Top 3 reasons to 'rent' software

Heather Clancy, principal of Jabberwocky Communications, is a business journalist and high-tech communications strategist who has covered technology for 20 years. She is a monthly columnist for Entrepreneur magazine and contributes to the GreenTech Pastures blog about technology and the environment on ZDNet. She can be reached via e-mail.

By Heather Clancy

Why buy business software outright when your company can guarantee more flexibility for staff and manage cash flow more efficiently by renting it over the Internet?

That's the question many business owners are asking as they seek ways to cut costs.

The good news is that if your company has high-speed Internet access, it's a great time to consider "renting" software to run your business-anything from accounting and product inventory systems to customer databases and project management applications. (Check out Microsoft Online Services as an example.)

Most software applications to run businesses are available as online subscriptions. They allow you to connect to applications through the Internet "cloud." Think of the cloud as your own private data center, like the sort normally run by a much larger company. By renting software applications in this manner, business owners can save on buying software and transfer the expense of ongoing maintenance and software updates to a service provider.

Chatow recently evaluated the costs of investing in an on-premise database software package vs. renting a database that runs off an Internet connection. The cost of buying the software outright: about $300 per person vs. $99 per person that he pays for renting a package on a monthly basis, according to Chatow.

"I would much rather pay monthly. For me, it's cash flow, especially if you can split up the cost," Chatow says. Chatow isn't alone. The practice of investing in software applications that are delivered over the Internet via a monthly, quarterly or annual subscription is becoming common. By the end of 2009, market research firm IDC projected that three-quarters of all United States business organizations will rely on at least one application that is delivered as a service and paid for via subscription or rental fee.

In a separate, broader survey, IDC found that the most common reason that businesses are adopting applications that can be accessed via the Internet is to cut costs. More than 51 % of business owners told IDC researchers that cutting operational expenses was the reason they moved away from buying an application that was hosted on-premise. Another common reason: About 30 % said budget issues forced their organization to examine alternative methods of acquiring hardware and software.

"It you add people, it will cost more, but if you have to cut staff, you can immediately cut that expense rather than having a software package sitting there unused," says Rory Sanchez, president of SL Powers, a technology consulting firm in West Palm Beach, Florida.

There is a potential downside: Some service providers may require a minimum monthly expenditure, but usually these relationships offer more flexibility than can be found in the past, Sanchez says.

Another benefit of Internet subscriptions for software applications: You can more closely track and manage the activity of your staff, says Dave Ricks, founder and co-owner of Dave's Discount Motors in Draper, Utah. Ricks' staff of about a dozen salespeople uses several applications for order processing, marketing and sales. Pricing changes are noted by the entire team quickly; likewise, if a mistake is made, it is known quickly, too, Ricks says. Dave's Discount Motors has been using this software for about a year, and Ricks says it has dramatically improved the productivity of his staff. "It has been an unbelievable saver when it comes to man-hours," he says.

Likewise, Chatow of The Massage Therapy Center says the database software that he rents make it easier to reconcile billing. After the initial set-up, which took about a day, the software now saves his team at least two to three hours a week.

Stephen Hultquist, of Infinite Summit, a business advisory firm in Boulder, says his clients save by using applications delivered over the Internet because they are cutting the expense of keeping the software running to specification over a long period of time.

By renting your software, the right things get done-such as software updates and ongoing security check-ups, and it is invisible to your staff, he says.

That said, administration of rented software applications, such as setting up a new employee, can simply be handled by your office manager, Hultquist says.

Heather Clancy is an award-winning business journalist and high-tech communications strategist who has covered technology for more than 20 years. She writes frequently about small-business technology issues and contributes to the GreenTech Pastures blog about technology and the environment on ZDNet. She can be reached via e-mail at heather@heatherclancy.com