I’ve been trying to figure out why there is so much anti-SaaS sentiment among certain commentators. And then the proverbial penny dropped.
The traditional packaged application sales model where you pay a large upfront license fee and then periodically upgrade is predicated in part on the perception that once you acquire the license, you somehow ‘own’ the software. Wrong. You never own the software but a right to use. You find that out when incumbents force upgrades by withdrawing support for earlier versions. That happened in the 1990s when MICL (as it was then) withdrew support for Finax Companies Act formats for accounts prep in favour of Viztopia. All software vendors do this eventually. (And yes, I know vendors will argue extra features justify the upgrade cost when in truth they need the upgrade and maintenance fees to remain in business.)
By contrast, that doesn’t happen with SaaS offerings because new functionality is simply ‘there.’ You either switch it on or not as requirements demand. From the get-go there is no doubt you are renting the software.
The incumbent model has run out of steam. Accounting apps that have lasted this long, like Sage Line x, SunAccounts, AccessAccounts and so on are bursting with functionality I defy any company to fully implement. Any further upgrades are largely irrelevant because all the important parts of the accounting jigsaw are in place. But if you’re locked in then what happens next? If you look at how Sage (for example) is moving forward it encourages the continued payment of maintenance fees with the promise of new applications.
The SaaS model doesn’t work in the same way. Instead of having handfuls of users, SaaS encourages many users. Each class of user only pays for what they need. This model is fairer than the x-user (flat fee) license model used by incumbents because it delivers operational value way beyond compliance record keeping. The SaaS model allows the application to become embedded in the business in a way that’s simply not possible with incumbents unless the client is willing to pay significantly more than the value derived warrants. This is why so many incumbent customer case studies fail to extend beyond handfuls of users.
Finally, the SaaS model is less risky than the incumbent model. This is because a SaaS business model is more valuable to the financial markets than traditional vendor models. This is because the annuity model SaaS vendors employ to figure out pricing is worth much more in the long run than a single license + maintenance model. It is one of the reasons Sage bought Verus Financial Management . Does this mean the SaaS model is as cost effective as it sounds? In most cases, the answer is ‘yes’ for the reasons I’ve already put forward.
And all of this is before one takes into consideration the extraordinary benefits of collaboration, a single real-time view and lack of implementation or maintenance costs that SaaS offers. You don’t have to believe me. Listen to Larry Phillips, managing partner at Goodman Jones. So what’s the problem?
The loudest contrarian argument I currently hear is that SaaS cannot compete with the market leaders. Rubbish. In 1984, Finax was the first application of its type that ran on the then new Apricot PCs when the main incumbent – Hartley – ran on Wang 2200s. Finax and now Viztopia are fit and hale. 1984 was an inflection point. I believe that in 2006 we are at a similar inflection point.
The other argument I hear is that SaaS is unproven and so it must be inferior to current offerings. There is no logic to this argument. Modern development is a world apart from the tangle of code many incumbents have created. SaaS players have coded the functionality that’s needed, in many cases in a fraction of the time it has taken their larger competitors. Why? They’re not stuck with a ton of legacy code that’s in maintenance mode.
Finally, SaaS is built for modern, Internet based computing methods. Incumbents are not. And in my experience, it doesn’t matter how much lipstick you put on a pig, it’s still a pig.
