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Unraveling the Tangle of Software-as-a-Service Language

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Unraveling the Tangle of Software-as-a-Service Language

July 08, 2016

  By Tracey E. Schelmetic, TMCnet Contributor

Let’s face it: today, if you want to attract attention and investors, you put the words “as-a-service” after your product. Just as everything became CRM-enabled a decade and a half ago, “everything-as-a-service” is becoming common, and separating the hype from the truth is becoming more difficult for people who can’t unravel public relations word salads.

For starters, the idea of “as-a-service” has different implications for different users. An IT department may see it in terms of implementation, and a finance executive may see it in terms of how it’s paid for. In a recent article for Business2Community, Dave Brock attempts to unravel the language and break down “as-a-service” into the two different models.

SaaS (News - Alert) as an Implementation Model

This model, of course, will be more relevant to IT and operations since it describes how the solution is delivered. SaaS companies that discuss “the cloud” are hosting, maintaining and delivering the solution onto the client’s desktops without the need for the client’s IT department to do the work. Years ago, it might have been described as a “hosted” solution.

“Basically it’s a variety of outsourcing and we’ve had these models for decades, if not longer,” wrote Brock. “Many companies no longer manufacture or service their own products, having companies do this for them. Virtually every part of a company can be outsourced (even sales–think of channel partners and other forms of outsourcing). It’s critical to maintain service/quality levels/reliability levels in those relationships. As sales people, our customers will be concerned about our ability to manage those.”

SaaS as a Payment Model

As the chief financial officer of a company what SaaS means to him or her, and that individual would probably tell you that it’s about a wildly different way of paying for software. The SaaS model eliminates the need to pay for software in a large upfront capital investment. Instead, paying is a month-to-month deal that usually comes out of operating income. It also means that companies pay for only what they need. In many ways, it also reduces risk for the companies purchasing the solutions on a SaaS basis since it’s more like renting, though the terms may vary greatly from company, so it’s important to compare them.

“A lot of SaaS companies, at least in the early days, said ‘try it for a while, if you don’t like it, you can always cancel.’ As we look at current models, with SaaS contracts going up to three years, the financial decision may be different,” wrote Brock. “But, of course, this is not new. As consumers, with many ‘big ticket’ items, we’ve always had the alternatives of rent/lease/purchase. Even in B2B, we’ve had a variety of rental/lease/purchase/off balance sheet financing models. Customers and sales people (with strong financial acumen) have used these for decades to overcome cash flow, capital budget and other challenges.”

While there is a lot of excitement around SaaS – for good reason, since it can open up new opportunities and avenues, particularly for smaller companies – it’s critical to ensure that you’re making the right comparisons, and collecting the relevant details before you make a decision to sign a contract. It’s also important to differentiate between SaaS solutions that serve business-to-consumer customers and those that customize their SaaS for business-to-business support, such as TeamSupport. Once you’ve committed to a SaaS contract, getting out of it or changing the product to better suit your needs may not be as easy as some companies imply.

Edited by Maurice Nagle
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