Net neutrality issue may slow growth of SAAS market

The outcome of the “net neutrality” issue currently up for debate among U.S. lawmakers could slow down the burgeoning software as a service (SAAS) market, industry analysts and companies said Thursday.

On one side of the debate, large service providers such as AT&T are petitioning U.S. lawmakers for control of any services that go over their pipes, on which the Internet runs. On the other, companies offering Web-based services and consumer advocates believe the Internet should remain neutral because if it does not, service providers can create a fast lane for their own broadband services, and a slow lane for other companies providing services over the Web.

Some industry watchers at Thursday’s Software as a Service Summit in Napa, California, said that the prospect of carriers requiring SAAS companies to pay a premium for faster networks could slow the general adoption of SAAS. This is because it will require SAAS companies to rethink how much they are willing to pay to deliver their services, as well as how much to charge customers.

“Companies will have to decide if they are willing to pay a premium for those services,” said Amy Wohl, analyst with Wohl Associates. “If the Internet splits, it will slow some of what happens on the Internet as far as [application] development and will cause pricing issues.”

Jim Geisman, principal and founder of SoftwarePricing.com, said that a lack of net neutrality will put more pressure on SAAS companies to ensure that the quality of service they provide is high enough to win and retain customers, even if it means paying a fee to carriers on the back end. Geisman’s company helps SAAS companies figure out how to price their offerings.

“If the service level as perceived by the customer degrades, you as a customer don’t want to be there,” he said. “As an SAAS provider, you have to be sensitive to that.”

However, he added that if carriers do win their battle to control Internet-based services, it’s likely someone will come up with either a technology or pricing model to lessen the impact on SAAS providers and their customers.

Others think that service providers will never win their quest for control of the Web and, even if they do, it won’t affect the adoption of SAAS.

Treb Ryan, chief executive officer of OpSource — which provides enablement for SAAS companies — said that since carriers largely do not control the customers of SAAS companies, the market will never stand for carrier control of Internet-based services.

“If someone went to a customer and said, ‘We’re going to reduce your access to applications over the Internet because you’re not paying us enough,’ they would switch [providers] so fast it would make your head spin,” Ryan said. “And I find it extremely hard to believe there won’t be some [carrier] who says, ‘I’m the one you don’t have to pay for.'”