I don’t know if this take on Splunk is fair or not but it does help to underscore an important point that I have been trying to get across about the proverbial pail of cold water that has been dumped on the traditional software company’s sales force.
This Alphasights article spells out in excruciating detail what challenges lie ahead for Splunk, a company that started as a “Google” for log file searches, and claims to “turn machine data into answers.”
But here’s the one sure thing, sure for Splunk or any other software company making the transition to SaaS (software as a service). The change is more difficult than adhering to new GAAP revenue recognition requirements. The change is a vast cultural shift.
First and foremost the glory days of selling to IT are over.
This was an easy sell, all things considered, where renewal rates were almost a given and service and support was automatic.
The sales cycle was long, to be sure — usually 6-9 months. And often the customers started with modest pilots.
They also had to contend with selling vaporware and bloatware and dealing with the consequences of holding the customers’ hands as they awaited new features and bug fixes, which could take months and sometimes years.
But they loved this model, because it was a perpetual license where the commissions were up front. And once they had them locked in, renewal was a cakewalk.
It’s not so easy on the SaaS side. That’s because first of all, the relationships that software vendors have built with IT are only part of the story. Today, lots of people can influence what software or service they want to use, because of the rampant viral adoption.
In this world, they are competing to continually maintain the relationship with the customer, and they do so knowing the barrier to change, or the switching cost, is considerably lower for a customer than it was for that customer acquiring installed software that locked them.
The upgrades and new features are iterative and this requires constant connection with the R&D group who are spitting out bug fixes, new features etc. as they complete them, rather than bundled once a year.
The vendors acutely know their customers are not going to overpay as they did in the past, because they use Elastic Computing to subscribe to only the compute resources they need for any application.
And they know, again, that the customer can switch at any time, making it important for them to be realistic in setting expectations in the sale.
All the big guns — SAP, Oracle, Microsoft, Adobe — in the software world are well on their way to making the transition. But they have been at it a long time. Interesting that Microsoft Office 365’s revenue surpassed it’s traditional installed Office version last quarter. This is a seminal moment.
The opinions in this article are mine (George Paolini). I have no investments in Splunk and no affiliation (other than as a reader) with AlphaSights.