Continuing with yesterday’s post Software Contracts and Traditional Business Practices, a friend was skeptical that contracts would be less common in 5 – 10 years as so many software company business models are dependent on it. Yes, most existing companies that require them now won’t make the shift, but plenty of next generation upstarts will. Software contracts won’t go away but more options like the following will be offered:
- Annual Prepay – Pay for a full year in advance and get a 10 – 20% discount off the monthly price. This is effectively an annual contract with an incentive attached to it.
- Month-to-Month with Setup Fee – Instead of a long term commitment, vendors will offer the option of a setup fee that helps recoup some of the customer acquisition and on-boarding costs.
- Annual Contract with 90-Day Out Clause – While this is still a contract, the customer has the option to leave within the first 90 days of signing, providing more flexibility to ensure it’s the right fit.
Look for more pricing and term flexibility from SaaS 2.0 startups. SMB customers will come to expect it as part of the next generation experience.
What else? What are some more thoughts on software contracts in the age of SaaS 2.0?
David Cummings on Startups 
There’s another side to this. Many larger customers prefer multi-year contracts because it gives them price predictability.