New data shows SaaS model may be deadly to growing businesses
Baltimore, MD – March 18, 2022 – While SaaS has often been considered the Holy Grail for businesses yet a new piece of data has revealed a shocking truth. As per the recently surfaced information, the SaaS model carries the risk to thwart growth or pose dangers especially to growing businesses. Standing in such circumstances, boutique Accounting and ERP solution company, Analysis & Information Services, has suggested a newer alternative, the hybrid model, in place of the SaaS option for the fast rising businesses.
A name of repute across the accounting software scene, AIS has been acknowledged as National and Regional Most Valued Partner by AccountMate. The company has been working with several AccountMate business partners, programmers, vertical solution providers, and longtime employees for more than three decades now. The boutique accounting and ERP solution agency allows customers to choose from both completely cloud-based SaaS and hybrid solutions as per their specific requirements.
Overview of SaaS
The acronym for Software as a Subscription, SaaS is software that users have to “rent” and pay a monthly fee to keep using it.
So, what is Cloud then?
SaaS is mostly a cloud-based program. Speaking about cloud, the key spokesperson from AIS shared that “Cloud” is essentially a fancy term for “computers”.
“If you were to visit a Cloud, you’d see warehouses (data centers), with aisles of tall racks of computers connected to the internet. That’s it. Since most people never visit a data warehouse, the vision of remote computers and how that works can be vague, like a “cloud” up in the sky, off in the distance somewhere”, stated the spokesperson.
“When you log in to Cloud accounting software from your browser, your device gets the software screens and the accounting functionality, and your organization’s own accounting data, from those warehoused computers across the internet—rather than from the hard drive on your own local desktop or mobile device, or from the network server in your office.”
According to AIS, the software industry enjoys immense monetary benefits and many other advantages for its shift to SaaS-in-the-Cloud business model.
The SaaS-in-the-Cloud business model brings enormous benefits for the software industry.
Here is a glimpse of the manifold benefits enjoyed by the software world for its adoption of SaaS-in-the-Cloud business model.
1. SaaS brings huge profit for the software company
With SaaS, the customer perpetually “rents” or licenses the software which eventually implies automatic payments for the software company every month. In fact, a SaaS customer will basically pay more for the rented program than what they had paid with a one-time upfront payment. For mid-tier accounting and ERP software, this breakeven point is reached after perhaps 4-5 years. Most companies don’t replace their systems for 10 years or more due to the size and cost of the project. So, even considering the additional price of regularly purchased software updates over those years, and the value of the new features and technology added to the software during the subscription period—the total software price paid with SaaS is more.
To get a clear picture of the whole scenario, it’s better to calculate what a SaaS client would pay over the entire life of the software. Now, SaaS companies mostly don’t want the client to calculate this number before they buy as otherwise the client will ask a lot of questions to get all the info s/he needs about the pricing plan.
SaaS subscriptions aren’t always in the best interests of customers
“If you look at headlines about Stellantis’ [formerly Fiat-Chrysler] new money-making scheme, things seem pretty innocuous. “Stellantis Bets on Software,” says the Wall Street Journal. “Stellantis launches $23 billion software push,” says Automotive News. Software sounds good, right? Well, something else is at play here: subscription services that keep you paying long after you’ve bought your car.
This is not going to be a “we’ll update it when necessary” kind of thing. This is going to be an offensive, judging by this line from Stellantis:
“We really see software as a growth opportunity, something that can make a huge difference,” [Chief Software Officer Yves] Bonnefont said, adding that updates that could be done every quarter would bolster profit margins.
On the one hand, it will be good for you to be able to upgrade your old car with more modern advances. Hell, even I upgraded my 1974 Volkswagen to have disc brakes not drums. Upgrades aren’t a bad idea. It’s just that expecting to pull in billions of dollars per year on software updates sounds more like a kind of revenue extraction than something done in the interest of the consumer.”
2. SaaS software company benefits from recurring revenue
A steady subscription-based model is always more advantageous to the SaaS software company compared to a one-time upfront payment package. If a customer goes for the one-time payment scheme, s/he would only make further payments when there is a new upgrade- and that also if s./he needs the upgrade. This way, it makes the revenue stream smaller for a software company from what it could be in a subscription-based payment model.
So, why would a subscription-based model be more beneficial for a SaaS software company? Well, in a one-time payment package, each time there’s a new upgrade, the software company must again sell the product to their existing customers to get them to purchase the new upgrade. This adds a lot of time and expense compared to a SaaS model where the upgrades are included automatically and don’t need to be sold to existing users.
