Gartner ON SAAS PDF

1/31/2020 Gartner Reprint
Licensed for Distribution
Predicts 2020: Negotiate Software and Cloud Contracts

to Manage Marketplace Growth and Reduce Legacy
Costs
Published 18 December 2019 - ID G00463732 - 28 min read
By Analysts Jo Liversidge, Frances Karamouzis, Rob Wilkes, David Groombridge, James Smith,
Christiaan Murphy, Dolores Ianni
Cloud marketplaces present fresh challenges and opportunities for buyers, while cost pressures
remain from on-premises software support. Sourcing, procurement and vendor management
leaders must adapt their approaches to control costs while enabling digital business growth.
Overview
Key Findings
■ Gartner estimates that over 25% of global 1000 companies are using online marketplaces in some
capacity to purchase all types of technology, and that well over 75% have tried them. While cloud
marketplaces create opportunities for fast digital growth, they also allow easy bypass of sourcing,
procurement and vendor management (SPVM).
■ SaaS vendors foster application ecosystems to increase the availability of niche, add-on
functionality, resulting in increased lock-in for existing customers buying from these partners.
■ SaaS vendors sell services using a primary pricing metric, but a lack of transparency around
secondary metrics and their associated fees can lead to significant overspend for buyers.
■ Each year, support costs for legacy software increase, while the benefits gained from that support
decrease, leading to more organizations seeking lower-cost third-party support options.
Recommendations
To effectively contract for cloud marketplaces, reduce legacy and hidden costs, and enable digital
growth:
■ Build internal awareness of cloud marketplaces as a purchasing option. Encourage controlled

experimentation with marketplace purchasing in low-risk situations. Negotiate with the
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marketplace provider to limit the binding effect of additional, product-specific terms.
continuing to use this site, or closing this box, you consent to our use of cookies.
https://www.gartner.com/doc/reprints?id=1-1Y3I31HS&ct=200106&st=sb&mkt_tok=eyJpIjoiTmpjek1ERTNNRGhqWkRJeSIsInQiOiJXWmsxZzlBRnNnQXJzN1… 1/17
■ Focus on vendor management when buying from a SaaS vendor and its ecosystem, so that lock-in
risks relating to third-party applications can be addressed well before the contract renewal.
■ Identify all SaaS secondary pricing metric cost drivers, such as storage, API calls and bandwidth,
upfront during vendor selection to enable their negotiation before contract signature.
■ For those applications that you do not yet want to move to the cloud, evaluate third-party support
as an alternative to direct vendor support in order to help fund future innovation.
Strategic Planning Assumptions

By 2024, marketplaces will be a dominant channel for the procurement of infrastructure operations
software.
By 2023, 50% of applications sold via cloud marketplaces will be transacted without negotiation of
software terms and conditions.
By 2023, 50% of SaaS customers will suffer increased lock-in resulting from third-party applications
within SaaS vendors’ platforms.
Through 2023, 10% of SaaS customers will have secondary pricing metric costs that exceed the
primary pricing metric subscription costs.
The third-party software support market will grow from $351 million in 2019 to $1.05 billion by 2023
— a 200% increase.
Analysis
Cloud marketplaces provide an effortless way to procure software. This option creates opportunities
for fast digital growth by organizations, but allows easy bypass of SPVM, legal and IT. A cloud
marketplace is a type of e-commerce site where technology products or services are provided by
multiple third parties. The transactions are processed by the marketplace operators. Examples of
cloud marketplaces include Amazon Web Services (AWS) Marketplace, Microsoft Azure Marketplace,
Google Cloud Platform Marketplace, Apple App Store and Salesforce AppExchange.
This combination of transaction ease and possible SPVM bypass creates the potential for less
negotiation leverage and widespread cost proliferation. As SPVM leaders navigate these new digital
challenges, many also face increasing costs to support legacy on-premises software that they don’t
wish to move to the cloud or that they’re not ready to move to the cloud. SPVM leaders need to
harness the potential of cloud marketplaces, while simultaneously finding a way to save on-premises
cost to aid the investment needed for businesses to achieve their “techquilibrium” (see Figure 1 and
Note 1).
Once in the cloud, organizations face some unforeseen risks. It is commonly accepted that moving to
a SaaS vendor has a degree of vendor lock-in. However, the lock-in compounds and complexity
increases as more applications, purchased through the primary vendor’s marketplace, are layered on
top. Moreover, peculiar to SaaS are additional secondary pricing metrics that may not be apparent to
customers initially — these include storage and API call costs. Unless these metrics are negotiated
upfront and proactively managed during the contract, they can lead to significant unbudgeted costs
for clients. As SaaS continues to grow, these hidden secondary costs have the potential to create
massive issues for certain clients.
Figure 1. Reducing Legacy Support Costs, Mitigating Hidden SaaS Costs and Placing Controls on
Cloud Marketplace Procurements Are Imperative to Finding the Funds to Fuel Digital Growth
What You Need to Know

