Not sure I understand this sentiment. This same manager would likely be buying a 15k used car outright if he's worried about paying for software over time.
The problem that I have with SaaS is that most companies pursuing it's business model fail at the value option. Take Freshbooks for instance - I started using their service 3 years ago for 9$ per month. This got bumped to 14$ per month. I now have to pay 20$ per month for the same service I got 3 years ago (very little has been added of value to me). I could have bought a stand alone invoicing solution for $100 once and been far better off (I'm now trying to find a good one).
SaaS is often a really crummy deal for the customer and we all know it.
You're making the mistake of assuming everyone has the same problem as you do.
Pre-SaaS most companies would have paid upfront for a piece of software (before knowing if it works for them) and then upgraded ever few years in any case. For multi-user software they would have needed to pay for servers, ops staff, etc. on an on-going basis in any case.
When companies are evaluating a SaaS solution versus a boxed solution price is not typically a major deciding factor.
> SaaS is often a really crummy deal for the customer and we all know it.
Which is why no company will make very much money with the SaaS model...since we all know it is a crummy deal, we'd never support companies doing SaaS (or PaaS or IaaS). I remember a small startup Sales-something trying to do a CRM as SaaS a few years ago. I'm sure they are gone by now.
What about the new SaaS that 37signals' Basecamp Breeze is trying to put forward? Pay one fee of X$ and have access to it forever. I guess this applies more to single purpose laser focused services that are not expected to change in the foreseeable future.
well...depends on how much growth your org has seen in 3 years. If your people are still using Windows XP with IE 7...sure what you say makes sense. But if your org has seen major growth, lots of new employees requiring all kinds of new platforms and form factors then its a slightly different story.
My org is just me. My revenue has remained fairly flat over that period. But the cost to access my data has risen rather steeply over that period. Had I purchased a stand alone application to start with, I would have saved 50% of the cost.
I'm not talking about large installs for big organizations - I was speaking directly to the value options for small organizations. Most SaaS are designed to funnel end customers into higher profit services for no real reason other then higher profit. Value wise it's not a good deal for the customer.
Leasing a car is not a good analogy because the difficulty and cost to switch cars at the end of the lease is zero (or at least well defined). Leasing a car is a fixed duration, fixed amount payment with both the costs and the duration fixed by contract. Leasing is attractive to people and organizations that want the benefit of lower monthly/yearly payments in exchange for a higher total cost of "ownership."
SaaS is not a fixed amount nor a fixed duration. This is custom software with no alternatives, so escaping the "lease" is going to be more costly than purchasing up front.
If I were the manager in the story, I would see the choice as
1) Pay $5,000 per year for 10 years (with substantial cost risk due to the lock-in with the sourcing company) and then have to pay $100,000-200,000 to replace the software or
2) Pay $50,000-100,000 up front without the lock-in of the sourcing company.
Since the OP says "power systems engineering" in a "government type organization", it is not surprising that the organization is not terribly price sensitive ($50,000-$100,000 is peanuts to the power industry) and the SaaS is only offering a lower yearly payment in exchange for a substantial amount of risk and a substantially higher total cost.
He's pitching the wrong angle for this company / industry.
Cars degraded over time, software does not. Get in a 10 year old car and it isnt as good as it was 10 years ago. Its loose and worn. Fire up 10 year old software and its as good as the day you bought it. Yeas the market would have changed around both, but if I have both a car and a piece of software in my hand, as it were, I can see the difference. There for leasing something the clearly degrades makes sense. Leasing something that does not degrade, does not.
It's true for software that's completely standalone, a virtual island. But very little useful software qualifies. Most software interacts with other components, whether hardware, operating systems, external formats, etc., and when those change over time, the software effectively becomes worse, even though it's technically the same as it was before.
Sure, but there can also be tax advantages to buying outright. Germaine to the discussion of SaaS is the fact that, in the case of packaged software, I can either elect to deduct 100% of the purchase price immediately (up to a certain annual dollar limit) or depreciate it over three years. All other things being equal, a $3,000 deduction this year beats a $1,000/year deduction for the next three years.
Well in a lot of places you can discount interest payment against profits - which is why those ghastly debt back buyouts that make money for the banks sort term but saddle a company with unmanageable debt are so popular.
There is a serious disconnect here. Listen to the howls if someone suggests you should rent your media but have no problem telling you to rent your software.
Hmm ... you cannot compare media and software. Very little of the media produced is worth experiencing second time. So rental is natural there.
Software is meant to be used continuously forever and ever. I have some exchanges that I programmed that are 15 years old now - still working peacefully ( the benefit of using PICs - they last forever). The company is no longer in business but with a soldering gun they manage to keep them operational.
So the real question is not only why should I pay you, but what happens when your company goes the way of a cockroach treated with raid. And don't tell me you are market leader - we see them raise and fall 5 times in a decade.
Do you not have favorite songs and movies? Also your post may sound like a rebuttal but it only reinforces my point. I want to own my software not have it hold me hostage later, but it may be more profitable to you to rent it to me with the added bonus that you can claim anything digital deserves no copyright.
People have a hard time putting value on what they cannot touch.