Why Software as a Service? Let Me Explain

Why Software as a Service? Let Me Explain

By Special Guest
Nancy Van Elsacker, President, TOPdesk US
  |  May 25, 2016

More and more suppliers have begun to offer their software as a service in the cloud. But why do they do this? And what are the big advantages for users? The reasons are specific and they are plenty, and they often differ for everyone. Over the last few years, software suppliers have all been switching from the traditional perpetual license model to the Software as a Service (SaaS (News - Alert)) subscription. With SaaS, of course, customers pay for software via a subscription according to use instead of making a one-off purchase. Instead of installing the software on the organization’s servers, it will now be in the supplier’s cloud. Organizations can then access it through the Internet.

There is a worldwide proliferation of suppliers with this business model. These are new suppliers who only offer software in the cloud, like Google (News - Alert) and Salesforce.com, and suppliers who already offered software packages.

Why their support for their vision on this trend and where does this growth of subscriptions come from? Essentially, this is a logical consequence of the shortcomings of the traditional license. Thus, organizations want their software costs evenly distributed, manageable and insightful. Perpetual licenses do not meet these requirements: large one-off costs, long-term maintenance contracts, all followed by upgrade costs of which the amount and payment date are unclear.

A subscription removes all these uncertainties with a monthly fee.

Additionally, a license also makes organization’s bookkeeping less flexible. Just imagine if you are forced to cut back while you just invested in a new tool six months ago. Of course, you won’t get part of your money back. But if you pay per user, it is easy to align your costs with your new occupancy.

If you take a look at the total costs of ownership, it shows that SaaS is simply less expensive over a period of four to five years. With a perpetual license you have costs for maintenance, staff, hardware and implementation that add up to a number higher than the subscription costs for SaaS. Choosing SaaS may be smarter, and more flexible and profitable for most organizations. The same goes for the supplier. They also have a predictable monthly fee rather than large expenses for each new version under a SaaS model.

For suppliers, the classical perpetual license model is also a perverse incentive to save up innovations until they can release a proper new version, with matching price tag (News - Alert). After each new version, the suppliers directly start working on the development and innovation of their product. But these new pieces of software can gather dust for years. This is very unwise from a financial point of view and it puts customers behind on new innovations. With SaaS, managing the software is entirely in the supplier’s hands. They can choose to perform daily updates. That’s how suppliers can continuously improve their software, leading to a better product with higher customer satisfaction. Customers can also give feedback on new functionalities more quickly, which the supplier can get to work with.

Users reap the benefits of SaaS because they always have the most up-to-date software. This is also true for maintenance, bug fixes and the safety and reliability of the data. The entire technical management is the supplier’s responsibility. As a result, organizations will have more manpower left to perform core tasks. There are however organizations that choose for a subscription, but still run the software on their own servers.

However, some organizations still have an anti-SaaS policy or have hardware that is not yet written off. That’s why they cannot completely go for software as a service. But, at the same time, it pays for these organizations to not commit themselves to a software purchase now because who knows what the future holds. By choosing a subscription they can already reap the financial benefits without making long-term commitments. But the difference is that the customer remains responsible for updates and technical management. They do not benefit from the biggest advantages of SaaS.

Choosing the supplier’s cloud does require organizations to hand over the control of important themes, such as safety and reliability, but these responsibilities should lie with the supplier. A software supplier’s reputation depends on the level of safety and responsibility of its services, while for most companies it is only one of many tasks.

SaaS suppliers are specialists when it comes to their own software. In practice, this focus always benefits the safety and reliability. I do understand why organizations without SaaS experience are hesitant to hand over control of their management. To take their away fears, they should consider thoroughly preparing and ask potential suppliers many questions about themes they’re unsure about.

A question that should always be at the tip of your tongue when you talk to suppliers is how economically stable they are. After all, a lot more vulnerable for the collapse of a SaaS supplier than when the software is on your own server; but SaaS hasn’t left its childhood behind when it comes to this. For example, there are parties that make it difficult to retrieve your data after termination of a contract, even though the data with SaaS is the customer’s property at all times. The coming years the sector will have to work hard to get over these teething problems.

Additionally, the switch to a different market approach and revenue model will, of course, not happen overnight and asks for a certain change in attitude. And, even though end users barely notice the switch, it is different for application managers. The functional application management does not change, but the supplier does take over the technical part. This could be an argument for them to dig in their heels. But organizations that made the step towards SaaS tells me that in practice it is often considered more as a chance than as a threat. Because a part of their tasks disappears, there is more room to create added value for the organization. By learning how to better work with the software, for example.

As far as I am concerned, the only tangible fear in making the switch is that not all software suppliers offer SaaS. As an organization you will have to deal with hybrid environments. If a system is the first application of its kind in the organization to run in the cloud, you will need to make links to all local systems, for example; otherwise all these links can be lost during an automatic software update.

These issues will likely vanish into thin air over the next few years, and everything will be available in the cloud sooner than we think. Ultimately, Software as a Service will become a standard in the world.

Nancy Van Elsacker is president of TOPdesk US, a provider of IT service management software solutions.

Edited by Stefania Viscusi