Know the difference between a traditional software licence and a software service agreement.
You may wonder what exactly you’re paying for when you hand over money each month to your provider. A cloud-software licence can differ in several ways to a licence for software that you install on your computer, sometimes called “on-premise” software. Cloud software is often referred to as “software-as-a-service” (or SaaS) because it is effectively rented by the month rather than bought outright, and is accessed over the internet.
Capital cost. On-premise software is often paid for upfront as a capital cost. The software is owned by the customer but only that version; later versions must be paid for again.
Hardware provision. The customer is responsible for providing the computer hardware on which to run the software. This involves buying, maintaining and upgrading servers, housed on customer premises or in a third-party data centre.
Software maintenance. The customer is responsible for maintaining the software by “patching” it against flaws in its code that can leave the software vulnerable to either security attacks or to malfunction.
Security. The customer also has to defend the software from attacks by hackers, viruses, worms and other malware. This involves buying and maintaining security devices such as dedicated firewalls or other security devices.
Backup. The customer is responsible for keeping customer data safe. This means making regular backups, either to on-site tape libraries or off-site.
Software as a service
Operating cost. A software-service licence is generally much cheaper because it only rents the software. The rental price must be paid each month or year according to the billing period. Because it is a rental licence, the software cost can be allocated as an operational expense.
Software maintenance. The vendor is responsible for maintaining the software. Thanks to advances in software technology the vendor can usually carry out upgrades and bug fixes invisibly in the background. This means that there is only one version of the software – the latest one.
Hardware provision. The vendor is responsible for providing the hardware on which to run the software. This includes servers to process data collected by the software and storage to house customer information.
Security. The vendor is responsible for protecting the software from attack. Vendors house their software in heavily defended data centres that use the latest, largest and most expensive security devices to screen out malicious attacks.
Backup. The vendor is responsible for keeping its customers’ data safe. In most cases this includes making regular backups to off-site locations. Some providers like Amazon can duplicate the service and customer data in more than one location so if a power blackout shuts down one data centre another will take its place, and customers will be able to use their service without interruption.
Implications of SaaS
Removing your data. While software-as-a-service is cheaper, it does mean that customer data is stored offsite on the vendor’s hardware. This has consequences for customers that decide to leave the service and take their data elsewhere. Before you sign up to a SaaS service it is important to know how easy it is remove your customer data, whether any fees are involved, and the format in which the data will be supplied.
Storage fees. The base price for a software service may not include enough storage from the vendor for all your data. Vendors often offer the option of buying more storage, but the rates can vary.