Two experiences in professional life left me shaking my head recently.
I saw an industry association abandon and write off a custom software project after having invested half a million euros in it. Half a million!
And I saw the government relations and public affairs department of a household-name global corporation make the decision that €200k/year was too much for a specialised SaaS-based data-analytics, intelligence, and collaboration platform and decide to build their own instead using in-house resources. They don’t know it yet, but that project is going to wind up costing them millions.
Why do people do this?
There may be all sorts of reasons. We all know that decisions are often made for reasons having nothing to do with the visible pros-and-cons. But let’s consider two that do relate to the issue itself:
a) not understanding how costs work
In some cases, people are not thinking clearly about costs. The corporation above, had they gone the SaaS route, they would have spent €1M over five years.
Now let’s imagine what’s currently happening. They have a team of developers working on the project, and a project manager, and these people are pulling in the necessary input from colleagues in the functions that the software is meant to serve, there are meetings taking place on a regular basis, and management time is required along the way. The salary costs alone could add up to €1M in the first one or two years (as opposed to five years!) but that’s not all. What about the opportunity costs? What ELSE could those developers have been doing instead? And what value-adding work might the government affairs people have been able to deliver if they hadn’t been sitting in meetings.
It may be less surprising than you might think to find that even in a major corporation, such mistakes get made. But let’s say that in fact it’s not a case of people not understanding how costs work, but something else, like…
b) budget availability vs resource availability
In the case of the government relations department we are talking about here, they may simply not have been able to find €200k/year in their departmental budget for an ongoing SaaS subscription, but might well have been able to call on in-house software development resources to deliver a planned project that as approved at a higher level. From their point of view, a solution is better than so solution. So the organisation takes a cost hit. This is a problem of management and organisational design, not for this blog.
Here, we want to talk about…
Why SaaS is usually – not always, perhaps, but usually – the smarter choice for organisations of all sizes.
SaaS stands for software as a service. Under this model, software is centrally-hosted and licensed as a subscription to clients. Instead of installing software on individual computers, SaaS is cloud-based and usually accessed using a light, browser-enabled platform.
There are several types of SaaS, covering the vast majority of business processes, including finance and payroll management, learning management, resource planning, and content development, as well as standard office applications.
Industry associations often need specialist software that supports tasks such as membership management, membership service delivery, internal operations and workflow management, and documentation and information management. Appropriate SaaS applications may already exist, or reasonable adaptations can be made. In fact, there are few industry association processes that SaaS can’t handle.
However, there are unique circumstances that may require a distinct solution, and while clients may be able to pick and choose the features they want to pay for, SaaS isn’t always built for bespoke requirements.
Enter custom software. As the name suggests, this is only made for each individual client, process, or task. A developer works directly with the business to build software that is completely unique.
It may sound like the best option, but custom software can actually be more of a hindrance than a help, particularly as it’s never been tested – It’s brand new. Plus, this is a far more expensive option than SaaS, and here’s why…
Benefits of SaaS
It’s FAR Quicker to Deploy
If your custom software project is ready for use by the team within 6 months, you’re lucky. Often it’s a year or two (by which time your original software concept and design is already outdated, not to mention that your processes may well have changed as well).
With SaaS, you can be up and running within a few weeks, maybe two-three months counting customisation and staff training.
The COST of Deployment Is Far Lower
As you might expect, custom software is extremely expensive to develop, so SaaS is by far the most cost-effective option for the majority of industry associations. You pay a monthly subscription for SaaS rather than the variable charges that change depending on new ‘fixes’ or updates, ongoing software engineer costs, and maintenance that you get with custom-software.
When it comes to deployment, there are fewer hidden costs in SaaS too, and often better streamlined support for deploying. There are also SaaS solutions for an exhaustive range of tasks and organisational requirements for industry associations so the likelihood of actually needing custom software is relatively low.
SaaS is Safer
There’s always an element of risk involved in making software decisions for your organisation. Custom software carries the most risk, with severe implications if it goes wrong. Effectively, placing all your eggs in one very expensive basket. With SaaS, that risk is mitigated because if the project fails, less cash and time will be lost.
Software Development by Experts
You are the experts in your industry. That doesn’t mean you have to be software experts, too! It’s best to leave software development to the people who do it best, allowing you to focus on what you do best. The greatest efficiency is achieved when everyone plays to their strengths. Choosing SaaS allows you to benefit from the proficiency of your chosen provider.
You might point out that of course you won’t be developing the software in-house. Obviously not. But you’ll still have to manage the software development provider that you hired, and that is a time-consuming process and not where your focus should be. Why saddle yourself with that?
With custom software, features can be added, adjusted, or removed as a company’s needs evolve. SaaS developers, meanwhile, constantly improve their products to keep pace with client requirements. A level playing field, right?
But in practice, SaaS developments tend to be faster, as developers are constantly responding to client feedback, and the infrastructure is in place to make adjustments without delay. SaaS providers are competitive businesses themselves, so they understand that to stay ahead, their offering needs to be aligned with customer expectations.
