To buy or to rent it? That is the question May 21, 2007
Posted by Esa Tihilä in : Market trends , trackback
Do I buy software or rent it? This is current question for many enterprises. For example if I buy software as most of the people still do how do I to handle investment in balance sheet is one question? If I buy software I need to arrange implementation and on-going services for it as well. If I rent my ongoing expenditure goes up but I may agree some of the services as part of package which give me clearer position from SLA (services level agreement) point of view. Which is better solution – buy or rent? It depends on situation.
Most people do buy because it is clear; everybody knows rules of the game. Still sometimes rent, lease or Software as a Service is seriously taken option.
I may guess that for buyers SLA is the most important, TCO (total cost of ownership) is second, and then they take overall look for financial position of enterprise. For example if you want to have operating expenses split over the period of time then rent, SaaS (Software as a Service) is your option (or whatever we call it). If you can not raise your expense level then buying and activating the investment over the years is an option. Sometimes it is just policy what has been set by CFO which dictates how to calculate TCO and bottom line of both choices tell the right answer. In case of SLA situation may vary case by case. Do you have chances to take care of system by yourself? Do you want to be dependent on any supplier? Do you want to use existing suppliers for services or do you want to use your software provider? What do I do if everything goes wrong? What solutions bring me best value for money? These are questions which are valued high and clear option for buying might be changed for rent when answering them. And vice-a-versa.
Reasons mentioned above are good reasons for buying organisations. We at software sales want to use customer’s current situation and sentiment in maximum way to get them to buy our software. If customer has a need then we sell but how to buy is more often open question. SLA, TCO and business cases are drivers for buyers but for sales people sometimes it is also question how book the revenue of made sales.
Revenue recognition of software sales has been the name of the game for publicly listed companies for quite some time whn markets are expecting growth and predictable results quarter after quarter. Revenues normally are recognised when delivery has happened in license sales but in services, rent or SaaS during the given period monthly or quarterly. If I make 100k license sale or three years SaaS contract end result is the same but how does it appear into books is different – that is an issue. It is not real issue but from outlook perspective it is. And SaaS could be even better (=bring more money) compared to license sales for both parties but when markets do understand one concept - license sales - at one time it may have an effect on software companies’ eagerness to promote best possible solution to customer. BasWare EPP is the best solution of course what comes to purchase-to-pay solutions but how to buy it is sometimes a good question ;-).
Despite of these issues we have started to promote SaaS solutions as well because there are good reasons companies to buy solutions as a service as well as invest in software licenses. We think that stock markets will pick SaaS concept as well sooner or later.