Cloud marketplaces, also referred to as “online marketplaces,” contain the potential to transform
sourcing processes, with faster cycle times and less intervention in low-level procurements. However,
marketplaces also have the potential to create uncontrolled spending, ever-increasing lock-in, and
lack of internal visibility into usage and costs. Currently, SPVM leaders are not familiar with cloud
marketplaces. However, if their management can be effectively harnessed, cloud marketplaces can
assist in digital transformation for the buyer organization.
In parallel, for those applications that SPVM leaders do not yet wish to move to the cloud, there is the
very familiar problem of optimizing the costs of otherwise ever-increasing support fees. Savings
made in support costs could be used to aid digital growth.
Strategic Planning Assumptions

Strategic Planning Assumption: By 2024, marketplaces will be a dominant channel for the
procurement of infrastructure operations software.
Analysis by: Frances Karamouzis, David Groombridge, Dolores Ianni
Key Findings:
Several B2B online marketplaces exist, and more are coming. The sidebar below includes the
definition and construct that are common to a large majority of online marketplaces. 1
Online marketplaces allow for multichannel e-commerce and can be a way to streamline the provision
and deployment process for infrastructure operations software. In an online marketplace, the
marketplace operator processes the consumer (buyer) transactions for all types of technology-related
solutions (products, services, solutions, APIs, etc.), which are then delivered and fulfilled by the
participating retailers or wholesalers. Other capabilities might include auctioning (forward or reverse),
catalogs, ordering, wanted advertisements, trading exchange functionality, and capabilities like RFQ, RFI
and RFP. In general, because marketplaces, such as AWS Marketplace and Alibaba Cloud Marketplace,
aggregate products from a wide array of providers, selection is usually wider, and availability is higher
than in vendor-specific online retail stores.
In this prediction, we focus on one large sector of products and services sold via marketplaces —
namely, the infrastructure operations software market (i.e., software for operating systems, storage,
databases, security, and security information and event management [SIEM]). Gartner market sizing
for infrastructure operations software is approximately $250 billion. 2 We selected this category
because it is the one that is most closely linked to the continued, unabated growth of clients moving
to the cloud. Quite simply, once clients make the decision to move their physical data center assets
(hardware, servers, etc.) to the cloud, the next immediate requirement is to shift all the infrastructure
operations software to the cloud. Without the deployment of this infrastructure operations software,
none of the enterprise applications (i.e., SAP, Oracle, Salesforce, Workday, Infor and many others) that
constitute the primary source of value could be set up or loaded.
The following are our key findings regarding online marketplaces, particularly for infrastructure
operations software:
■ Based on polling, Gartner estimates that over 25% of global 1000 companies are using online
marketplaces in some capacity to procure all types of products, services, solutions and APIs, and
that well over 75% have tried them. 3 The attraction to online marketplaces is very similar to the
initial rise of infrastructure as a service (IaaS). That is, online marketplaces appeal to infrastructure
and development teams that need to rapidly access tools without procurement lead time and
perceived overhead.
■ Current marketplaces are already boasting thousands of vendor products and are actively aiming
to have well over 80% of the available infrastructure tools that a global enterprise might need as
offerings. Moreover, vendors participating in marketplaces are changing license provisions to