Custom software updates do not happen quickly. They are expensive, time-intensive, and complex to arrange. For industry associations who may not have the resources available to make constant adjustments this can lead to software issues long-term!
Finally, a further point on cost; SaaS customers do not pay directly for updates to their software; it is absorbed by the pricing model. So, there are no nasty surprises when updates are needed; it happens automatically at no extra cost.
When an organisation develops a custom software solution, the extent of their investment means that even if the software is not as perfect as they would have desired, they are duty bound to use it. With SaaS, there’s a lot more flexibility. If the software package isn’t quite right, it’s easy to move on.
Most providers offer a free trial, which – even if features are limited at the trial stage – gives an accurate indication of what to expect from a paid version. Finding the right software can sometimes be a trial-and-error process; SaaS gives organisations the ability to do that, without incurring excessive costs.
Integrating with the rest of the economy – and the software ecosystem
In theory, both SaaS and custom-built software should be able to integrate seamlessly with third-party platforms.
However, this isn’t always the case in practice. SaaS solutions are packaged with APIs that facilitate smooth integration between services, particularly those commonly used together.
Custom software, however, is a little more hit-and-miss. For example, if an organization wants to share data between a SaaS and a custom platform, both entities must have the right key to each other’s door. SaaS solutions are constantly evolving, and so their scope for cross-communication is unbeatable. Custom solutions may not have the correct keys, making integration difficult or impossible until the software is updated – at the organization’s expense!
Where Custom Software MIGHT be better
Specialised needs, targeted solutions
As much as SaaS is useful in most settings, there are circumstances in which custom software is more appropriate. Usually, in an area where SaaS software simply doesn’t exist yet, or the need is too low for a larger platform. In this case, it might benefit to get a tailored solution.
So by definition, custom-built software should sweep the floor here. After all, SaaS might be packed with features that work well for most organizations, but it won’t necessarily meet all of what is wanted.
The reality with custom software however is that, whilst it can be fully customized, that’s not always a good thing when it comes to actual implementation. Resources can be stretched to try to meet the cultural or political climate of the organization, and what results is a piece of overly customized software that users struggle to actually use. When trying to give every stakeholder the features they want, it’s to the detriment of the software and those who will actually use it.
It’s far more cost-effective to streamline processes and tweak current activity to adopt a new SaaS platform than it is developing an entire custom software solution for your organisation. Ultimately Industry associations need to ask themselves, what are the best practices, and what do we really need? And most often, this can be satisfied by existing SaaS software.
Scaling Successful Processes
An organisation may have specific, best-practice processes that would benefit from transformation into software. If these processes have been developed in-house, it’s unlikely that a SaaS application will have the ability to replicate them, so a custom solution becomes necessary. Before committing, however, it’s always worthwhile to check whether a SaaS provider has already created something suitable!
If an organisation has specific software needs but wants to use SaaS, they may need to make compromises on functionality. Ultimately, this can cause profound inefficiencies that would be remedied by using custom software. If your team is having to waste resources on making a SaaS work, it may be worth considering whether a custom solution is better.
Custom Software vs Saas: How Much Do They Cost?
It is estimated that for small- to mid-sized organisations, the total cost of a custom software can fall between €75,000 and €750,000. The final figure depends on a number of factors, including the size and complexity of the software, implementation, integration, and training of staff to use it. Note that this is the initial cost of developing custom software; updates and maintenance often cost extra.
Alternatively, if you’re looking to hire in-house, a software engineer and project manager are likely to cost upwards of €100,000 a year to hire – each. Unfortunately, there’s also a risk of project failure; a hugely expensive mistake and happens with surprising frequency – between 30% and 70% of custom software development projects will fail, and if it does, or its development overruns to such an extent that it is abandoned, this can be extremely expensive for the organisation involved.
There have been several high-profile instances that demonstrate the financial impact of getting it wrong, including a national broadcaster that caused outrage when its expensive custom software project failed, a police service that had to scrap an ambitious crime registration platform, and the healthcare organisation with a website that couldn’t accept online enrollment.
While large enterprises may be able to absorb the expense of a failed software experiment, small- to mid-sized organisations might not have the resources to recover.
The cost of SaaS varies widely and depends on factors including the number of user accounts required, the extent of software components, and how much data storage is needed. For basic functionality, an organisation may pay under €100 per user per year; as software features, storage, and support upgrades are added in, the price per user increases. Other cost models for SaaS include flat-rate pricing, which can be as affordable as €2,400 per year, or usage-based pricing, which is usually expressed as a percentage of income with a minimum per-month cost – starting at around €149 per month.
Again, the final cost of using SaaS depends on a combination of factors, and there is great scope for crafting a bespoke solution without committing to custom software. It’s also worth noting that maintenance and upgrades are managed by the provider; this allows organisation to avoid tasks that are both time and money intensive.