The Economics of Software as a Service vs Software as a Product


Common Misunderstandings

Many people presume that, because they are paying to have software on their laptop or computer, they have purchased the software itself. However, this is a misunderstanding.

The majority of the time, what you are actually paying for is the license to use the software, and this license sometimes comes with restrictions – you don’t always have complete control.

Software as a Service

Purchasing Software as a Service (SaaS) means that it is not the software itself that you are paying for, but rather a type of subscription fee to the software provider to provide you with a service that is centrally hosted. This means that when you are purchasing the software as a service you are usually paying for the provider to do any upkeep of the software, including maintaining hardware it runs on and for upgrades, too.

The benefit being the provider is responsible for keeping the software running and up to date. This maintenance isn’t necessarily free, your subscription costs may cover it, but occasionally you may have to pay a supplement.

However, the issue with this is that, although shifting responsibility of software maintenance can reduce stress, you do have a lack of control when it comes to possible hardware failures, and the potential loss of data.

Also, you are giving someone else access to your data which requires a certain level of trust, not only from a data loss perspective, but also in terms of security. If you are handling customer data then you also need to consider issues relating to the Data Protection Act and who is deemed responsible if the service is breached, fines for breaching the act can be high.

Therefore you should ensure you always choose a reputable supplier and carefully read the terms of service.

In many circumstances you can also access the software from any location and multiple device types. Which is of great benefit if your staff works remotely from time to time, as well as in an office location.

Another benefit of SaaS is its flexibility. With many service providers you are allowed to vary the number of licenses you use as required. This means that if your staff base grows or declines you only pay for the number of licenses you require at any one time.

In some circumstances with specialist software you can subscribe to a service only for the period of time you actually need to use it. Unsubscribing when not required and then re-subscribing again at a later date.

Software as a Product

Purchasing software as a product, usually means that it is installed and runs on a computer you own or control. This is the more traditional model of purchasing software.

This does mean you have a lot more control over the software; but you are solely responsible for any data loss, and for updates that may be necessary to the efficient functioning and continued security of data used in the software.

You won’t usually have the ongoing cost of the software subscription but you might have to pay for updates, especially if the software provider no longer supports an older version.

In some instances it could mean that you end up paying more for updates in the long run.

Then there is the issue of multiple licenses; in most circumstances you will only have the right to install on one device. Therefore, you may need to pay for multiple licenses if you need to use the software on more than one desktop, laptop or mobile.

Again if you take on more staff you’ll need to invest in additional software licenses, manage updates and security fixes on each device. At a minimum you will need to have a policy in place to deal with updates so as to ensure your system does not become vulnerable to attack due to outdated software.

Which is better?

The answer to this is relative to how much you would use the particular software, the number of licenses required and the various device types it might be used on.

If it would only be installed on one computer, and used rarely, purchasing software as a product with a one off payment could be a better option.

However, if the software needs to be installed across a number of systems and will be used regularly, needing continuous updates, Software as a Service could be the most cost effective option for you and your business.

If you would like to discuss Software as a Service options for your company please get in touch with Onebyte on 0203 189 2100.

[Photo Credit: RV1864]