make the licensing cloud-ready (e.g., supporting bursting of instances, which would have been a
problem with traditional license approaches).
■ Some marketplace operators have reported that they are now acting to make themselves
procurement-friendly, allowing for customizable contracts (in addition to prenegotiated options),
along with additional spend reporting and integration with mainstream procurement applications
(e.g., Coupa).
Near-Term Flag: By 2022, the total spend of infrastructure operations software procured through
marketplaces will triple. 4
Market Implications:
■ Gartner has tracked marketplaces for several years, and our research indicates that the continued
adoption of cloud is triggering a tectonic shift in the procurement process. It will change three
5
major tasks of the procurement cycle:
■ Analyze: Market exploration, evaluation and engagement (via RFx, reference checks and due
diligence).
■ Execute the “buy”: Negotiation of T&Cs and pricing.
■ Manage: Vendor management and asset management of the ongoing delivery, performance and
risk for all the purchases made on the marketplace.
■ The marketplace value proposition will deliver ease of use, lower cycle times, increased choices,
ease of technical provisioning and deployment, and dynamic updates. In essence, the long-term
vision and goal of marketplaces is to digitize a large portion of the sourcing cycle for a majority of
the application portfolio. However, achieving this vision will likely be a multiyear journey.
■ The uncontrolled use of cloud marketplaces has the potential to make managing technology spend
more complex and difficult for SPVM leaders. Cloud marketplace use can potentially bypass
procurement and IT, resulting in uncontrolled spending and default acceptance of undesirable
terms. For example, individuals buying from a marketplace may be unaware of existing corporate
agreements and effectively opt out of preferential pricing.
Recommendations:
For SPVM leaders in organizations that are new to marketplaces:

