This week's entry is written by Lane Nelson, an active member of the Wisconsin Midrange Computer Professionals Association (WMCPA).
The current buzz is all about how the cost model for Software-as-a-Service (SaaS) is inherently superior to traditional software license purchases. While the models are clearly different, neither is ‘better’ than the other. Depending on the buyer's perspective, a traditional software purchase may be significantly cheaper than the same solution delivered through a SaaS model.
SaaS is typically presented as some kind of “pay for usage” approach, where various metrics (users, CPU cycles, storage, etc.) are used to calculate a monthly (or other recurring) fee. This approach allows the customer to treat the fees as an Operating Expense, just like electricity. The traditional alternative – purchasing a solution – is presented by cloud computing vendors as much more expensive. The purchase is typically treated as a Capital Expenditure, and must be budgeted and approved differently in most companies than Operating Expenses. There are also differences in tax treatment of Operating Expenses and Capital Expenditures, either of which may be preferred depending on the buyer’s specific situation and whims and fancies of federal and state legislators.
I think a simple analogy demonstrates the fallacy in assuming that one model is universally better than the other. Consider the problem of getting yourself from point A to point B. Let’s consider three choices (we’ll leave out subways, buses, trains, planes and boats):
- You could drive your car. Of course, you have to first buy, lease or rent your car, but then you can usually go where you want (depending on parking).
- You could take a cab. There is probably an initial charge, a charge for each mile, a charge for each minute wait time, etc. Add them all up and you get your bill for the ride.
- You could walk. It costs you nothing and gets you some fresh air.
If you’re in New York for a day or two, you’re likely to walk or take a cab. No hassles, no worries about parking and probably cheaper than any other solution.
If you live in New York and can generally walk to wherever you want to go, you’re still likely to use a cab rather than buying a car. It’s probably cheaper, less hassle and no big cash outlay.
On the other hand, if you live in suburban Milwaukee, commute every day, can’t walk to shopping and the like, and expect to live there for a long time, you’ll probably buy a car. It’s likely a lot cheaper than taking a taxi everywhere (especially if parking is free), and if you get a modern low-maintenance car, you might not even have to change the oil for the first five or 10 years.
When comparing SaaS to traditional purchased software, the IBM i platform changes many of the assumptions. The modern IBM i is like buying a high-quality, low-maintenance car: the platform offers self-optimizing and self-learning capabilities that dramatically reduce IT support requirements, yet offers the best security, reliability and scalability of any platform available today. As vendors deploy Internet-ready solutions on the IBM i, the advantages of going to the cloud diminish rapidly. The big difference between paying a SaaS vendor “as you go” and purchasing a modern IBM i solution appears to be the overall cost. But remember, the SaaS solution is like taking a taxi everywhere you go, while the purchased IBM i solution is like buying a car. How long you expect to use it is a big factor in the cost. In my experience, ERP solution customers expect to keep the same solution for at least seven years. Over long periods, the SaaS model is likely more costly than the traditional approach. Perhaps that’s why cloud-based ERP solutions aren’t growing at the same rate as other cloud-based solutions.
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