There are many myths that are propagated by legacy software vendors to discredit the insurgent Software-as-a-Service (SaaS) and cloud computing movements. But, the SaaS industry has also harbored its own myths for many years as well.

For instance, many SaaS vendors aren’t truly ‘on-demand’. You can’t acquire and utilize their web-based applications instantaneously because they lack the automated provisioning capabilities. And, in many cases they don’t want you to use their online applications ‘by the drink’ because it undercuts the predictable revenue stream which is essential to the SaaS model.

The second and related myth is that most SaaS solutions are not ‘pay-as-you-go’. Instead, you are often asked to pay for a one-year agreement up front before you can utilize the SaaS app.

Despite these limitations, SaaS solutions have flourished because they are still far more flexible and more cost-effective than their legacy predecessors.

Nonetheless, a growing number of experienced SaaS users, as well as some prospective customers, are becoming frustrated with the traditional sales tactics and increasingly complex contracting policies emerging in the SaaS industry.

RightNow issued a “Cloud Challenge” this week to counteract the SaaS industry’s dark side, and make SaaS vendors more accountable and user friendly, while attempting to reset the competitive playing field based on more flexible contracting practices.

The centerpiece of RightNow’s new initiative is the Cloud Services Agreement (CSA), a user-driven approach to SaaS licensing. The CSA provides:

• Annual Usage Alignment Up or Down
• Three-Year Price Commitment, Plus Three-Year Renewal Price Cap
• Annual Termination for Convenience
• Annual Pools of Capacity
• Cash Service Level Credits
• Unlimited Capacity for 90-Day Pilots

Click here to find more information regarding the key elements of RightNow’s challenge.

RightNow made its announcement via a live Internet feed that included strong customer testimonials by Ken Harris, CIO of Shaklee Corporation, and Jim Huser, CIO at Guthy-Renker. The Cloud Challenge video is at, http://www.rightnow.com/resource-video-cloud-challenge.php.

RightNow’s challenge not only raises the bar for legacy software vendors who are still struggling to migrate to a SaaS model, but also some of the SaaS industry leaders who have succeeded without fully meeting all the expectations of the ‘on-demand’ terminology. In particular, RightNow was happy to single out Salesforce.com for criticism.

(Disclosure: I’ve done work for both firms.)

There has already been plenty of discussion and debate regarding cloud ‘governance’ issues. Now, SaaS contracting practices are going to be added to the controversial questions surrounding the market.

The good news is that if other companies meet RightNow’s challenge they can reduce another point of ‘friction’ in the SaaS adoption cycle. By standardizing and simplifying the contracting process, and making it more transparent as well, SaaS companies are able to alleviate a lot of the uncertainty customers have about the unknown aspects of SaaS procurement.

In my opinion, RightNow’s challenge represents a healthy new step in the maturation of the SaaS market and cloud computing industry. Its challenge will be keeping up the drumbeat to keep its competitors’ feet to the fire. I’m sure the legacy software vendors and many SaaS providers are hoping this topic fades away.

cloud computing RightNow SaaS Salesforce.com Software-as-a-Service