■ Learn, understand and stay abreast of these important shifts — especially the marketplace
vendors’ focus, offerings and structure.
■ Engage stakeholders to understand their demand volumes, their desire for solutions available on
marketplaces and their willingness to adopt self-service options.
■ Dabble with marketplaces where appropriate (“window shop” or perform proofs of concept).
■ Define your self-service roadmap.
For SPVM leaders who have already familiarized themselves with marketplaces and are actively
using them:
■ Define and formalize sourcing guardrails to enable self-service in the business and to manage the
associated risk of not executing all the transactions yourself.
■ Actively manage a usage feedback loop to enable organizational users to share knowledge. Use
this information to update the guardrails as marketplaces evolve, and to provide formal feedback
to marketplace operators.
As businesses move to the cloud, usage of these marketplaces will increase, making it harder for
procurement to manage them after the fact. Therefore, SPVM leaders must build awareness, define
governance for use, and work with stakeholders to determine the solutions they will select and
purchase through self-service.
Related Research:
“Market Guide for Software Resellers”
“2020 Strategic Roadmap for the Future of Applications”
“Digital Disruptors 2018: Leading the Path — A View Into Disruptive Categories and Companies”
Strategic Planning Assumption: By 2023, 50% of applications sold via cloud marketplaces will be
transacted without negotiation of software legal terms and conditions.
Analysis by: James Smith
Key Findings:
■ AWS, Alibaba, Microsoft, Google and IBM accounted for nearly half of all IaaS and infrastructure
utility service (IUS) market share in 2018, 6 and will continue to grow at rates ranging from 25% to
90%
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■ Buying through a cloud marketplace is as simple as accepting the online T&Cs. These T&Cs are
often presented as non-negotiable, unless the organization has a significant spend commitment to
use as leverage to drive concessions. Indeed, between 56% and 74% of SPVM leaders believe the
degree of difficulty in negotiating with six of the largest software vendors will increase in the next
three to five years. 7
■ With “click to run,” freemium, “free tier” and demo licenses already available in cloud marketplaces,
SPVM leaders will not be consulted, or even informed, before such applications are purchased and
deployed. Lock-in will easily occur before the spend reaches a threshold where procurement or
legal review is required.
■ SPVM bypass: Universal access to cloud marketplaces has the potential to allow bypass of SPVM
leaders, as well as IT. These “hidden” marketplace purchases will prevent SPVM leaders from
coordinating any bidding, discounting or negotiation of terms and pricing, because individual end
users within the organization will have already accepted them.
■ Reduction of software/SaaS vendor sales staff: Software vendors’ sales organizations and
technology partners will rely more heavily on cross-promotion from cloud marketplaces.
Megavendors will develop strategic partnerships to help push their specific components on each
other’s marketplaces (e.g., VMware on Microsoft and AWS, or Google through Salesforce 8).
Because the transactions are self-service and no human sales pitch or negotiation is required, the
increasing use of marketplaces will reduce the need for salespeople and lawyers. Artificial
intelligence (AI) will further eliminate the need for large sales teams, by showing predictive
applications and services that may complement what the end user appears to be trying to
accomplish.
■ Increased requirement to accept standard terms: In an attempt to gain more revenue, legacy
application vendors will begin to split their applications into cloud-only and on-premises versions,
thus forcing customers to repurchase for their specific usage. 9 With the reduction of sales staff
and interactions from a physical account team, attempting to discuss these forced changes will
also lead back to accepting online terms. Even if SPVM leaders can contact a real person, they
may still have to eventually accept the online terms. Without firm processes in place to force the
review of alternatives, many organizations will begrudgingly agree to these terms.
Recommendations:
SPVM leaders should:
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■ Work to ensure that current licensing models and their respective T&Cs include all environments,
unless previously agreed in writing that they are not covered. This will stop click-through
agreements from superseding the license agreements that have been negotiated previously.
■ Utilize effective contract language in the master agreement to limit the binding effect of follow-on
terms from third-party application providers. If that is unacceptable to the chosen marketplace
provider, use the included administrative controls to limit any unapproved application installs or
service activations.
■ Develop an IT governance policy and review process before provisioning new applications
purchased from cloud marketplaces. Determine the business’s spend threshold before a formal
agreement and agreed-upon pricing must be put into place. The threshold should be low enough
so that replacing an application with an alternative will not be cumbersome or business-impacting.
■ Make sure the review process engages all necessary stakeholders, such as legal and risk
management, but impose short deadlines to ensure a timely review. Clear ownership for
monitoring and managing cloud applications must be identified upfront.
Related Research:
“How to Maximize Concessions, Entitlements and Benefits Existing With a Microsoft Enterprise
Agreement”
“Toolkit: A Model to Segment Technology Vendors to Determine Relationship Impact and Business
Value”
“Scenarios for the Cloud Marketplace, 2019”
Strategic Planning Assumption: By 2023, 50% of SaaS customers will suffer increased lock-in
resulting from third-party applications within SaaS vendors’ platforms.
Analysis by: Christiaan Murphy
Key Findings:
■ The top seven vendors by revenue make up 50% of the $72 billion market for SaaS enterprise
10
applications. All seven of these vendors — Microsoft, Salesforce, Oracle, SAP, Workday, Google
and Adobe — actively promote third-party applications via their marketplaces.
■ SaaS vendors foster application ecosystems to increase the availability of niche, add-on
functionality.
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become increasingly anchored to the primary SaaS solution. Thus, lock-in to the primary SaaS
solution increases for a couple of reasons:
■ The partner application may be available only for that one ecosystem (e.g., BMC Helix
Remedyforce is an IT service management solution built on Salesforce’s platform).
■ Integrations exist between the prime and partner vendors’ applications.
■ The ease with which these third-party applications can be deployed means that their number and
usage proliferate. Some business units are driving this growth without the traditional oversight of
the IT function. This lack of oversight increases lock-in and reduces the ability to unravel the
multiple integrations.
■ Free trials, followed by “inapp” purchases, make the buying process frictionless. However, these
applications typically come with contractual agreements governing their usage, and these
agreements are distinct from the terms of the primary SaaS vendor. Often, these contracts are not
reviewed by legal or procurement departments, and renewal dates may not align with the term of
the primary SaaS agreement. This dynamic creates a series of staggered negotiations for financial
commitments to different vendors in relation to the wider, entwined SaaS environment, with no
clear date for the customer to potentially exit. In turn, this situation increases lock-in and reduces
negotiating leverage for SPVM leaders.
SaaS vendors will continue to invest in third-party application ecosystems to surround their core
