Is There Such a Thing as SaaS Vendor Lock-In?

Last month, when I spoke to several companies that had switched all or most of their enterprise applications to a software-as-a-service delivery model, a couple of my sources mentioned that SaaS could be used as a kind of "lever" with vendors, since it makes it easier for customers to walk away if they are displeased with the service or other aspects of the software.

Simiilarly, one of the sources for a Computerworld story I cited in last week's blog post on SaaS' increasing appeal in the economic downturn mentioned the same thing. Jennifer Roberts, supply systems manager for Sonoco Products Co., told Computerworld:

When you're dissatisfied with a tool when it's in-house, the cost of switching is much higher than if it is software as a service.

But is it as easy to switch as folks seem to think? In an interesting item on InformationWeek, PeopleSoft and Workday founder Dave Duffield makes the point that companies investing in SaaS solutions are investing in everything that comes with them, including the hardware, software and talent required to keep them running. Once Workday is deployed, customers are "stuck, in a very positive way" with it, Duffield says. The item also references that SaaS vendors such as Salesforce.com do impose financial penalties for customers that seek to end subscriptions.

Duffield's comments make sense, especially in cases where folks might want to switch from SaaS to an on-premise solution. There's major pain involved there. But switching from one SaaS vendor to another is going to be less costly and complex than the painful rip-and-replace that's necessary with most on-premise software.

Duffield's remarks do reinforce the importance of SaaS vendors providing great customer service. That's where the "positive" part comes in. As Duffield implies, folks  will get more "locked in" with SaaS solutions that take a platform kind of approach and foster a development ecosystem (like Workday and Salesforce.com). Several InformationWeek readers commenting on the item offer a variant of the old "attract more bees with honey than with vinegar" cliche, insisting that strong service rather than restrictive contracts are what will keep customers on a SaaS provider's rolls. I think they're right.