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The High Cost of SaaS?

Software as a Service may be the wave of the future. But as a one vendor pointed out, it's renting or leasing software and as we all know, renting or leasing is cheaper than  buying. So before everyone gets enamored with online applications, it's time to remember some basics of  how the leasing business works.

Given how well known that model is, a long-winded discussion here probably isn't necessary. But it generally the lease-versus-buy decision boils down to cash flow and how long someone is going to own the item leased, say a car. Generally, if you are short on cash or  you aren't going to keep the car very long, leasing is a good deal.

How does this apply to business software? Of course, this depends on the kind of software and the typical lifespan. And we've heard many times over the last decade that endusers keep midmarketing accounting software for seven years on average; many longer if we remember how many made it past the Year 2000 with their old systems intacct. Companies milk these systems for every ounce they can get out of them.

For those who lease, that option is often about cash flow. Those without the money to pay for the product up front trade the ability to manage cash for paying more in the long run. And there's no secret about how this works.

So why should it be any different with software? It's probably not as long as the focus is on leasing the product versus using the application. What I mean by that is whether pricing is based on the total application or whether there is some kind of transaction pricing.

One reseller said privately that in comparing NetSuite, for example, to traditional mid-market software, what NetSuite likes to label as stone-age software is more cheaper at three and five years after purchase than are the payments for NetSuite over the same period. NetSuite is a better deal in the first two years. But how many companies purchase financial software for that period only?

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