The end-user or customer can view the code that runs a business from two perspectives – the software that comes as a service and the software that you buy off the shelf as a commercial product. So we are left with two entirely different entities – Software as a Service (SaaS) and Software as a Product. The question is whether you prefer to rent or buy the software.
Software As A Service (SaaS): Exploring The Benefits Of Renting Software
The concept of SaaS implies that you (customer/client) are not interested in buying and owning the software; you’re agreeable to renting software as a service to accomplish a specific task or business goal.
You have the right to use the software as long as you keep paying the rent or licensing fee. The services stop when you cease being a subscriber to the online service.
Internalizing the challenges of custom saas development in the SaaS licensing model is immensely beneficial to companies because you’re getting much more than simply the software – you gain by accessing a virtualized network of servers, performance upgrades, and vast database storage.
The SaaS network is available 24/7 without downtime, and what’s more, the administration, processing, upgrades, and maintenance of the SaaS network is the vendor’s priority, not yours.
Software As A Product: The Maintenance Costs Of Ownership
Software as a product is an ecosystem that’s unique by itself.
- You buy the software source code as a control system to run your business processes. Buying implies that you are the product owner.
- You invest capital in setting up a server so you can install and run the software you purchased.
- You buy power and a backup generator to keep the server running. You pay the initial and recurring costs of purchasing power, maintaining the operating system, and providing airtight security layers to protect your assets.
- It becomes necessary to bear the cost of administering the hardware, replacing components in obsolescence, and upgrading the software as the business grows.
- Hardware failure, problematic upgrades, and operational downtime are some of the challenges we inevitably confront.
- Both hardware and software need a team of professionals to maintain them. It would be best to have an IAM, an identity, and access management protocol to decide who accesses the resources where and when.
- Most importantly, you have to invest in top-of-the-line security architecture to prevent nefarious actors from stealing your data and company secrets and prevent online fraud.
As we can see, software purchased as a product places enormous demands on the business’s time, energy and money, and maintaining such an ecosystem in-house, on-premise, is expensive.
Imagine outsourcing all of the above activities to a third-party vendor to manage and maintain the hardware and software and provide the necessary security cover. You want only the software without the burden of ownership. SaaS provides businesses the option of licensing software in a pay-as-you-use model.
Economics Of SaaS Vs. Economics Of A Product Purchase
The differences between SaaS and software as a product come out when we examine the licensing software’s economics.
The Economics Of Software As A Service
In SaaS, you are not purchasing the software because you want to own it; you are only interested in a restricted license to operate the software. What you get in return is a kind of general license where everybody – clients and customers – gain the right to use the software for as long as the subscription is paid and remains active.
Imagine you have 50 engineers, each possessing as many licenses for analytics on the software. Each engineer ends up using only a fraction of the software capability. On the other hand, a single licensing agreement at the corporate level can benefit all the engineers, each exercising the option to use the software whenever they want.
Instead of purchasing software off the shelf, you are exercising the right to use the software in a SaaS ecosystem and gain instant access to different types of IT services without worrying about system upgrades.
The Economics Of Software As A Product
Purchasing a product license draws you into an unending cycle of maintenance, upgrades, and feature fixes. A live example is Microsoft Windows Operating System, a performance and productivity software. Every couple of years, we see the arrival of a new version, and consumers purchase upgrades.
The purchased software creates an ecosystem of dependence and subtly builds the market pressure to upgrade and move to newer versions, which imposes additional and recurring costs. The problems come when support for the older versions vanishes.
Older software sitting in aging hardware becomes a liability when the business wants to onboard new processes that require faster computing power, more efficient systems, and more extensive data storage capability.
Conclusion
SaaS may ultimately provide the same software, but delivery through an affordable economic model frees the business from obsolete systems and outdated procedures.
The SaaS company is in the business of keeping you happy, not just with good software but an entire suite of services maintaining and sustaining the software with security thrown in for good measure.
Over time, we will see more companies choosing SaaS models to perfectly align company financials to business objectives and achieve blinding success in a competitive market.