offerings with enhanced functionality and to obtain a competitive advantage in the market. Indeed,
business’s own users are increasing vendor lock-in by building highly customized functionality via
low-code platforms, such as ServiceNow. However, these very customers could potentially
industrialize their own applications for sale to a wider market.
SPVM leaders who allow their SaaS solutions to grow unchecked through the addition of third-party
applications will find themselves increasingly locked into vendors’ solutions, with a limited ability to
control costs and negotiate successful outcomes at contract renewals.
Recommendations:
■ Negotiate that all key contracts related to the SaaS ecosystem be co-terminated, to maintain an
aligned possible exit date and to increase negotiation leverage at the renewal.
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out internally through an application portfolio governance process, and SPVM leaders should
require that SaaS vendors limit the applications accessible to their organization’s users on the
platform.
■ Develop a strategic relationship with the SaaS vendor on which the ecosystem is built. Focus on
vendor management as opposed to transactional procurement, so that concerns relating to third-
party applications can be addressed well before the renewal of the agreement.
Related Research:
“Solution Path for a SaaS Adoption Framework”
“How to Evaluate SaaS Providers and Solutions by Developing RFP Criteria”
“How ISVs Can Effectively Leverage Application Ecosystems”
“Toolkit: Prudently Accelerate Cloud Acquisitions for SaaS Using Gartner’s Triage Methodology”
Strategic Planning Assumption: Through 2023, 10% of SaaS customers will have secondary pricing
metric costs that exceed the primary pricing metric subscription costs.
Analysis by: Jo Liversidge
Key Findings:
■ SaaS vendors sell services using a primary pricing metric — often a “user-based” metric expressed
as a fee per user per month. However, there are often other nonobvious secondary metrics that are
chargeable and drive total costs overbudget. These secondary metrics vary by vendor and by
service type, but commonly include storage costs and API calls. Already, Gartner has seen a few
customers whose storage costs exceed their subscription fees, as well as customers experiencing
sticker shock due to unexpectedly high billing for API calls. 11 Lack of transparency around these
secondary metrics and their associated fees creates budgeting issues for buyers.
■ The obligation to monitor SaaS usage is typically the responsibility of the customer. However,
many clients are failing to do this adequately, leading to overages of secondary metrics and
significant overspending against budget.
■ In certain markets, such as customer relationship management (CRM) and human capital
management (HCM), more SaaS subscriptions are sold than on-premises licenses, and customers
are increasingly losing the noncloud option in those markets. 12 Secondary additional costs — from
the software provider — are unique to SaaS. They do not typically exist with traditional perpetual
licensing, so they are not a natural area of focus for SPVM leaders.
https://www.gartner.com/doc/reprints?id=1-1Y3I31HS&ct=200106&st=sb&mkt_tok=eyJpIjoiTmpjek1ERTNNRGhqWkRJeSIsInQiOiJXWmsxZzlBRnNnQXJzN… 10/17
■ High degrees of lock-in exist for large-scale business-critical applications, reducing customers’
leveragability on any new or unbudgeted secondary pricing metric costs that arise midcontract.
Greater lock-in to SaaS contracts will result from longevity with a vendor, integrations to other
applications, and increased SaaS penetration in markets beyond CRM and HCM. 13 SaaS providers
can potentially exploit the lack of SaaS contract governance typical for many clients, because these
providers have 24/365 visibility of usage. As these markets mature and lock-in increases, these
secondary costs will only continue to rise and become a major issue for customers that have not
adequately budgeted for them.
Secondary providers will increasingly have opportunities to provide lower-cost alternatives for some
of these secondary metrics. This has already happened in some markets. For example,
DataArchiva 14 provides, among other offerings, lower-cost storage for Salesforce customers.
There will also be opportunities for third-party tool providers to assist in monitoring clients’
expanding and increasingly complex SaaS estates, as customers look for help in managing rising
secondary costs. In addition, third-party consultancies will have massive opportunities to assist in the
initial negotiation of SaaS contracts, the application setup, the ongoing software monitoring and the
software asset management (SAM) activities.
Recommendations:
■ Identify all secondary metric cost drivers, such as storage, API calls and bandwidth, upfront during
SaaS vendor selection. Check with references that have similar use cases about any likely
overages of these metrics. For storage specifically, perform an analysis, in conjunction with IT, of
the initial storage required to migrate data to the SaaS provider for the first time, which could
potentially exceed the storage allowance included.
■ Clearly document the base storage, API calls and other entitlements in the SaaS contract. In
addition, negotiate volume pricing tiers to cover incremental units that may arise midcontract.
■ Establish SPVM responsibility for educating stakeholders about ongoing management activities,
such as monitoring usage limits, and assign ownership of SaaS responsibilities for each contract.
■ Stay abreast of new tools and third parties that can assist with SaaS optimization and usage
management, including storage and API usage management.
Related
We Research:
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“Mitigate Unforeseen SaaS Costs by Negotiating Fees for Support, Sandboxes and Other Key
Variables”
“SaaS Cloud Contract Management Must Be Strengthened to Reduce Risk and Minimize Unexpected
Costs”
“Toolkit: Template for a Standard Amendment to a Cloud Vendor’s SaaS Contract”
Strategic Planning Assumption: The third-party software support market will grow from $351 million
in 2019 to $1.05 billion by 2023 — a 200% increase.
Analysis by: Rob Wilkes
Key Findings:
■ Cost optimization continues to be one of the top priorities of SPVM leaders. However, software
support costs for the applications that SPVM leaders have not moved to the cloud typically
increase each year, while the benefits gained from that support decrease as the software becomes
more stable and the internal knowledge base expands. This dynamic has led more SPVM leaders
to seek alternative, lower-cost support options.
■ SAP has stated that, for customers that haven’t migrated to S4, it won’t continue to support them
indefinitely. 15 Consequently, more SAP customers are evaluating third-party support as an option,
because they don’t have a business case to fund the S4 migration. 16
■ Oracle sometimes uses the threat of an audit and other tactics to push reluctant customers toward
17
Oracle Cloud. This approach has also inadvertently caused SPVM leaders to increasingly
evaluate third-party support for Oracle licenses that they want to leave on-premises.
■ Software vendors are typically unwilling to negotiate software support costs, while existing
contractual restraints often make it impossible to reduce them. 18,19 SPVM leaders are, therefore,
increasingly seeking alternative options for the largest of these software providers, such as IBM,
Oracle and SAP.
■ Gartner inquiry volumes suggest that SPVM leaders are now acknowledging third-party support as
an established option. 20 For many, third-party support is no longer seen as out of the ordinary or
as carrying more than an acceptable risk. More buyers are aware of the value-added offerings from
third-party support providers, such as custom-code support, interoperability support, and global
tax, regulatory and security services.
■ Uptake of independent third-party support is increasing year over year. 21

