Build, buy or subscribe: 4 considerations for making the best choice

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By KeithMacbeath, senior principal consultant with HP Software Professional Services

 

For the last decade or so the key question in the application world has been, “Do I build or buy? I need a solution; do I throw this to the in-house application development team (or an external services supplier) to build, or do I contact a vendor to buy?” With the advent of SaaS solutions the question now has become, “Do I build, buy or subscribe?” In today’s world I may subscribe to Salesforce.com or  I may buy Siebel, but I almost certainly won’t build my own customer relationship management tool.

 

Increasingly, heads of enterprise IT are making these build, buy or subscribe decisions. In many cases, the same principles you use to make a build vs. buy decision hold true with subscribe. But the subscribe option is different in some crucial ways that relate to the fact that you’re not running it. When you’re considering a SaaS subscription, make sure you’ve thought through the four aspects that make the subscription model different.

 

1. Financial

When you’re making a build vs. buy decision there’s the usual financial question: How much would this cost me to build and maintain over time? Subscription is different from building or buying in that there’s no capital cost; it’s all operating expense. Now whether that’s good or bad depends on your business. If you’re in a business that’s highly cyclical it could be attractive, depending on how the subscription is metered. If this is a per-user subscription and you have a highly variable cycle, this would be a strong tick in the box. You can ramp up and ramp down your costs at different points in the cycle, assuming that your contract allows for that. (If you are cyclical, you need to make sure you negotiate a contract that gives you this.)

 

But if you’re in a growth business this model may not work for you. With growth, you’re looking for economies of scale, and you don’t necessarily get that with subscribe. Instead, you’ll keep growing and your cost growth will track your size growth. Economies of scale in a growth business is one reason people go to build—as the business grows you don’t want to have to pay for more seats. On the other hand, the cost of maintaining applications is so enormous that often the  full lifecycle cost remains lower if you buy  despite the fact that you pay maintenance  to the vendor.

 

2. Functional

This consideration looks at your requirements. Is there anything on the market that does what you want? And then, is there something that you want about this that is highly differentiated in a way that is critical to your competitiveness? If that’s case, you’re not going to want to share it with a service provider, and a service provider probably won’t have it if it’s differentiating. So subscribe may not work unless you can get this functionality in nested services: that is, you subscribe to the service and then on top of it you add the differentiation yourself. The flip side of this consideration is that you might want something that you don’t have the skills to do. For example, in my last post about Open Services I talked about the example of the subscription solution called Revinate that provides meta analysis of TripAdvisor and other travel review sites. Do you have the skills in-house to do unstructured data analysis? Maybe not, in which case, this subscription is going to be much cheaper than the buy or build option.

 

3. Security

There are some jurisdictions (Canada being one, Germany another) where it is considered by many to be unacceptably high risk to move consumer data outside the country in light of the country’s privacy and data-protection laws. So compliance considerations may add a wrinkle to the subscription you’re considering. If this is the case, then you may require the service provider  to   give you legal guarantees: For example, if your business is in Canada you may want guarantees from the service provider that the they have a  data center in Canada and that any personal data generated in Canada will not leave the country. Of course that won’t apply to all types of data. In the hospitality subscription that I mentioned earlier, consumer data on a public website about their perception of your hotel isn’t private and therefore wouldn’t be subject to the same legal requirements that private data is.

 

4. Integration

Integration is the bugbear of enterprise solutions and a great cause of ‘IT hairballs’: nearly unmanageable IT complexity that grows up over time if IT develops organically. The challenge does not go away with subscription solutions, but it changes somewhat. In certain cases, such as the Revinate example mentioned earlier, the problem is reduced since a core value proposition of the Revinate service is correlation of data from multiple sources on the Web that affects your reputation as a hotelier. In other cases, you will want to integrate from the subscription solution into your systems of record within the enterprise; if this is a need, the integration is not unlike integration in other contexts, but before you subscribe you will want to confirm the details of the API that will be provided to ensure that it will meet your needs.

 

Making a decision about subscriptions isn’t that different from the build vs. buy decisions you’ve been making all along. You need to take the various considerations and apply them to the requirements to come up with your decision. Just be sure to factor in the particular ways in which subscription is different.

 

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Labels: cloud computing
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