Software as a Serpent

For small fast-growing businesses, the argument for on-demand software becomes less compelling. "As we scaled up our usage, the hosted software became much more expensive," Lindsay says, echoing a concern felt by many managers at smaller businesses. "I had the infrastructure here. There was no reason I just couldn't do it myself."

Scary Waters
On-demand software is not without its selling points, or champions. Thousands of companies have signed up for subscription software, drawn by relatively low monthly costs (compared with maintenance fees) and quick deployments. One recent study found that 8 of the 10 fastest-growing software companies use the SaaS model.

Boon's Fernandez concedes that most SaaS clients enjoy unlimited access to software support representatives. That's important for businesses that don't see IT as a core competency. Fernandez credits his background working at Intel as a key factor in his decision to install Boon's ERP software on-site. "If somebody very technologically illiterate were trying to navigate these waters," he notes, "that would be very scary."

Still, managers at many smaller operations may do better purchasing software rather than renting it. When officials at The Salvation Army USA Western Territory headquarters were looking for technology to help manage networked desktop computers, they faced a choice between a SaaS program and an on-premise tool from Bomgar. CIO Clarence White says the financial benefits of the on-site tool and software more than outweighed the advantages of a hosted solution. "For a one-year solution, Bomgar was slightly cheaper," he says. "However, in year two, it's massively cheaper because we own it."

When it comes to software, ownership can be a good thing. "Even though we may amortize [on-site software] over a shorter period of time, it will work for us for many years," says Fernandez. "With a SaaS program, it's gone. You rent it and then you have nothing to show for it."

John Edwards is a frequent contributor to CFO.

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