Business Software: Rent or Buy?

The internet is a vital part of mainstream life and has crossed over into both our personal and professional lives. Efficiency of communication, news, and means of business transactions have increased due to the internet. Companies have slowly but surely been turning to Cloud Computing and are faced with a difficult choice of whether to rent a SaaS software or to purchase business software and build it on-premise. In some ways, the benefits and drawbacks of purchasing or renting software closely resembles that of purchasing or renting a house. Ultimately, it is for the business owner to decide how the software can be strategically deployed in order to be beneficial.

Let us first look at the prerequisites and responsibilities of purchasing a house. First, a lump sum of cash is required to make a down payment. Afterward, you may hire a contractor to make home improvements and remodel your house to fit your lifestyle. Upon moving into your new home, you will be faced with expenses such as home owner’s insurances, landscaping services, community improvement costs, and property tax. You will also be responsible for the well-being of all your home appliances, which include water heater, plumbing, air conditioning, and so on. In short, you will be responsible for everything within the boundaries of your property.

Let us now compare these prerequisites and responsibilities with those of buying business software. Similarly, you will need a lump sum of cash to purchase the software and hardware upfront. You will then need to hire a consultant to set up your software network, train your staff, implement the software, and make the necessary software customizations to fit your company’s workflow. Upon implementation, you will be faced with ongoing costs such as retaining IT staff and maintaining the well-being of your software and hardware purchases. Just as if you purchased a house, you and your IT staff will be responsible for every detail that comes with operating a business software system. However, unlike a house purchase, your IT equipments will only depreciate.

Let’s imagine that you’re renting a house from a decent neighborhood. Instead of a costly down payment, you will only make monthly payments for rent. Instead of investing into home improvements as you would when buying a house, you can negotiate home improvements for a longer lease. Also, you will not be responsible for insurance costs, property tax, home appliances, and other fixed goods on the rental property. In short, the landlord has major responsibilities for the property, whereas you will only be paying for rent and utilities.

Similarly, if you rent software, you do not need an initial investment as you will be paying only for the continued use of the software. Since the software vendor is responsible for delivering the software to you, the software vendor will continue to maintain, upgrade, and update the software and the equipment that help deliver the software to you. Thus, the software vendor has major responsibilities for the software’s upkeep and its delivery mechanism, whereas you will enjoy the use of the software at a monthly or annual cost.

To Rent or To Purchase?
Both SaaS and on-premise software systems have their benefits and drawbacks. SaaS is the less costly alternative, but is also less customizable when compared to its on-premise alternative. Most SaaS solutions can meet the demands of small businesses, but unfortunately they fall short of the customization demands of larger enterprises. This explains why small businesses are jumping to adopt SaaS solutions while their larger counterparts are slow to adopt the same solutions.

On-premise software systems are more costly but they grant you absolute control over all your data. Some SaaS vendors may restrict data exportation, restrict data access, and hold their clients’ data hostage so the client is at the mercy of the vendor. A SaaS vendor can also increase rates after a preliminary period.

An on-premise system can help you avoid unscrupulous SaaS vendors, though SaaS systems are usually more secure than on-premise systems. Security is a core component for a SaaS, therefore it is only natural for a SaaS vendor to invest more in security than businesses that use an on-premise system. (Learn how to evaluate SaaS security)

Overall, the choice of whether to buy or to rent software depends on the respective benefits. If your company is primarily interested in profit, SaaS may be the more attractive choice, as it has lower short-term and long-term costs. By choosing SaaS, on the other hand, you can spend your extra cash on improving other areas of your company instead of building and maintaining an IT infrastructure.