Opinion: Buy or Rent?

21st Jan 2005

Should we rent rather than buy our business application software? Paul Watson, Director of Applications at Star, discusses the future of software use in mid size organisations and explains why renting software is worth considering.

Maintenance of software can be expensive, especially for small to medium sized businesses. Most companies need similar types of applications, from email systems to accounts packages. And most companies maintain their own copies, do their own upgrades, track licence use … and foot the bill for doing so.

Industry-leading software packages can be expensive to install and support and because of this many smaller organisations cannot afford them. They therefore miss out on the cost savings and quality improvements that such applications can deliver. So why not rent rather than buy software? Most people have rented a house, a TV or a car – why not software too?

The growing trend for software to be sold as a service (or ‘outsourced’) means companies can 'licence' an application, rather than buying it outright, only paying for the number of users it needs. The application provider maintains the software, ensuring customers have access to the latest version, and delivers the application to an agreed level of availability and performance. Following a rental model reduces the cost of software ownership and allows IT staff to work on higher value activities.

It is not uncommon to come across concerns over the outsourcing of applications. For example, when Star asked a group of its customers recently about their attitudes to application outsourcing, concerns over security and control were among those expressed. But, customers recognised they still see similar problems with back-ups, loss of service and virus attacks, with their in-house model. There was also the issue of their current investment in software, which they feared would be made redundant, as well as the difficulty and disruption of integrating new applications into their business.

However, change is inevitable. Companies that refuse to change either their business processes or the underlying software that supports them may find themselves left behind. Recent research from Gartner shows that major technical transformation and business change are top triggers for application outsourcing in mid-sized firms. At such trigger points, companies often discover that they need new software, and also discover it is more cost-effective to rent rather than to buy.

If an outsourced application does not fit or if what is available doesn’t meet needs - mid-sized firms are right to reject the offering. Many industry-leading applications are designed for large companies and are often not a good cultural fit for smaller business.

For example, many smaller companies have manual HR processes that are time-consuming and tedious, but they cannot justify the investment in an application as daunting as PeopleSoft. But the HR application from 4th Contact is designed to automate processes carried out by every business, large or small.

There are many other business processes, such as asset or customer management, or specific vertical market processes, which could benefit from automation and outsourcing in a way that suits the small to medium sized company. Star is committed to providing such applications, which provide solid return on investment and bring technology, which has, until now, been the reserve of the Global 2000.

More and more companies are buying off-the-shelf applications rather than developing them in-house. Renting rather than buying applications is the next evolution: businesses will now rent those off-the-shelf applications in order to reduce costs, remain flexible and competitive. Renting is the way forward

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