SaaS radically changed that business model and the business mindset around selling software. In short, SaaS moved IT costs from CapEx (capital expenditure) that could be amortized over the coming years to OpEx (operating expenditure), which came in at a lower initial cost and moved the buyer to a subscriber paying an annual fee every year. Or, in more colloquial terms, businesses went from buying their IT to renting it. Moreover, in the short term, buyers could start using enterprise software at a much lower cost than previously. As for the long-term costs of SaaS? Well, those long-term costs are often much, much higher for the buyer.
Licensing Price Disparities
Let’ s take a basic example, Microsoft 365. Currently, a business premium license or Microsoft 365 will cost you $22 per month, so within a 5-year period, it will come in at around $1,320. This number assumes no price rises during that 5-year period. Yet Microsoft typically increases its M365 prices between 5% and 10% per year. In short, the likelihood is that you will pay closer to $2,000 during the next 5 years. In contrast, a perpetual one-time license to M365 Business will cost you a little less than $450.
Whenever analysts point out price disparities like this, they are subject to a barrage of what might be generously described as vociferous feedback from SaaS technology vendors. Their argument is that you are comparing apples with oranges. This is the claim: We add new features, updates, and fixes on a rolling basis; your SaaS product is always up-to-date; it gets better and better over time; and SaaS providers do all the work to provide those improvements. That is 100% true, but what is also true is that very few of their customers even scratch the surface of capabilities bought on Day One, let alone the new and improved features they get, whether they want them or not.