Baltimore, Maryland – February 11, 2022 – Amid all the hype and hoopla about SaaS, there are certain underlying truths that are often overlooked by businesses. Unbeknownst to many entrepreneurs, a new piece of data has revealed that the SaaS model may pose dangers or hinder growth for growing businesses. In that light, boutique Accounting and ERP solution company, Accounting & Information Services, has suggested opting for a more modified option, the hybrid model. A newer alternative, the hybrid model could serve as a more viable and promising alternative to the SaaS model, especially for growing businesses.
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 since 1989. AIS offers customers to choose from both completely cloud-based SaaS and hybrid solutions as per their specific requirements.
First, what is SaaS?
Software as a Subscription (SaaS) is software that you license. Instead of buying and owning it, you “rent” it, paying a monthly fee to keep using it.
And what is the Cloud?
SaaS is usually done in the Cloud. The leading spokesperson from AIS said that they regularly talk to company executives and non-technical people who refer to “the Cloud” in a tone of awe, as if angelic music is playing in the background. But the Cloud is just a fancy name 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.
1. SaaS makes more profit for the software company—a lot more
This is the big one. Because the customer perpetually “rents” or licenses the software with SaaS, the software company gets automatic payments every month. Their customers cannot buy software, nor do customers own the software forever.
This means that the software company receives more money long term from each customer.
It’s like renting a house. If the renter lives in the house long enough, they will pay more to the landlord in total than if they’d taken out a mortgage on the house and then paid it off—even after factoring in the costs of home maintenance and the appreciation of the home’s value over time.
The software company’s SaaS customer will eventually pay more than if they’d paid once up front. 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.
The best way to assess this is to calculate what the client will pay over the entire life of the software. Many SaaS companies 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.
Not all software subscriptions are created to benefit consumers
“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 delivers recurring revenue to the software company
For the software company, this predictable, steady subscription-based revenue model is immensely valuable. If the customer instead just pays once up front, and then again up front for each new upgrade or version as those become available, the software company’s total revenue stream is smaller, plus it’s more cyclical and less predictable.
Then, 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.
In contrast, 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. SaaS promises product development the client might not want
Per the statements of the spokesperson, with subscriptions, the software company can continuously roll out new features and changes through the cloud. And they typically require that clients continuously update to newer releases when they’re available.
“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…
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.”
“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.”
Also, 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.
Speaking further, the spokesperson shed light on the advantages and the disadvantages of SaaS for a business.
Pros and cons of SaaS for a business
1. Total cost of ownership
With a SaaS model, the client business doesn’t have to pay up front. The client would simply begin by paying the monthly subscription cost. 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.
But as mentioned above, with SaaS one has to pay much more over the entire lifetime of using the system than what h/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.
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.”
Paying up front 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.
2. SaaS requires using the Cloud
SaaS subscriptions are delivered in the Cloud. For example, when there’s a minor security update for the software, the software company can install it directly in the Cloud without the user having to do anything. When there’s a larger update, like a new version, the customer doesn’t need to download the new version and manually install it. The client or user would simply have to click some buttons to have it installed, or in some cases it will be installed for him/her automatically or by his/her reseller.
But does every business need or want Cloud?
There are both pros and cons to working in the Cloud.
“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.”
In a recent study by Forrester for IBM (January 2021), respondents have stressed that public cloud platforms have shown to lack powerful security and this is the top reason why they don’t want their business on cloud. The survey was carried out with nearly 400 decision-makers for the IT infrastructure environment. 85% of the respondents emphasized 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. Level of customization available
Most SaaS Cloud applications are less modifiable to fit customer needs than applications one purchases up front and owns for life. It’s because 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.
A rising business might suddenly discover after a couple of years that its SaaS system won’t be able to accommodate the newest needs. Unfortunately, by that time the business has become so invested into the existing system that it might not be able to afford a switch to a new system. And thus, 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.
Hampers ability to be self-reliant
Customizability is more than the ability to change the software to do what the user needs it to do. As customizability goes up, so does his/her ability to be self-reliant and fully in control of his/her key business applications and data.
Yet as a whole, mainstream technology is moving customers away from self-reliance and toward dependency and planned obsolescence.
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.”
4. 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.
5. Data ownership
Customers of some SaaS companies are often shocked to discover that they don’t own the data that they put into their SaaS software. And this includes all 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.”
Businesses signing up with SaaS should also speak to other companies who’ve exported their data from that system, to find out what their experience was like.
Hybrid solution offers maximum flexibility
A hybrid solution is like the bests of all the worlds concurred together to present 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.”
Unlike most other software companies and technology partners, AIS is willing to say 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 interested in your success and we’ll work with you to ensure that you succeed.”
For more information, please visit https://ais-web.com
Media Contact
Company Name: Accounting & Information Services (AIS)
Contact Person: Justin Schneider, Business Solutions Manager
Email: Send Email
City: Baltimore
State: Maryland
Country: United States
Website: https://ais-web.com