Why Saas (Part 1 of 3)
Software As A Service (SaaS) is a relatively new way to purchase and deploy software that began around 2001. Made popular by Salesforce.com, this software delivery model eliminates large upfront fees and hardware investment because the software is accessed over the Internet via a web browser with no software on-premise. The software vendor is responsible for hosting the application on its hardware as well as upgrading the application functionality, backing up data, and maintaining the infrastructure (hardware, network, disks, power, building). The SaaS model has unique advantages to both the software vendor (Firm58, in this case) and our customers. These advantages are the driving reason behind Firm58’s decision to design and deploy our SaaS solutions.
Benefits to Firm58 Customers
- Reduced risk and capital costs. Recall, the traditional software licensing model where customers pay a large upfront fee for a software license and a yearly maintenance fee for upgrades and patch fixes. For desktop applications such as Word or Excel, the license fee is in the 100s of dollars but, in enterprise software, the license fee can be in the 100,000s… and that’s just to get started. Once you add an 18% annual maintenance fee on top of that, enterprise software becomes a costly proposition. It’s no wonder companies do an exhaustive evaluation when choosing enterprise software. But SaaS changed all this. In a SaaS model, customers pay a monthly subscription fee for the software license and there is no upfront fee. The elimination of large upfront fees reduces risk because much like terminating your phone, electric or cable service, if the business changes, you can cancel service. There is simply less at risk with SaaS.
- Lower total cost of ownership. In a SaaS model, the customer does not have to purchase hardware or software licenses. The SaaS vendor hosts the application in their data center and on their servers. The vendor provides the necessary infrastructure to support the service including upgrading the computer’s operating systems, providing redundant servers, network connectivity and power in the event of a failure, as well as redundant high performance disk technology to store data. In addition, most software vendors embed other software in their solution, so as to not re-invent the wheel. For example, database software such as Oracle, IBM DB2, or Microsoft SQL Server is commonly embedded into a software solution. The customer does not need to purchase a software license, because it’s licensed indirectly through the service. Keep in mind that software licenses are typically 3-5 times the cost of the hardware. SaaS vendors leverage these costs across their customers and pass on the saving to their customers.
- Improved customer service. SaaS vendors must earn the subscription fee each month or the customer may look to another vendor or simply cancel the service. With a traditional software model, the software vendor has minimal interest in making the customer successful beyond the initial license sale. Customers are reluctant to cancel their software license, not only because they paid for it upfront, but also because they own it. In order to maintain customer loyalty, the SaaS vendor must continue to offer new features, deliver a reliable service, provide good customer service, all for a reasonable monthly subscription. SaaS vendors are incentivized to continue to innovate and listen to their customers.
Benefits to SaaS Vendor
- Focused resources and best-of-breed technology. In the traditional software deployment model, when software is on premise, customers are always concerned with the underlying technology such as the database server, operating system, etc. They have to make sure they have the staff and experience to support the software technology. If not, the software vendor’s solution may be rejected. Software vendors responded by porting their software to multiple technologies, for example supporting Oracle and SQL Server or Unix and Windows. If there is an ongoing requirement to support multiple databases, multiple operating systems or other technologies, it may take away crucial development resources from developing new features. The lifeblood of a software company is to continually innovate…”…innovate or die…” is the mantra.
- Improved development velocity and support. Keeping all customers on the same or nearly the same software release is a difficult challenge for any software company. When customers install software on their servers, it’s even more difficult because they control the upgrade pace. Anyone who has worked in enterprise software knows the pain of weekend or late night upgrades. So needless to say, they are reluctant to upgrade. If a customer calls with a problem on a software release from 4 years ago, it’s difficult to provide a fix for this point specific release without requiring the customer to upgrade. For a software vendor to pull a very old release and make a fix is a very time consuming process. Part of the problem is that the release cycle in traditional software deployment is anywhere from 6-12 months. A lot changes in 6-12 months, which means a lot could go wrong during an upgrade. Whereas in a SaaS model new feature updates and patch fixes stream out every 2-6 weeks. The release cycle is dramatically shorter, intentionally shorter. Small incremental changes applied frequently, make upgrades easier and reduce the overall upgrade risk. Most importantly, it keeps SaaS customers at or near the latest release making maintenance and support easier.
These are just a handful of benefits for both the purchasers and the providers of SaaS technology. My next installment in this series will cover SaaS for financial services.