Without SaaS, not all customers will upgrade. Some will skip versions. Others won’t upgrade at all because not all customers require or want all the upgrades.
But on the contrary, when customers are using SaaS, the revenue to the software company remains steady month after month, because everyone is charged for new upgrades, whether they want them or not.
3. Clients might not need SaaS upgrades always but they would have to
“If you are really enjoying the way your software works, you may not want the upgrades, but you may not have a choice with SaaS…” noted the spokesperson.
Per the statements of the spokesperson, with subscriptions, the software company can continuously release new features and changes through the cloud. And they typically require that clients continuously update to newer releases when they’re available.
“For example, the software company may redesign the user interface, proudly announcing that it’s ‘even more intuitive and easy to use than ever.’ But you cannot control the SaaS update schedule. If you’re in the middle of an important project or you’re right in the middle of your busiest season of the year, you get disrupted and must take time to find things in new places on the menus and figure out the new way your critical features now work.”
Besides, the software companies typically introduce major new technology and policy changes every few years that one might not want. Perhaps a one-time overhaul of the underlying software technology, which may require data imports, reconfiguration or user training on the client’s end. Perhaps an increasing number of new fees get added to his/her monthly subscription to access some features in the software.
With SaaS, there is a lack of flexibility. One can’t move at his/her own pace, and s/he certainly can’t “freeze” the software when it’s exactly to his/her liking and keep running it that way. The client business has to stay on board with any changes from the software company if it wants the software to continue working.
“At AIS, we have clients who have solid business reasons to wait years between updates. With SaaS you usually don’t have that option available. Even though you originally selected the software in part for its flexibility and customizability, you lose some of that flexibility to the software company policies that come with SaaS.”
The spokesperson further highlighted the good and bad of SaaS for businesses.
The Good part
- Ownership cost
SaaS users don’t have to pay a hefty fee upfront. As it’s a subscription-based model , SaaS users can start small with low monthly subscription costs. This makes it easier to get started sooner and is a big reason that users like SaaS. It’s like not having to put down a big down payment up front.
However, one must not overlook the big picture here.
But as mentioned above, with SaaS one has to pay much more over the entire lifetime of using the system than what he/she would have paid with a once upfront payment. And if the client business ever stops paying the monthly subscription fee, its software will stop working and the business might even lose access to its company data.
“At AIS, we help companies do the math to compare lifetime costs with and without SaaS. In most cases, our clients then choose to finance it. After paying off a bank loan in 3-5 years, they have no ongoing monthly subscription cost.
Let’s say for example, instead of paying $100 for a word processing program, you pay $100/year. If you use the word processor for 30 years, the $100 program will end up costing you $3,000. Actually, it would be much more because the $100/month fee will go up many times in a 30-year period.”
Upfront payment can become a competitive advantage as well. If a customer owns a software for a longer lifetime, s/he will pay less in operational costs than that of the competitors. This gives the customer more control and flexibility in his/her margins and pricing.
- SaaS needs Cloud
Be it a minor security update for SaaS or a major update, say the release of a new version, the user doesn’t need to do much. For smaller updates, the software firm itself will directly install it in the Cloud. For a larger update, there is no need to install it manually. One would simply have to click on buttons to install them- otherwise the installation would be performed automatically by reseller.
But do all businesses require Cloud…probably not
A cloud-based approach comes with its own pros and cons. A user business must be made aware of both the advantages and disadvantages of working on Cloud to help it come to an informed decision.
“At AIS, we always make sure to discuss the pros and cons of using cloud (or any software) with our clients. Most of them choose a hybrid model that addresses security against hacking attempts, remote access to allow users to get at everything they need from wherever they are working, total IT cost management, and more. They don’t put all their eggs into the Cloud basket.”
“Some of our clients also must meet regulatory requirements that necessitate security steps that impact a Cloud / No Cloud decision.”
A latest study by Forrester for IBM (January 2021) reveals that respondents have stressed that public cloud platforms suffer from lack of powerful security. In fact, it’s the major reason as to why they don’t want their business on cloud. About 400 decision-makers for the IT infrastructure environment were interviewed in the survey. 85% of the respondents reported that they would prefer an on-premise infrastructure as part of their company’s hybrid cloud strategies.
“Three-fifths of companies surveyed use a hybrid cloud infrastructure strategy that includes public cloud, internal private cloud, hosted private cloud and/or on-premises hardware—and these firms are continuing to expand their use of each strategy.”
