- In the beginning, there were no independent software vendors. If you wanted software, you had to build the infrastructure, hire people to operate it, hire more people to write software and hire more people to manage the process of building and deploying software. (BTW, you also had to hire people to build and deliver training to all of your users). Very expensive and lots of uncertainty–as expected in an immature market.
- Next came professional software firms. With a contract you could bring in the people to run your hardware, build your software and manage your software and training process. This reduced uncertainty by enabling you to end contract. To combat this, vendors charged high rates and often only signed time-and-materials or cost-plus contracts. This did not eliminate much uncertainty. (BTW, these days were fun for us creative software engineers as we got to reinvent things with custom work all the time.)
- Next came enterprise software vendors. Now you could buy finished software. However, that was just the beginning of the costs: You had to buy the hardware, hire and integrator (or hire staff to configure and integrate the software) then create something called a Center of Excellence to run the thing when you were done. That was just the first step. Within 18-24 months you would get told you needed to upgrade to retain your “low” 14%-18% maintenance support. This caused you to buy upgrades, modify your configuration, re-certify your application and re-deploy it. (Woe to the enterprise who customized what they bought or changed more than 15% of the enterprise application “out of box.”)
- Then came SaaS. SaaS is a utility. You pay for what you use. You turn it off when you are done. You have no hardware to buy, no upgrades to manage and benefit from economies of scale from your SaaS provider. As a result, you can spend more time focusing on your enterprise
Think of the applicability of this in today’s economy. You “rent” what you need, when you need it. You have few, if any, fixed costs. You also have no capital investment to get approved by the board. The level of uncertainty on your projects — and all those “hidden risks” that arise in the “last 10%” or your projects disappears. A little less uncertainty is nice in today’s economy, huh?
This gets even better if you are not a technology company. Instead of diverting time and attention to build and manage technology you buy it like you buy electricity, allowing you to focus more attention on your core business.
To really appreciate how much better SaaS is as a model, you need to break down all the costs, risks and extra work required to acquire and deliver software over the competing, prior models:
- Build it in-house
- Buy off-the-shelf and integrate it, or
- Get an application service provider (ASP) and find someone to manage it
I will cover these in my next three posts to highlight how much better SaaS really is.