The software vendors’
cloud-first fixation means that, for certain on-premises applications, third-party support may be the
only
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Software vendors rely on recurrent support revenue to help fund R&D, increase their cloud presence,
and bolster their other strategic initiatives (by funding innovation and acquisitions). However, the
near-total focus on cloud offerings leads to lack of investment in, and fewer resources dedicated to,
servicing on-premises support customers. Thus, an array of on-premises customers will move to
third-party support as a safe haven while evaluating their long-term plans. These include:
■ Customers that are not ready to move to the cloud
■ Customers that are not ready to drop support entirely
■ Customers that are unable to fund the move to a new version of on-premises software on the
vendor’s time scales
Another key benefit of third-party support is that it allows customers to use the savings (of at least
50% in costs) to fund digital transformation projects that they were unable to achieve while stuck in
an ever-increasing support cycle.
As the third-party support vendors continue to grow in revenue, the impact on the software vendors’
support revenue will be more keenly felt, leading to software vendors being more aggressive in
protecting this revenue (such as by increasing audit activity). In order to retain customers, incumbent
software vendors will also be forced to reevaluate their non-negotiation stance and become more
flexible, by agreeing to real cost savings.
Recommendations:
■ Evaluate third-party support as an alternative to the vendor’s support, in order to help fund future
innovation. In parallel, analyze the software vendor’s support contract and policies to understand
any restrictions on terminating support.
■ Balance the risk of moving away from the software vendor’s upgrade path and possibly losing the
vendor’s security updates and patches against the benefits of reducing costs and increasing
service levels with third-party support.
■ Use a realistic threat of third-party support as leverage in order to negotiate lower maintenance
and support costs with incumbent providers.
■ If practical, enter into a competition between third-party providers to drive increased savings and
concessions.
Related Research:
“What CIOs Need to Know Before Adopting Third-Party Support for Oracle and SAP ERP”
“Market Guide for Independent Third-Party Maintenance for IBM, Oracle and SAP Software”
“Minimize S/4HANA Risks by Strategically Planning and Executing Your Adoption Roadmap”
A Look Back
In response to your requests, we are taking a look back at some key predictions from previous years.
We have intentionally selected predictions from opposite ends of the scale — one where we were
wholly or largely on target, as well as one we missed.
On Target: 2014 Prediction — By 2019, cloud computing and the new digital economy will cause
subscription pricing to overtake perpetual licensing and maintenance.
Applications delivered as SaaS with subscription pricing expanded to $71.9 billion in revenue during
2018. The CRM and HCM markets already reached the tipping point of more SaaS revenue than on-
premises (perpetual license) revenue in 2016 and 2017 respectively. In 2018, new SaaS CRM
accounted for around 73% of total CRM revenue. 22 CRM is the largest enterprise application market,
23
accounting for 25% ($48.2 billion) of the total enterprise application revenue in 2018. Another
sizable application market, financial management systems (FMS), has not yet reached the tipping
point, but nearly 35% of spend in FMS is now based on subscriptions. Established providers, such as
24
Adobe, have made the move from perpetual to subscription-only offerings.
Even where providers still offer perpetual licenses, there is a big push to move clients to their own
cloud products. The rise of cloud marketplaces is contributing to this trend. Cloud marketplaces,
such as AWS Marketplace and Azure Marketplace, offer an easy way to buy software, and in
marketplaces, subscription models dominate. This is not to say that every market is predominantly
subscription-based. Take, for example, the enterprise asset management (EAM) market. We believe
that, through 2022, on-premises licenses will continue to be the dominant delivery method for EAM in
large asset-intensive organizations, coming in at 79% of total spend, just a 1% change from 2017.
This is due to long EAM software life cycles, the ability to extend the breadth of capabilities to
increase efficiency without replacement, and some cloud trepidation. EAM is a smaller market, with
$1.7 billion in 2018. However, while there are exceptions in some markets, we believe the prediction
to be largely on target.
Missed: 2015 Prediction — By 2019, annual maintenance pricing for perpetual software licenses will
become more expensive than the subscription price for equivalent functionality.
The majority of clients moving from a perpetual license to a SaaS subscription model still pay more in
SaaS
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like-for-like comparison, as the maintenance fees are only a proportion of the total cost of ownership.
The SaaS subscription fees also include other costs, such as hosting charges.
Evidence
1
Adapted from “Online Marketplace,” Wikipedia.
2
“Gartner Market Databook, 3Q19 Update” forecasts overall IT spend into several categories
(devices, data center systems, software, IT services and communications services). The software
category is further broken down into enterprise software and infrastructure operations software.
Examples of infrastructure operations software include, but are not limited to, software for operating
systems, storage, database, security and SIEM. The market sizing for 2019 is approximately $250
billion. Illustrative examples of software are captured below in Table 1.
Table 1: Examples of Infrastructure Operations Software
Software Type Representative Examples
SIEM ArcSight, LogRhythm, Splunk, Sumo Logic
Security Barracuda, Check Point Software Technologies, Fortinet, MENTIS
Database Couchbase, MongoDB, Snowflake, Vertica
Storage Commvault, Druva, NetApp, SoftNAS
Operating Systems CentOS, Debian, Ubuntu, SUSE
Source: Gartner (December 2019)

