11 April 2017

What bike rental and the future of software have in common



In many cities, you can nowadays rent a bike in a very convenient way. You simply pay a subscription fee, and you can pick up a bike at one of many stations, ride where you want to go, and return it to another convenient location.

One of my colleagues recently moved to Chicago and got a $99 per year subscription for unlimited bike rides instead of buying a new or used one. Why? For him, it was straightforward and convenient as he did not have to spend a lot of money on a bike, get it serviced, or risk getting it stolen. If it starts raining, he can leave the bike at the nearest station and get on a bus. This is an excellent example of the Everything-as-a-Service economy.

Most industries are going through a shift of revenue streams from traditional one-time sales to products being provided “as a service” and paid via subscriptions. It is not only happening to digital products like Netflix and Spotify, but also in industries where you can subscribe to physical products, such as razor blades, forklifts, jet engines, and cars.

The software industry is rapidly moving towards SaaS (Software-as-a-Service), which is transforming the way software is delivered, managed, used, and purchased. Gartner defines SaaS as “software that is owned, delivered and managed remotely by one or more providers." In short, SaaS is a leased software maintained by the software vendor.

SaaS: A perfect match for marketing and sales
The most well-known enterprise SaaS application is probably Salesforce.com, the leading CRM that boasts millions of users and more than 100,000 customers. Salesforce showed the world the benefits of the SaaS model, and the trend so far has been that applications that support the sales and marketing processes have been the first ones to reap the benefits of the cloud.

One reason is that fast-moving sales and marketing operations have much to gain from the flexibility and the configurability of SaaS. SaaS cuts the time-to-value, allows for rapid prototyping, and adds new functionality and configuration updates without cumbersome and expensive upgrade projects. Another benefit is that the continuous incremental updates make it easier for the software vendor to innovate and quickly make the corresponding business value available to all their customers so that they can stay in front of the pack.

The benefits of the subscription economy
It is hard to make an apples-to-apples comparison between SaaS and on-premises. Some companies only compare the maintenance fee (typically 20-22% per year based on the up-front license cost) with the SaaS subscription fee. Others forget to consider the total cost of ownership of their on-premises investment, including upfront licensing fees, hardware, network, backup, test and development systems, and the staff that has to manage it all. Regardless, a large up-front investment in software, hardware, and implementation makes it harder to switch if the selected solution is not satisfactory or if a better alternative comes around.

The SaaS subscription model is not always cheaper than on on-premises with perpetual licenses, but it provides predictable costs, even as you scale. Because the SaaS vendor is responsible for upgrades, uptime, and security, your organization can focus instead on the business aspects and get the most out of the software. Due to frequent and incremental updates, you can enjoy new modern features without going through costly and time-consuming upgrade projects with testing and training. Companies that use microservices-based cloud applications can more quickly and cost-effectively take advantage of other cloud services, like AI and machine-learning tools, that would otherwise be accessible only for companies with massive financial resources.

SaaS is the future of enterprise software
SaaS is going to replace the on-premises software in its entirety over time. If you are investing in new solutions, it only makes sense to consider SaaS an option, especially if speed, flexibility, predictable cost, and keeping the solution updated is important to you. In the highly competitive, fast-moving world of marketing and sales, it should be.

Johan Boström, Co-founder and Evangelist, inRiver