Deciding when to buy or rent apps

Availability of financial and skilled human IT resources should be determining factor when smaller businesses contemplate leasing or buying software.
Written by Sol E. Solomon, Contributor

Having the right software can help small and midsize businesses (SMBs) attain a competitive edge, but a challenge cash-strapped companies grapple with is deciding whether to buy or rent these applications.

David Hope, Lawson Software's Asia-Pacific general manager and regional managing director, likened the decision to that of renting or buying a home.

"If you just need a place to live in while you are going to college or saving money for a house, renting is a good option," Hope said in an e-mail. "It's a short-term solution while you are looking for the right long-term relationship."

In determining whether to buy or rent software, the company's size and capability are key factors in deciding which model would be the right fit, he said.

An SMB must find a solution that best fits its needs, whether or not that is an on-premise or on-demand software. When considering a software application, an SMB will need to think about the type of business it is now running and where it sees its business running in the future.
Tom Kindermans, SAP Asia-Pacific Japan

"The company has to decide if certain processes are generic, can be automated through a utility, and can be used as is," Hope said. "If a company is looking at long-term investment in critical operating processes that help add value to the business, it makes a lot more sense to control the processes in-house, rather than be at the mercy and whim of a cloud of companies offering point-solutions to specific business pains."

Suresh Kalpathy, Asia-Pacific regional director of partner strategy and marketing at Microsoft, said the decision process requires SMBs to look at the basics, namely, the affordability and costs involved, and the availability of skilled IT resources.

"If a small business has neither the financial or people resources at hand, it makes sense to embrace software delivered as a service, by subscription. Money saved on support and infrastructure can then be directed toward other business IT investments such as business intelligence applications better suited to an on-premise environment," Kalpathy said in an e-mail.

Function of balance sheet
John Brand, research director at Hydrasight, advised SMBs to "do what larger businesses have been doing for years" and remove assets as liabilities from the balance sheet.

Technology has previously been assumed to be an asset because of the software and hardware that businesses use to help drive efficiencies and automate major business functions, Brand said in an e-mail.

"However, the reality is, the information that the technology manages is the real business asset. For that reason alone, SMBs should look to rent or subscription-based services or managed services wherever possible," he said.

When evaluating whether to buy or rent, he added that organizations should always first look to source applications to rent, rather than to buy and own the software infrastructure.

However, Brand said, there are some valid exceptions to this and these generally relate to the level of software integration required, performance-related issues, mobility and security requirements.

Tom Kindermans, senior vice president for SMBs at SAP Asia-Pacific Japan, said when considering the best model to pick, an SMB must take into consideration not only the application it is interested to buy, but also its business processes and the industry in which it operates.

"An SMB must find a solution that best fits its needs whether or not that is an on-premise or on-demand software," Kindermans said in an e-mail interview. "When considering a software application, an SMB will need to think about the type of business it is now running and where it sees its business running in the future."

The software must grow and be flexible enough to support the SMB's business changes, he said. The business needs of an SMB contribute significantly to the decision regarding the software delivery model required--be it an on-premise, or software-as-a-service (SaaS) offering.

Kindermans explained: "But, possibly, the biggest decider when it comes to an on-premise or SaaS delivery model is whether or not an SMB has its own IT department to support an on-premise solution, or where it's a SaaS solution, whether external IT support makes more sense."

Should an SMB decide SaaS is best for the company, it is important to consider whether the service provider is reliable.

In a SaaS or "rented software" scenario, an SMB is handing its internal data to the vendor so this service provider should "at the very least" be an organization it considers trustworthy, said Kindermans. "If you are running a SaaS solution, you will be relying on a solutions vendor to provide your software services and support. [SMBs then need to ask themselves] how long will that provider be around? Will it still be providing support and services for your solution in the future? What happens to your data if your solutions provider goes bankrupt or is acquired by another vendor?"

Toni Ruotanen, Microsoft's Asia-Pacific and Greater China director of customer service and support, said in an e-mail: "When considering an online or on-premise service, choose a vendor that has a proven track record and is able to integrate additional functionality in the future, without impacting the continuity of service or your business."

Hope said benefits of the utility model include speed of use, as it allows SMBs to have an application up and running in a short amount of time, at some level of proficiency.

"But, the downside is that one rarely gets too proficient without [first] investing a lot of time and energy to figure out how the software wants you to do a process, rather than have the software help you with the process," he said.

"Utility computing, or generic one-size-fits-all, works fine for generic processes of the company if they are smaller than 50 users. After that, the inability to share information across departments and teams is a big hindrance to a company's [goal] to grow," Hope said.

Ruotanen added that SMBs must understand the IT resources they have available as well as their budget. "If you have few resources, then a subscription model is an obvious choice. If you have IT resources to invest, then your decision will rest on the strategic importance to your business and your projected returns on the resource investment," he said.

In sum, Brand recommends organizations seek good, independent advice before deciding whether software needs to be purchased, rented or leased, or packaged into a managed services deal--taking into account the right service level agreements, risk factors and exit conditions.

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