3
During the second and third quarters of 2019, Gartner analysts interviewed six of the leading
marketplace vendors, as well 15 reference clients. Based on a compilation of the data, coupled with
Gartner client inquiry, the analyst team estimates that over 25% of global 1000 companies are using
online marketplaces in some capacity, and that well over 75% have tried them.
4
During the second and third quarters of 2019, Gartner analysts interviewed six of the leading
marketplace vendors, as well 15 reference clients. Reference clients with cloud initiatives
commented on the availability, use and procurement of infrastructure software offerings through
marketplaces. Based on the sizing of the market, cloud adoption forecasts and vendor self-reported
channel sales, our analyst team estimated triple-digit growth levels from a currently small initial base
of transaction volumes.
5
See “Leadership Vision for 2020: Sourcing, Procurement and Vendor Management Leader.”
6
See “Market Share Analysis: IaaS and IUS, Worldwide, 2018.”
7
2019 Gartner Sourcing, Procurement and Vendor Management Leaders’ Experiences Working
With Software Vendors Survey: This survey was conducted online from 20 June 2019 through 19 July
2019 with 27 Gartner Research Circle members and 62 external panel participants.
Respondents were required to have personally been very/highly involved in negotiating software
and/or SaaS contracts on behalf for their organizations in the past five years. They were also required
to have personally negotiated contracts for functionalities required to run the organization (e.g.,
enterprise resource planning, human capital management or customer relationship management
capabilities).
The results of this study are representative of the respondent base and not necessarily the market as
a whole.
8
See “The Salesforce and Google Partnership Keeps Getting Better,” Salesforce.
9
For example, see “Updated Microsoft Licensing Terms for Dedicated Hosted Cloud Services,”
Microsoft.
10
See “Market Share: Enterprise Application Software as a Service, Worldwide, 2018.”
11
Through inquiry, Gartner has spoken to clients who have storage costs that make up over 50% of
their total subscription costs.
12
See “Market Share: Enterprise Application Software as a Service, Worldwide, 2018.”
13
See “Forecast: ERP — SaaS and On-Premises, Worldwide, 2017-2022.”
14
See the DataArchiva website.
15
See “SAP Support Strategy,” SAP.
16
See “Is SAP’s 2025 Deadline Real?” Computer Business Review (CBR).
17
See “Court Drama: Did Oracle Bully Its Customers Into the Cloud? Nine Insiders to Blow the
Whistle,” The Register.
18
See “SAP Standard Support Schedule (‘Schedule’),” SAP.
19
See “Oracle Software Technical Support Policies,” Oracle.
20
Compared
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21
See “Market Guide for Independent Third-Party Maintenance for IBM, Oracle and SAP Software.”
22
See “Forecast: Public Cloud Services, Worldwide, 2017-2023, 3Q19 Update.”
23
See “Forecast: Enterprise Application Software, Worldwide, 2017-2023, 3Q19 Update.”
24
See “Adobe Kills Creative Suite, Goes Subscription-Only,” CNET.
Note 1
Techquilibrium
“Techquilibrium” is that balancing point where the enterprise has the right mix of traditional and
digital capabilities and assets to power the business model needed to compete most effectively in an
industry that is being digitally revolutionized. (See “Techquilibrium: Traversing the Balance Between
Traditional and Digital Business.”)
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affiliates. This publication may not be reproduced or distributed in any form without Gartner's prior written
permission. It consists of the opinions of Gartner's research organization, which should not be construed as
statements of fact. While the information contained in this publication has been obtained from sources believed to
be reliable, Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information.
Although Gartner research may address legal and financial issues, Gartner does not provide legal or investment
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Predicts 2020: Negotiate Software and Cloud Contracts

