hedgehoglab

I think we have already established the fact that I am not going ga-ga over SaaS and the hype machine which currently surrounds hosted software.

One frequent financial argument I always come across, on-line or off-line, for people choosing hosted software is the superiority of the subscription-based, pay monthly model, as a consumer. And to a large extent, this is an advantage that I cannot brush off easily. However, if we delve into the reasoning behind why people see this as a better model, it becomes apparent that these are exactly the kind of decisions that led to the excessive financial debt that plagues many people in their personal life.

People will gladly pay $19.99 a month, rather than a $149 up-front because the initial cost of the monthly option is nearly 10 times lower. Who can argue with that? If you decide 3 months into your product use that it isn't good enough, just cancel your account and you have only spent around $60. That is still a $90 saving over an up-front option. I am not really making my case here, am I?

Let me present another angle. What if you paid $149 for an up-front, self-hosted software product but it came with a 90 day refund policy? That is a total cost of zero to you.

What if you, for some weird reason, decided to stay with the product and the product offered free upgrades for up to a year? That is a total cost of $149 with your up-front option, while your hosted option comes to $240. What if you decided to use it for 2 years? This is a very realistic usage pattern for most people, where systems are used for years.

"Great! But what about the time and effort you spend installing, configuring and upgrading this self-hosted product." What if the product took an average of 5 minutes to install, configure and 5 minutes every time you upgraded it?

No matter how you look at this hypothetical situation, only 1 option makes financial sense for the person making the purchasing decision. Yet, it comes as no surprise to me that many would take the subscription option, because it allows you to "pay in instalments" despite the high overall cost.

To be clear, there are many domains and scenarios in which the hosted option is the better financial choice. For me, this is any up-front option that costs more than 24 to 30 times (because I expect to use most software on average for 2 years) the monthly subscription cost for the hosted option.

So what has SaaS got to do with the Credit Crunch? Nothing except the fact that the financial reasoning behind both seems very dubious!

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