems are not deployed in vacuums. They are deployed in transportation and compliance departments. The reality is the ease of switch-ability of a system has less to do with the deployment model (i.e. cloud or on-premise) than it does the depth to which that system touches its user.
   Software vendors refer to this as “stickiness.” And it’s an art. 
   According to the technology magazine Wired, stickiness “refers to the decreasing likelihood that a company will replace a piece of software as increasing amounts of time, money, and energy are invested into the platform.”
   Essentially, it means building a tool that becomes so entrenched, so intertwined with a company’s business processes that it would be unthinkable for its user to contemplate replacement—that’s the platonic ideal for software providers.
   So as you vice presidents of transportation or compliance contemplate investment in a system, and worry about whether it will stand the test of time in your organization, think less about the way the software provider delivers that software and more about the number of people using that system.
   Think about the number of individual departments that might feed data into the system or pull data out. Think about which functions might be made more efficient by this system. And think about which processes might be analyzed through such a system.
   These are the questions to consider when you think about whether it might be better to switch to another system or stay with the existing one.
   Remember, cloud is not a piece of technology—it’s a delivery model for technology. And SaaS is not cloud. It’s the pricing model for software that’s typically delivered through the cloud. The reason cloud and SaaS get conflated is that they are often part of the same equation, but they are not one and the same.
   Some other areas to ponder: SaaS subscription contracts typically cover a defined, short-term period (say, three or five years). In many ways, this is the feeling-out period. But it’s less a “probationary” period and more a chance for companies to realize what aspects of the offering work, what doesn’t, and what else needs to be added.
   It’s theoretically easier to add and subtract modules in a cloud-delivered arrangement. Once the user is plugged in, that mix of modules can be tweaked. But again, this is more about the pricing model of the software, not the way it’s delivered.
   All of the characteristics of cloud-deployed solutions that make them feel more nimble and less cumbersome (the relative lack of upfront investment being the most important) can lead users to see these solutions as being more replaceable, and less sticky.
   “Platform stickiness is an obsolete model,” Patrick White, chief executive officer of the enterprise search engine Synata, wrote for Wired in 2013. “Like all things tech, circumstances change rapidly and in this case, the cloud is to blame.”
   White said a more appropriate term than stickiness is “gravity.”
   “The dramatic reduction in the cost of change is fundamental to understanding how the cloud has upended the market,” he wrote. “Suddenly, companies are both unstuck from the restrictions that glued them to a tool and highly attracted to alternatives with significantly differentiating benefits.
   “What matters more in this new environment is the attractive force that vendors are able to exert on potential customers. Factors like price, features, app ecosystems, design, and customer base are more important than ever because they are the biggest determinants of a platform’s gravity.”
   We noted before that the growth of SaaS systems—remember the general link between SaaS and cloud—has been steady, not spectacular in the transportation and trade management markets. But even that gradual growth has an effect on the way that software is bought and sold.
   “While few software markets are likely to convert entirely to service models, even a modest SaaS uptake—say, 10 percent—can change the pricing model or the dialog between vendors and customers,” Ravi Vijayaraghavan, a partner for the consultant Bain & Company, wrote in 2013.
   All this is to say that the stickiness, or gravity, of a system is likely to come from its usefulness, from the number of people in an organization it touches. It is now easier for companies to switch out of older, cumbersome, licensed arrangements, and easier to switch from one SaaS system to another. But in practice, that’s really not how it works.
   SaaS is here to stay, and so is licensed software. Cloud is here to stay, and so is on-premise. Making a decision about switching systems is not about the pricing or the delivery model. It’s about how integral that system is to your organization.

This column was published in the November 2014 issue of American Shipper.