They say that it is not so much that history repeats itself, it's more that it rhymes, or at least that the quote that is often attributed to Mark Twain. That's why it was interesting to recently hear Jason Fried, CEO of 37Signals promote a "new" purchase plan called Once for some of their products. Once is a paradigm for software that is sold as a once off purchase and hosted by the customer. It is in essence, a lifetime subscription but does it make sense for both customer and provider?
This is a big departure for 37Signals. They were among the first to promote the concept of Software as a Service, so why the change of heart and what does it mean for SaaS?
In Jason's blog post he makes the following points:
- People used to buy software for a fixed price, install it and own the software
- SaaS still makes sense for many products
- Self hosting technology is simpler now and vastly improved
- There is demand from IT departments to run their own software again
Jason goes on to say:
In the early 2000s, we were among the early pioneers leading the industry into the SaaS revolution. Now, 20 years later, we intend to help lead the way out. The post–SaaS era is just around the corner.
So is this really new?
Well, when you have been around the industry long enough this does seem to look very similar to the industry in the 80's and 90's. Back then, believe it or not there was no internet or at least it was not generally available. The internet only became a thing in the mid 90's when it was opened to commercial use. Even then, most connections were dial up and people would dial up and download and send their email and then disconnect. Always on connections only became a thing later on and connections were slow, often measured in kilobytes a second. So the only option was to host software locally on your PC or on a server on your local area network (LAN).
There were plenty of software vendors who thrived in this environment. the most famous of these was Microsoft. They sold shrink wrapped boxes of all their products from operating systems like Windows, business applications like Word, Excel and PowerPoint to Educational products like Encarta and games like Age of Empires. Everything was bought and installed from disks.
I worked on Microsoft in the late 90's and a major perk at the time was that I could visit the company store and purchase cheap software. It was geek heaven.
However from Microsoft's point of view there was a major cost involved in producing physical software and an ongoing issue was what to do when the inevitable bugs are later found in the software. Microsoft had programmes for IT professionals and developers which provided them with patches on a regular basis that they could use to update buggy software. Of course when the internet came along this allowed for updating software directly which helped a bit.
Why did we get SaaS?
There are may reasons why Software as a Service came about. One of the reasons is that most software was installed locally on individual PC's and each machine was different, which made every update tricky. Even accounting software might have a server component but also a local installation which talked to the server. The IT department was constantly running around updating Windows and other applications to keep them up to date. So when the option of an application that people could use on every PC through the browser and was kept constantly up to date by someone else that was a godsend. You have to remember that not only did IT manage the infrastructure and software, in many cases they were providing first line support to users helping them to use the applications as well, so it saved a lot of time.
Another factor was the low cost of getting started. Small businesses were able to get the latest solutions at a low price point. They were not concerned about the long term cost implications as often paying upfront for software was not an option and they could not be sure that they would be around in a couple of years to worry about it.
For larger organisations it was much easier to persuade budget holders to try SaaS solutions as it was seen as a low risk option. In many cases, it was so cheap that people just put it on their credit card without the need to involve IT. Often by the time IT found out about it they discovered that there was multiple separate departments using it.
SaaS Technology v SaaS Business Model
It's worth separating the technology from the business model. The technology behind SaaS is a web based solution that each user can access through their browser or device. This has the benefit that the software can be updated in a central location and everybody can have the latest version instantly and the browser gave a standard base for every application.
The normal business model is that the SaaS provider will manage the servers, update the software and ensure that the data is secure. In return for this ongoing commitment, the customer pays an ongoing fee on a monthly or yearly basis. This means that the software is provided as an ongoing service rather than a once off transaction.
What about Once?
Once is an interesting idea. The principle is based on:
- Pay one time, own forever.
- We write the code, you get to see it.
- We give you the software, you get to host it.
- Simple and straightforward, not enterprisey and bloated.
- For one fixed price. Once.
37Signals is not the only company offering solutions on this basis. This is the basis that ghost offer their blog. Its all open source, you can download it and install it on our server of choice. The downside is that you are then responsible for managing it an updating and backing it up. The only difference is that ghost offer their product for free. They obviously feel that even a free product does not dissuade people from signing up for their hosted version. I am one such customer, originally I self hosted this blog but eventually I came to the conclusion that it was not an effective use of my time and signed up for the paid version.
This is the weakness in the Once plan. Yes, the customer gets more control and this may the of upmost important to them but they also get the responsibility of maintaining and updating the system.
Sometimes software is provided on the same basis as a typical SaaS offering but just as a straight lifetime subscription (or once). An example of this is Neil Patel's Ubersuggest SEO tool which is also offered as a lifetime subscription. The difference is that the solution is still hosted by the seller.
In this situation, Ubersuggest is more of a loss leader to allow for follow on digital marketing consultancy services which can be much more lucrative and involve an ongoing longer term relationship with the customer as marketing needs change from month to month and year to year.
Conclusion
So while Once is interesting, there is nothing really new in what it offers. We have been here before and all the same pro's and con's for SaaS still exist. Sure it is cheaper over the long term to pay for your software at the start rather than having a subscription. The customer may feel that they then own the software and have more control but what happens when there is a change needed? For example, a new regulation or taxation requirement, who makes the change? The customer now has a large sunk cost and may not have the expertise or want to make changes themselves especially if it is a large complicated system. That means they end up reliant on the provider to update the software and they have very little negotiation power in the relationship.
The other larger question is whether this is a sustainable model for the future of the product. Clearly this has an impact on revenue recognition. Since there is no ongoing contractual relationship then revenue can be booked immediately but the potential for future revenue that can fund future development is more uncertain too. 37Signals is a pretty well known company and for them, perhaps they can pay for improvements and bug fixes from new sales but I suspect that even they will end up having to plug the gap by offering services such as support contracts.
It is hard to see how a SaaS company can provide a lifetime service without a lifetime income and even software that is bought once will need to be updated and that costs in both time and money, just ask anyone who once bought Windows XP.
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