SaaS and software
purchase
Many
people seem to be talking about Software as a Service (SaaS) for many
things. Within my own business we use it
for a variety of functions: email, CRM, Help Desk, application lifecycle
management – to name just a few. We like
the model and have bought into it where we feel it is the best approach. Small businesses like ours take pride in our
flexibility. SaaS fits in with this
ethos. Money is always important to a
small business. To have moved so much
functionality into Cloud based services, we must feel the cost is good.
As
a Capacity Management software and services vendor, we now regularly get asked
if we will provide our athene® software in SaaS mode. Many more people have asked, than have gone
forward to implementation. This got me wondering if and why SaaS is the right delivery mechanism for Capacity
Management.
The comparison I am making
is with ownership and running software, third party or developed in-house,
on premise. There is a halfway house,
managed services, where the software is installed and run at your premises, but
managed by a third party. I’ll leave the
managed services comparison out of things for now, as that is by far the least
requested and least implemented model in my experience.
Clearly
the most common model for running a capacity management function in the past
has been on premise software, either developed in-house or purchased from a
third party. The relevant merits and
benefits of those two approaches can be considered another time. For now, I’ll compare having Capacity
Management run as SaaS with both. SaaS
is the new kid on the block, and presumably needs to offer something distinctly
better than on premise software if it is to tempt people out of their
organization and into the Cloud.
Finance
The
main driver for many decisions is cost, and SaaS offers a very different cost
model compared to owning software. It
often boils down to a difference between ‘capex’ and ‘opex’, capital expenses and
operating expenses. Is there a cost
saving for one compared to the other, or are they just different ways of
accounting for money? Although this can
vary by country, the main financial difference between the two can be how they
are treated from a tax perspective. For
SaaS, in many tax regimes, 100% of the software charge is tax allowable each
year, against a much smaller proportion for purchased software. For this reason alone, your CFO might prefer
SaaS.
There
are other related cash benefits. From a
CFO’s perspective, predictable but flexible cash flow is preferred. SaaS offers
these things. Costs are typically flat over
whatever period you pay. After some
initial set up charges, payments are often made for shorter periods than
software purchase, for example monthly or quarterly. This contrasts with software purchase, typified
by a high initial one time cost and an annual maintenance payment. Unless a payment schedule is agreed with your
supplier, this means a higher upfront cash outlay than for SaaS, irrespective
of how the business internally accounts for that expenditure. Being tied in to annual maintenance paid in
advance can mean a business feels there is no flexibility with software
ownership. Once the payment is made,
getting any cash back is unlikely.
SaaS offers the promise of being able to flex
resources, and therefore expenditure, on much smaller time scales, e.g.
monthly, in response to demand.
A
final area where SaaS might appeal to your CFO is the speed of the return on
investment compared to traditional software ownership. That big upfront payment for software means
you have to use it for some time before the benefits you receive from using it
outweigh the money spent. If you have
less money spent upfront and a small monthly payment with SaaS, you cross that
line much quicker. SaaS also offers the
promise of being able to downscale your Capacity Management to fit budgets and
ensure it provides return on the money spent. Software purchase means that once the money is
spent, it is spent. If the return on
investment isn’t as much as expected, the expenditure side of the equation
cannot be adjusted.
It’s not always about
the cash…
Running
software in-house means more than just buying a product, then sitting back and
watching it do your Capacity Management on its own. If only the world were that simple! Other factors are needed in place and working
well to make Capacity Management successful. I'll deal with this on Monday.
In the meantime take a look at athene®SaaS http://www.metron-athene.com/products/athene-capacity-management-software-as-a-service/index.html
Andrew Smith
Chief Executive Officer
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