Buy or Subscribe? What are the Advantages of Software-as-a-Service?

“I’d love to have a dog, but don’t want to walk it all the time.” Some love to take their dog for a stroll, feed it and wash it – others just want a fluffy friend. Similarly, while many companies want to become efficient through digitalization, they are unsure if they can handle the ongoing maintenance of local systems and servers. While drones that walk dogs are still in their infancy, software subscriptions where providers also manage infrastructure are already widespread.

Software-as-a-Service (SaaS) is what the industry calls this subscription-based software. It is usually based on cloud technologies and thus eliminates the need for local installations and in-house maintenance of the software at the customer’s site. Without these obligations that come with purchased software, companies gain new independence and agility. What type of business gains the most from cloud software with a subscription (Cloud SaaS)? And is there a clear winner in the competition between classic license purchasing (on-premises) versus SaaS?

Gamechanger for risk evaluations

Installing purchased software at the customer’s site is a personal process, but it takes time and requires the customer’s local resources. Is the whole procedure still in keeping with the times?

Once the subscription has been signed up, SaaS is available in the cloud without long waiting times. The solution, including all the desired features, is therefore ready for use in a straightforward and timely manner. Without long installation times, the further effort after the initial introduction also remains low – for example, if the cloud software is to be expanded or receives new updates. Since the provider is responsible for the infrastructure, customers can always be sure that their software is up to date.

This low level of effort not only saves time, but also money. Since providers can support each new customer faster and with fewer resources, they are able to offer their cloud SaaS at customer-friendly prices. This is an absolute gamechanger, especially for smaller companies or for companies implementing their first digital solution. Because with low entry prices, the perceived risk regarding the cost-benefit question of digitalization decreases. But larger or digitally savvy companies also benefit from converting their software costs to ongoing operating expenses, as these can be better planned.

Cloud SaaS for startups, licenses for corporations? SaaS vs On-Premises

Thanks to the controlled introduction and operation of subscription solutions in the cloud, every customer benefits from a similar range of software functions. Sounds like an advantage at first – but such a high level of conformity eliminates the extensive customization options that providers of locally installed solutions make possible by working closely with customers on site. More complex organizations in particular benefit from customizations of this kind.

A double-edged strength of purchased software is that costs will sooner or later diminish since there is no permanent subscription. The initial, one-time purchase price is significantly higher than that for subscriptions; however, after a few years, the settled one-time payment is cheaper on the bottom line than a subscription that continues in perpetuity.

One thing to keep in mind, however, is that one-time payments for a license usually only apply to that specific version of the product. Regular maintenance and security updates are also not yet included. With subscription software, on the other hand, full-fledged successors to applications are often part of the existing subscription. These successor solutions offer the latest technologies that can make a significant difference in long-term competition.

Laying all your eggs in one basket

Software years are like dog years: Purchased software that has been in use for three or four years – even if it has finally gotten the price advantage over subscription software – will quickly face insurmountable challenges. The purchased software will continue to reliably perform its original tasks. However, it is less prepared for the future than a cloud SaaS application.

Change usually does not come tomorrow, nor the day after tomorrow. But after six to ten years, for example, purchased archive software would only support the latest document types to a limited extent. It could still store such documents, but it would no longer be able to read and understand them in order to work with the data autonomously. And that, when automated data management is becoming more important with each passing year in order to stay competitive.

Sooner or later, any purchased software becomes a legacy system that the vendor can no longer maintain as newer versions take up the corresponding resources. So when purchasing software, it is important that companies can also work with the functional scope of the purchased solution in the long term. To do this, they need to know their own requirements and tasks – especially future ones. A high level of technical integration with the company’s other IT systems increases the long-term benefits of purchased software.

The hidden cost (savings) of SaaS

With subscription software, small companies benefit not only from a low cost hurdle at the outset. Because savings in the local IT infrastructure have an even greater impact on the bottom line. Since the computing power and maintenance of the cloud software take place in the provider’s data center, customers do not need their own IT infrastructure, which would also cost money to set up and maintain on an ongoing basis. There is no need for dedicated servers, data centers, or IT professionals to take care of the internal infrastructure. Cloud SaaS runs flexibly in the browser window on quite a few supported devices, rather than just on selected computers in the office. This allows the provider to scale the solution to additional users and devices at any time at the customer’s request without effort. So not only the software itself is part of the subscription, but also the associated infrastructure.

Does this make the provider as invisible as its maintenance of the software? Quite the opposite: Due to the fact that cloud solutions can be terminated as flexibly as they were introduced, providers have a strong incentive to keep customers satisfied at all times. Even remotely, providers respond quickly and flexibly to problems and requests. Physical distance has long ceased to mean a loss of efficiency.

Purchased software with niche strengths

The decoupled structure of cloud software facilitates its integration with other solutions in the organization – an essential point especially for ERP solutions that manage holistic business-critical resources: Warehouse, Production, Supply Chain, Human Resources, Finance, and more. To connect all these elements, software must harmonize with other data sources.

Lean interfaces in the internal system have always been one of the strengths of locally installed software. The right provider conjures up highly individualized processes in this regard. But this high manual effort prevents companies from spontaneously integrating new solutions or removing obsolete ones. There is a risk of an overhang that slows down the entire system with more and more interfaces and features.

The trade-off is therefore between high, flexible standardization in the cloud and handcrafted, precise individual solutions. Whether such a stand-alone solution is preferable depends heavily on the customer’s needs and long-term planning.

So do the benefits of cloud SaaS outweigh the disadvantages for most common use cases? Both software subscriptions and purchases have their strengths. The tipping point could be the immense future potential of the cloud. The trending technology is making massive strides year after year – into realms that companies today can’t even dream of. We can therefore hardly imagine today how far software-as-a-service in the cloud will have overtaken traditional local license software in ten years’ time.