3. Terms and conditions
SaaS companies have an easy ability to roll out changes to the terms and conditions that are included with the monthly subscription. If there’s something new that a client strongly dislikes, s/he cannot opt out of the new terms. The user would simply have to accept the new terms or else stop subscribing and move to another software company.
For example, say a user may be required to pay new penalty fees for not upgrading and s/he might not be able to get technical support until s/he upgrades.
Thus, before a user signs up, it’s critical to consider the SaaS company’s management, its history of policy changes and customer-focus, it’s likelihood of being acquired and getting new management, and other factors that can help the user to assess the business practices, ethics, and future trajectory.
4. Access to customization
Truth be told, applications one owns or purchases upfront always assure more customization facilities than the SaaS Cloud programs. It’s more efficient for the software company to have all users using the same system.
While it’s easier for a user to commit to new accounting and ERP software when it’s just the cost of the subscription, this can lead to a tendency to spend less time up front asking questions and assessing his/her long term needs before making that commitment.
With a SaaS system, a growing business might face scalability issues with its SaaS system as it aims to expand and grow over time. Worse, by that time, the firm would become too dependent on the existing system to shift to something new as well. As a result, the business would be compelled to settle for less, and adapt its processes to fit what’s built into the software – rather than customizing the software to fit its changing processes and requirements.
Limits the scope of self-reliance
The scope of customization isn’t limited to the ability to change the software to do what the user needs it to do- rather, it’s something more than that. Advanced customizability refers to the ability (for a user business) to be independent and in complete charge of the major business applications and data.
The sad truth is, mainstream technology is pushing customers into dependency and planned obsolescence and moving them away from self-reliance.
For example, John Deere is famous for stating in their terms and conditions that new customers don’t own their new John Deere tractors and all the embedded technology; they license them. This means if a tractor breaks down in the field, the farmer isn’t allowed to fix it, as that will void the warranty; they must wait with an idle tractor until a service technician arrives.
Another example is consumer electronics products that are purposefully built not to last. Because if your vacuum cleaner breaks down after a few years, the vacuum cleaner company gets to sell you a new one.
“At AIS, flexibility and self-reliance are important values that we relate to ethics and proactively support. Especially when it comes to large, long-term investments like accounting and ERP software systems.”
5. Issues with Data ownership
Some SaaS users are often shocked to discover that they don’t own the data that they put into their SaaS software. Most importantly, this covers confidential data in a business’ accounting and ERP software, customer and supplier lists, inventory data, payroll, sales tax records, order history, and much more.
“With a SaaS system, it’s critical to find out, before one signs up, what access the user will have to extracting his/her own data. Can you export your data anytime? All of it? What format does it export to, and is that format usable? And can you backup and restore your own data as a redundant process, or must you exclusively trust the software company’s backups of your data? You’ll be surprised what you learn about your options should you decide to change systems one day.”
It’s advised that businesses that opt to invest in SaaS should also speak to other companies who’ve exported their data from that system, to find out what their experience was like.
A Hybrid solution allows desired flexibility
A hybrid solution brings in a highly customizable, scalable, highly secured and more economical solution than a typical SaaS solution.
“At AIS, we advocate hybrid solutions. It’s not SaaS or no SaaS. It’s not Cloud or no Cloud. We assess the pros and cons for each of our client’s requirements and recommend a solution that’s optimized to reduce risk and cost, and maximize return on investment and user experience.”
“This hybrid approach extends into our implementation and customization recommendations. In some cases, it’s best to use built-in features just as they are. In other cases, substantial gains can be made by greatly customizing a key process, or partially customizing a frequently used process. The opportunities are different for each client.”
What separates AIS from the rest is that, unlike most other software companies and technology partners, AIS can declare upfront that SaaS isn’t perfect and the Cloud isn’t perfect. The company has also revealed that some of its clients don’t need any software customization.
“As a consultancy, it’s our job to be truthful and knowledgeable about the choices that are available, and to recommend the best approach to fit your unique operations and goals. We won’t advocate a solution for you unless it will give you a significant value in excess of the cost. We’re invested in your success and we’ll work with you to ensure that you rise and shine.”
For further information, please visit https://ais-web.com
Media Contact
Company Name: Analysis & Information Services (AIS)
Contact Person: Justin Schneider, Business Solutions Manager
Email: Send Email
City: Baltimore
State: MD
Country: United States
Website: https://ais-web.com
