Competing in today’s economy means recognizing that you can’t escape the digital economy, you must engage it.
“Every company is a software company”, says Microsoft CEO Satya Nadella, quoting a phrase made famous over two decades ago by Watts Humphrey. It’s no longer about providing a “solution” to your customers – instead it’s about “your own future as a digital company” according to Nadella .
But, what does that even mean? Seriously… a “digital company”?
If a company is an insurance company, healthcare company, private equity firm, or even something more “blue collar” like a small manufacturing company – isn’t the core competency of that company centered around the product or service it offers?
When it comes down to it, however, over the last several decades, what it takes to compete has increasingly relied on providing a better, faster, cheaper, more reliable, more transparent and more self-service oriented offering to your customer. At the center of all those things is automation and the software necessary to get it done.
So, the point is that technology is an enabler. The more a company engages with technical innovation, the more it is empowered to compete, and stay ahead. In this way, in the never-ending race to compete, we’re all part of the digital economy.
So What’s the Solution?
As software solutions continue to evolve and become available to the masses through Software-as-a-Service (SaaS) offerings, even small mom-and-pop shops have access to some of the most powerful tools technology has to offer. If everyone has access to the same tools, then in the short term, competition is pretty much about who adopts technology the fastest.
What about in the long term?
The answer: Competitive differentiation requires the ability to tackle the “hard problems”, and that requires technical know-how.
Any company can leverage software in solving the operational and business challenges unique to its organization. In fact, virtually everyone uses off-the-shelf software to lower their costs in a few common scenarios, for example, standardized backend processes such as HR, finance and accounting. However, the ability to compete and innovate comes when you apply software in less common areas.
With custom software, developed to solve your unique business problems, you are empowered to unlock new opportunities to compete in the digital economy – an area where commercial off-the-shelf SaaS will always lag, with its one-size-fits-all functionality.
It doesn’t require inventing a technical solution, but it does require tailoring technology to fit your particular business.
Let’s admit, the allure of using an existing SaaS solution is quite compelling – and often it’s exactly the right decision. Cloud-based SaaS solutions allow users to take advantage of the technology on a subscription basis. SaaS companies and their vendors are entirely responsible for developing, deploying and managing the SaaS solution, while users only have to migrate their data workloads or integrate the tool into their existing systems to get the software running.
In the real world, however, the SaaS application may lack specific functional capabilities critical to your business success. Or, fail to integrate seamlessly within your IT environment by compromising the range of value propositions that purportedly make SaaS promising in the first place. In other words, SaaS is not bad… It’s just not the best solution sometimes. Let’s look at some of the downfalls below.
High SaaS TCO (Total Cost of Ownership) for a Growing User Base:
SaaS solutions promise beneficial cost savings for small-to-medium sized businesses (SMB) by replacing the high initial expense of custom software development and infrastructure set up with affordable operational expenses. Customers pay on a consumption-based subscription model and the product is typically licensed for the business’ specific number of users, organization size, or volume of computing resources. This model makes sense for SMB firms with limited usage requirements, as the cost of developing and maintaining a custom solution in-house far outweighs the subscription fees of a SaaS service.
However, the TCO increases exponentially when the SaaS product is licensed to a growing user base and the consumption of computing resources is scaled. Fast growing businesses can invest in custom software development for increased flexibility and scalability of the user base in the future, without having to worry about the growing licensing fees.
SaaS Lock-In Problem:
SaaS makes it easier for customers to migrate their IT workloads to the cloud as they attract a large customer base. SaaS lock-in occurs when getting out of the service becomes exponentially more difficult than subscribing to it. Customers can’t just “lift and shift” their data workloads to a different SaaS without overcoming technical, financial or legal restrictions.
In the case of SaaS, the cost of initial tier subscriptions is intentionally kept low and increased exponentially as customers scale their user consumption. Cost of data retrieval is usually kept high as well. Technical limitations, such as integration and compatibility with competing services, are added to make it difficult to move IT workloads between competing SaaS systems freely.
This issue is not faced with custom software development where customers fully own the Intellectual Property rights of their software and can switch the hosting platforms with ease, supporting the necessary (open) standardizations.
Dispelling the SaaS Adoption Hype:
SaaS investments are at an all time high. The market has grown 18% annually, and with an expected 99% of organizations investing in at least one SaaS solution, the market is expected to reach $143.7 billion in 2022. The insight behind these numbers is that most SaaS investments go into standardized offerings such as storage, communications, project management, accounting and HR. These investments are not (directly) responsible for innovation or market disruption.
In the digital economy, every business is a software business. True disruption comes through solving problems – internally for the business or externally for customers. The resulting revenue streams far outweigh any cost efficiency achieved with the initial SaaS investments that have captured market attention with the marketing stats around the SaaS industry.
The Case for Custom Software: Top 8 Benefits
Successful digital transformation requires software functionality that can meet the unique demands of your organization. Custom enterprise software is no longer the domain of Silicon Valley companies, but is essential to any organization intending to compete and stay ahead.
Let’s look at how the custom software development model compares with commercial off-the-shelf SaaS offerings:
- Custom Functionality: While SaaS solutions are optimized to meet the needs of the larger audience, custom software is designed to address specific technical challenges and business use cases.
- Low Total Cost of Ownership: The higher initial expense required to build custom software is offset by lower operating costs. As your organization scales its user base, you can avoid having to license every new user.
- Highly Available and Scalable: Deploying custom software on a highly available cloud environment can offer the same high SLA uptime as any SaaS alternative. Infrastructure expense can be optimized by distributing the workloads between different IT environments based on SLA uptime requirements and cost. Cloud infrastructure resources can be scaled on demand, similar to any SaaS offering.
- Secure for Mission Critical Workloads: Instead of transferring sensitive data workloads to third-party vendors, custom software can be operated on premise and within secure private cloud data centers.
- Cybersecurity and Compliance: Off-the-shelf SaaS solutions cannot meet the security requirements of organizations facing stringent global regulations. In contrast, custom software can be designed from the ground up to address the growing compliance and security challenges.
- Transparency, Visibility and Control: The owner of a custom software is in full control of the underlying software processes, functionality, and technologies. Low vendor dependence reduces the risk of a vendor lock-in.
- Business Agility: Organizations using custom software can operate with more agility in response to changing market dynamics. Instead of investing in untested SaaS solutions, organizations can develop an MVP to validate their business ideas, or customize software features as they work to find the right product-market fit over the long term.
- Intellectual Property Rights and New Business Opportunities: An upside of developing a custom software is that you can sell it as a SaaS product in the market as you own the Intellectual Property rights. The custom software can be thoroughly tested in-house and refined to meet the needs of other organizations within your industry vertical. Once your SaaS product gains traction in the market, you can scale it to a larger global market or potentially sell it to another company.
Custom software development is all about filling the gaps between a one-size-fits-all solution and one that is tailored exactly to your workflow. For regular operational use cases, these gaps may be acceptable and a SaaS solution may adequately suffice your business needs. However, when it comes to transforming the business to compete in the digital economy to exploit new revenue opportunities and maximize operational excellence, a custom solution is a more promising way to compete.
And in the digital world, software offerings with unique, purpose-built functional capabilities is (and should be) the secret sauce for delivering a high level of competitive differentiation.
Give us a call, or submit your information below, if you’re interested in building a custom solution to start you on your path to becoming a “software company”.