■ Build internal awareness of cloud marketplaces as a purchasing option. Encourage controlled

Strategic Planning Assumptions

What You Need to Know

Strategic Planning Assumptions

Analysis by: Frances Karamouzis, David Groombridge, Dolores Ianni

offerings. Moreover, vendors participating in marketplaces are changing license provisions to

■ Execute the “buy”: Negotiation of T&Cs and pricing.

For SPVM leaders in organizations that are new to marketplaces:

■ Deﬁne your self-service roadmap.

“Market Guide for Software Resellers”

“2020 Strategic Roadmap for the Future of Applications”

Analysis by: James Smith

SPVM leaders should:

down to the third parties found in these marketplaces.

“Scenarios for the Cloud Marketplace, 2019”

Analysis by: Christiaan Murphy

■ Integrations exist between the prime and partner vendors’ applications.

SPVM leaders should:

“Solution Path for a SaaS Adoption Framework”

“How to Evaluate SaaS Providers and Solutions by Developing RFP Criteria”

“How ISVs Can Effectively Leverage Application Ecosystems”

Analysis by: Jo Liversidge

SPVM leaders should:

“Toolkit: Template for a Standard Amendment to a Cloud Vendor’s SaaS Contract”

Analysis by: Rob Wilkes

■ Uptake of independent third-party support is increasing year over year. 21

■ Customers that are not ready to move to the cloud

■ Customers that are not ready to drop support entirely

SPVM leaders should:

Table 1: Examples of Infrastructure Operations Software

Software Type Representative Examples

SIEM ArcSight, LogRhythm, Splunk, Sumo Logic

Security Barracuda, Check Point Software Technologies, Fortinet, MENTIS

Database Couchbase, MongoDB, Snowflake, Vertica

Storage Commvault, Druva, NetApp, SoftNAS

Operating Systems CentOS, Debian, Ubuntu, SUSE

Source: Gartner (December 2019)

© 2018 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

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