By Sanjay Manandhar

Pay up front or pay as you go? Sometimes you get a choice, and with digital signage this choice can make the difference between success or a failed business. A decade ago someone who wanted to run a signage network would license the software with an up-front payment for the first year’s usage for their signs, buys servers and media player hardware. This was often no small payment. More recently, Software-as-a-Service (Saas) is a different business model that is more practical for many businesses.

So what problems does Saas avoid or solve? The first is ‘the IT problem’, and the second is the ‘Capex problem’.

These problems were brought into focus for us a few years back. During a ‘site visit’ to see how the young patrons entertained themselves at a club in Waterford Ireland (where the fancy crystalware is made). A chance meeting in with the owner inspired us to include the SaaS model of digital signage and mobile interactivity software delivery.

As many clubs do, this one featured very loud popular music, with lots of LCD displays everywhere showing trance-like imagery on some and sports on others. When it was time to talk about digital signage and software license pricing, the owner asked, “What license fee? We pay for everything outright if we use it on premises. If it is delivered from afar, like electricity, cable, phone, we pay monthly.” That comment was instrumental in shifting Aerva from a traditional software licensing model with customer-hosted servers to a more flexible model for increasingly larger numbers of customers.

Until then Aerva did it the old way. We licensed server technology to customers who bought their own server hardware and hosted it themselves. We charged a license fee upfront and a support fee each year after. For larger enterprises, this model was quite familiar, but pubs and clubs just did not want it that way. For starters, their footprint was so small that there was no way to squeeze a server rack in their back room. Secondly, they had little IT expertise. (The video disc jockey was the most IT-literate person they had). Finally, the thought of paying for software in a large balloon payment upfront was quite new to them.

SaaS addresses all of these issues and has two primary advantages:

1) Operational efficiency

2) Budgeting policy

Operational efficiency has to do with the customer off-loading the server hardware and maintenance away from their premises and off their books. This option wasn’t workable where bandwidth was low and expensive. But now that broadband is easily and cheaply accessible, there is no need for customers to bear the burden of hosting and managing their own servers – even when their business does have a core IT capability.

Budgeting policy lets customers pay a constant operational cost each month or each year, rather than spend a large capital expenditure upfront. The advantages of predictable expenses and easier planning are obvious, even for larger businesses. In addition, the ease of “try-and-deploy” form of commitment makes it quite risk-free for customers that sign up to the SaaS model.

There are two common pushbacks to SaaS models. First, neither the hardware nor, more importantly, the data is hosted by the customer. This represents a significant change for customers that have a very strict policy of keeping all data in-house. As the risks of data loss and privacy become much smaller than the convenience of tapping onto servers that are hosted by another entity, these organizations will migrate to the SaaS model. Every month, every year, we see this migration happening in organizations that never considered the SaaS model before.

Secondly, if an organization has sufficient capex budget but little maintenance budget, the SaaS model of paying a constant amount each month (or each year) will not work, although it can be made to work through pre-payments. Some organizations’ budgets have not been fully cognizant of constant incremental costs over time rather than up-front cost, so the budgets and SaaS may not co-exist, but clearly the trend is towards SaaS method of paying, not just for smaller operators like bars and clubs, but even for larger organizations.

Due to the unrelenting decrease in cost of bandwidth and use of browsers as the primary access medium SaaS is here to stay. In digital signage some providers have seen the light and are starting to offer a SaaS model. At Aerva, we are fortunate to have benefited from a very timely conversation with the nightclub owner in Waterford, Ireland in 2003.

Tags: Aerva, SaaS, Software-as-a-Service