Smaller businesses confront the question of application suites or best-of-breed offerings every time they consider (or reconsider) a software purchase. The rise of software-as-a-service (SaaS) further clouds the conundrum, but also presents new choices and challenges for adding power and lowering the total cost of ownership
As a member of the management team at on-demand financial applications provider Intacct, Daniel Druker sees firsthand how his smaller business customers struggle with the choice between application suites and best-of-breed software. As a senior VP of marketing and business development, he's an ardent believer in the value of best-of-breed solutions such as Intacct's, particularly for smaller businesses. Recently, Druker shared his perspective on why that is and how software-as-a-service has complicated the debate, but also created more options and opportunities than ever before.
bMighty: The debate over buying application suites or pursuing a so-called best-of-breed strategy is hardly new, but what are the considerations for smaller business today?
Dan Druker: Historically, SMBs view software as a VAR investment; they generally prefer to buy in smaller chunks. Software evaluation and economies of scale are gating factors that drive the tendency away from buying suites. In an enterprise, the CIO and a committee -- or several committees -- evaluate software and make decisions based upon the needs of departments and the whole organization. Enterprises can realize benefit from a "whole is greater than the sum of parts" approach with suites that create efficiencies across the organization, rather than buying for specific business functions or processes. There's more cost to implement a full suite and for an enterprise standardizing on a single platform that has value, but SMBs can't afford the investment; that's even more true going into a downturn. Smaller organizations have less capital to invest, so the cost of suites can be daunting. But more significantly, they need to move quickly; SMBs can't afford extensive evaluation periods -- they need a solution sooner, not later -- and, generally, they're lean organizations that can't justify investing in features they won't use, whereas an enterprise can recognize that features they don't need today may be valuable in the future and can afford to bear that cost as part of a suite purchase.
bMighty: How has the advent of software-as-a-service changed the discussion?
Druker: It's hard to imagine having a conversation about suites vs. best-of-breed without talking about SaaS -- the entire discussion hinges on it. SaaS lets you do things differently; you can try out different solutions and get them running quickly. That's how SMBs like to buy anyway. With an on-premise software purchase, you also need to consider the hardware, network infrastructure, and setup costs. With SaaS you just flip a switch and then you configure. Now, there are limits to configuration, and because the software is no longer running in the office data closet or under someone's desk, there are concerns about loss of control and security. But the reality is that most SaaS providers have a better infrastructure with massive redundancies and safeguards than any SMB could afford on their own.
Don't Miss: SaaS: Enterprise Power Comes to Smaller Businesses
bMighty: How should smaller businesses compare the investment for SaaS vs. on-premise solutions?
Druker: A common evaluation mistake we see is comparing the purchase prices of software directly to a SaaS subscription. It's important to look at the total cost of ownership to draw a real comparison because SaaS solutions have the hardware, network updates, maintenance, and support built-in to the subscription price.
bMighty: How do the current economic conditions factor into the demand for SaaS?
Druker: We know from our clients that the economic downturn is a good thing for SaaS. Our customer survey [Intacct's March 2008 Financial Executive Survey -- Sample Size: 327 finance executives at U.S.-based companies with fewer than 500 employees] found that they're concerned about preserving cash and capital and it's important to them not to spend money -- that makes SaaS more appealing. The other big concern they have is visibility across the organization; they feel they can't afford any surprises in the current climate.
