Posted on May 25, 2009 at 4:54am by

SAAS (Software As A Service)

We have seen in recent months a significant increase in the number of software vendors that have shifted from the model of “sell the software in a box” to the model of “sell a subscription”.  The sale of software by subscription, or software as a service offers benefits for both vendor and customer and poses potentially significant problems for the customer.

From the vendor’s perspective, having a subscription-based structure assures the vendor of a steady and consistent income stream.  Instead of a single purchase price of $100 or $200 or even $1000, the vendor gets a monthly payment from each customer of $20 or $50 or more per unit (usually referred to as a “seat”.  While that means less money immediately, it probably means quite a bit more over time than the vendor would have received from direct sales of the software and an occasional significant upgrade.

Use of the SAAS model also relieves the vendor of pressure to generate a significant enough upgrade to justify charging for it, so as to induce customers to pay more to the vendor.  The SAAS subscription model locks the customer into making a payment or losing the right to use the software and, in many cases, that impairs the ability to access data stored in the program or on the vendor’s server or both.

The SAAS model does allow the vendor to make changes in the software relatively quickly and to distribute them somewhat inexpensively.  It also allows for better customer service at a lower cost as the subscription structure will likely mean that virtually everyone has the same version of the software, making it easier to train technical support people to efficiently deal with problems arising out of the use of the software.

Things to watch out for include the fact that if the software stores the data in a proprietary structure, you may lose access to the data if you lose access to the software, either because the company goes under or because you default in payment and they cancel your subscription.

While some of the SASS vendors appear to be responsible and offer good quality and highly useful products, consider the risks before you buy into the model.  Look into what happens if you decide to terminate the subscription for some reason and what happens if the vendor goes under.  You might also look into the question of confidentiality, if you plan to store your confidential data on the vendor’s server.

Copyright 2009, Jeffrey Allen.  All rights reserved.

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