Today we’re going to venture outside real estate for a few minutes and talk about software. But this is really a discussion about business economics, and those principles apply to every industry.
For the past twenty years, one of the most attractive business models in technology has been Software as a Service, or SaaS.
Instead of buying software once, customers pay every month or every year. From the software company’s perspective, this is wonderful. Revenue becomes recurring and predictable. Investors love recurring revenue, and software companies have been valued accordingly.
But artificial intelligence may be starting to challenge the fundamental economics of that model.
We recently conducted an audit of the software subscriptions inside our own business. Like many companies, we had accumulated numerous applications over the years. Accounting software, project management software, communication tools, document management, CRM systems, design tools, and numerous specialized applications.
What became obvious was that we were paying for a tremendous amount of capability that we simply weren’t using.
In several cases we were subscribing to the highest tier because, at some point, somebody believed we needed one particular feature. When we looked carefully at actual usage, we discovered that the basic version accomplished virtually everything we needed.
We downgraded several subscriptions and, in some cases, reduced the cost by more than fifty percent.
Did productivity decline?
Not at all.
Suppose your company uses only ten percent of the functionality in a large project management platform.
What if instead you built exactly the workflow your organization needs?
Instead of changing your business process to accommodate somebody else’s software, the software accommodates your business process.
There is something very attractive about that.
But before declaring the SaaS industry dead, we need to distinguish between development cost and lifecycle cost.
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