Retail Management Software: Licence vs SaaS

A Retail Management Software covers the Front and Back Store areas (Point of Sale and Warehouse management, statistics and more) in stores independent or part of a chain. It can be integrated with accounting software, ERP, eCommerce, CRM, BI … For using it you can buy a perpetual license or pay a periodical fee for a SaaS (Software as a Service), as if it were a phone subscription. The main differences can be summarized as follows.

A Software Licence is an investment that gives the right to use third party software for an unlimited period of time, although the property remains on the manufacturer and is limited to a maximum number of users / workstations / shops. To the initial sum, annual costs for software maintenance as well for major updates, must be added.

In SaaS instead a service is provided for a fee related to the actual number of users / workstations / stores, which includes the right to use the software, continuous upgrades and service delivery costs (both personnel and hardware (HW) related). The initial investment is fully absorbed by the manufacturer and the retailer must only manage its own PCs, tablets and smartphones, but even these could be included in an expanded fee.

It is natural to compare the initial license cost with the periodic fee and find the break-even point, but this is inaccurate and incomplete as it compares the cost of a product with that of a service, such as comparing the cost of raw ingredients to the restaurant bill, or compare the cost of wine purchased in hectoliters and stored in tanks, with that of bottles purchased according to the needs of the moment, by quality and type.

Let’s clarify the difference. The purchase of a software license is in fact only the first of a series of costs among which we can mention:

• Costs for HW purchase and management, which instead with SaaS is not necessary as included in the fee. For an independent store the advantage may simply be buying less powerful and consumer level hardware (eg. a Tablet for a POS), while a chain avoids one or more servers in the HQ and the same in each large format store in order to manage multiple POS lanes.
• Specialized engineers costs for SW deployment and maintenance. With a SaaS, these operations, as well as the replacement of a failed PC or Server, can be performed by a generic technician or even by some shop staff as the technical complexity is moved from the store to the Cloud. Even data backups are not necessary any more.
• Energy and capital costs. Although smaller than previous ones, they are not negligible. For example, the energy cost for a single server is in the region of a hundred Euros per year and being able to turn off the store PCs at night because they don’t need to exchange data with the HQ, benefits also safety. In high competition times, it is preferable to invest the usually scarce capital to differentiate the business, rather than worry about matters that specialists can perform better and at lower cost.

An accurate quantitative analysis depends on the specific License and SaaS compared and also on the number of seats and stores, but the trend should not deviate much from that shown in the above diagram.

One could argue that the SaaS advantage would change if the traditional software vendors start a price war. This can be excluded on the basis of economic and technological foundations that we will not discuss here. In essence, through the Cloud the software is going from a craftsmanship to an industrial era where the price / quality ratio undergoes a jump surmountable only with the next paradigm shift, which, for now, is not in sight.

Next to the quantitative comparison, we should consider also qualitative and strategic matters, where SaaS shows even more important benefits.

• Service Quality or SLA (Service Level Agreement). A software designed specifically for the Cloud (also called native as opposed to a traditional software simply hosted in a datacenter, public or private) can handle millions of users, with a necessarily very high SLA for the cost that also a brief interruption would have. Modern PaaS (Platform as a Service) facilitate the achievement of SLA better than 99.99%, provided that the application software is redesigned from the ground. Moreover, even in the remote likelihood of external faults, Cloud native SaaS like aKite, ensure POS operations without interruption.
• Scalability and predictable costs. Retail chains born small and grow. Some become large or even huge. Traditional software always presents the dilemma between basic and cheap software for very small chains and comprehensive, complex and expensive software for medium and large chains. Starting with a limited investment, it means to restart from scratch when the chain will reach a certain size. Conversely, a native SaaS Cloud requires no initial investment and costs are always proportional to the size, without any practical limit.
• Data security and privacy. Modern Cloud platforms can invest a great deal on these fronts and possess technical expertise at the highest level. For this reason are much more secure compared to servers kept on-premise or hosted from the software manufacturer.
• Continuous evolution. Cloud native SaaS adapts to different needs through fast configurations, instead of lengthy and costly software customizations, allowing code sharing among all users and therefore greatly facilitating the continuous evolution of the service.
• Openness. The new generation of Cloud native software is based on standard APIs (Application Programming Interfaces) that enable easy integration with other services, offered by anyone from any technology. Data presented to partners and customers, will soon be an important reason for choosing a company among its competitors.
• Agility is the last element of this brief list, but the most important. A distinctive feature of the new IT triggered by the Cloud is the ease of integration between services provided by different vendors, as if information systems was made up of Lego blocks. In this new paradigm, it becomes possible to change the block that realizes a certain functionality, such as eCommerce or a customer’s App, with one that offers more performance, probably at a higher fee, or a more reduced one but more appropriate for the new situation and at a lower cost, without interfering with the rest of the system. The companies are similar to living beings where not the biggest survive, nor the most intelligent, but the most adaptable to changing market conditions.