5 ms·

Just to kick off some discussion. Do you guys think that the shift from on-prem to SaaS is indicative of a move towards rent extraction?

jacquesm 9y ago
You see this in the weirdest places (government data processing, for instance) and I suspect this will continue to grow until there are some high profile data leaks at such SaaS providers. Way too many important eggs in single and often badly secured baskets.
- edoceo 9y ago
  Like when MJ Freeway had a breach in Jan affecting Nevada Marijuana enforcement? A SaaS the State purchased?
deathhand 9y ago
Not necessarily as overhead operational costs are lowered with the SaaS model and that's not true 'rent'. Licensing fees would be considered 'rent' but obviously necessary as a motivator for production.
- ben_jones 9y ago
  Isn't that a case of "get everyone hooked then raise the prices"? How much is pricing currently subsidized by VC and early access promotions (like GCP, AWS, Uber) which will go away over the next ~10 years.
  - pm90 9y ago
    AWS is currently minting money. Amazon and Google don't offer no subsidies, Amazon at least, invests all its profits back into the business, which is def not a subsidy in any sense of the term. As the competition heats up and providers become more efficient, I actually expect prices to go down even further.
- kem 9y ago
  I agree with the "not necessarily" part, but one thing that concerns me is in seeing large, critical institutions, like large hospitals and universities, outsourcing critical infrastructure off-premises. If you look at operational costs per se, and licensing fees in a scenario like that, you're missing a huge proportion of the most threatening costs. Consider hospitals, for example, and recent problems with ransoming electronic health system data. What concerns me with SaaS is that the biggest costs are very catastrophic or serious risks (like lock-in dependencies, or hacking due to monocultures--by the way, is that a formal, modeled concept in computer security, like it is in agriculture? The vulnerability of a market to "infection" due to monocultures?) that are maybe high probability over a very long-term period, but very low over a short-term period, and hidden.
s73ver 9y ago
No more than paying for any other software.
Analemma_ 9y ago
No. SaaS is a pricing model, rent extraction is a business model. You can have rent extraction on-prem and competitive business with SaaS.
ViViDboarder 9y ago
By default, I'd guess, no. But I feel it can and, often enough, is. Many SaaS companies will raise prices year over year without providing any additional value. That increase seems to fit the definition here.
nikkwong 9y ago
Can someone care to enlighten me on how SaaS can qualify as rent extraction? I'm sure there is a lot of fudge, but the US is a "capitalist" society—in that I mean you're not required to continue paying for a SaaS product if you deem it's not worth the money. How is this 'rent extraction'?
- e12e 9y ago
  Assume for a moment you have 10 000 employees and 10 years worth of business correspondence in Gmail, Outook.com or similar. Now for email, there is usually at least one or two open apis for getting that data (pop/imap) - but even so, migration is a costly affair. You could move all new correspondence to a new (eg: on premises) system - but you'd have to keep paying to retain the same access to your business history. Take any of the many business/crm-apps, where there's no clear migration path (you'd want both history and business process rules) - and it's easy to see how SaaS might easily facilitate "rent extraction"? As others have mentioned the problem isn't unique to SaaS - but with an on premise solution, you might be able to move some terabytes of data by simply moving some physical drives - or at least have local access via you SAN. With a cloud provider, many businesses would struggle to get at the data at a higher rate than 100mbps even with the help of the SaaS provider. And there's often no option to keep access to "old" system/data without paying rent, unlike some on premise solution (keep the old system, on it's own network segment, ticking along for historical records (or: in a VM).
- gwbas1c 9y ago
  Because if you have significant amounts of data in a SaaS product you just can't leave. You have to continue to pay as long as you need that data.
jackcosgrove 9y ago
No because on-premise software has not been regulated by SaaS providers. Customers are choosing SaaS. SaaS is indicative of greater concentration and the possibility of oligopoly, though. I think it's only a matter of time before the cloud platforms begin coordinating price rises beyond the value they provide. If they try to regulate on-premise software then it's time to break the glass.
- jbooth 9y ago
  It doesn't have to be regulated to be rent extraction. You just need to make the switching costs really high, no help needed from the legal system. Look at Oracle.
  - pm90 9y ago
    You're making good points but the nice thing about capitalism is that if a business finds switching costs too high, then another business will come up with a cheaper technology and kick the older businesses' ass. What we really need is to ensure that in these scenarios, the older business doesn't use its power and resources to stifle the upstart. That is one purpose of AntiTrust laws, I believe.
    - svachalek 9y ago
      That's an effect of competition, not capitalism. As mentioned in the feature article, capitalism itself has a tendency to create monopolies and extract rents since that produces a much higher ROI than engaging in competition to produce useful goods.
GlennS 9y ago
Only when vendor lock-in and inaccessible data silos comes into play. And that's not a problem specific to SAAS.
- e12e 9y ago
  True, but bandwidth and lack of "raw" access (eg: b/w limited api) might make some types of migrations extra hard with SaaS. Good luck getting 1-10 Gpbs data transfer from most public SaaS to your own datacenter without having to pay over and above your current fee for Internet access (eg: have a look at what it costs to get just a TB data out of S3 -- on any budget (or prime) dedicated provider, 10-50 TB of data would be included - per month.
friedman23 9y ago
It depends if they are actually increasing the value of the product.
fragmede 9y ago
Maybe if you're an economist. If you're an accountant, categorizing Saas as OpEx (vs CapEx) certainly also make it seem that way. However, as a software developer, calling it rent-extraction glosses over architectural differences and value derived from not having servers tucked away in an office closet. Flexibility and capacity on the server-end, as well as huge benefits of software distribution over web-browser reducing support costs. I derive a ton of value in never having to drive to a data-center and paying EC2 by hours-used seems reasonable since there is actually a server (albeit virtual) running for my money. However, it's certainly rent-extraction when the only thing thats going on via the Internet is a licensing check. Adobe Photoshop switched to the cloud model, so graphic designers now pay 30-$70/month for the entirety of their career. Yeah it's always an up to date version, but before the shift to a SaaS model, it was some $600 but it would keep working for years if you couldn't scrape together the cash for the latest version.
- petra 9y ago
  Well, non-rent model would be you buy the software(forever, if you want you can pay for updates), and in a click of a button you get hosting+backups etc, with some very cheap monthly rent(which is a more realistic representation of that part of the work). And you own that bundle of software + data.
pm90 9y ago
Hardly. I mean it does look that way at first, but as long as there are good competitors around, the price of SaaS products won't be exorbitant. Besides, technology seems to have a very cyclical progression: we went from time sharing computing on big vendors' computers, to personal computing, and now back to hosting with big vendors, via cloud. I'm gonna go out on a limb and say that future progress would once again make having one's data with oneself more attractive.
- kem 9y ago
  "as long as there are good competitors around"--that's the key, and not something I necessarily trust to be the case. Net neutrality, for example, would be a non-issue if there were good competition, but there's not.

jacquesm 9y ago

You see this in the weirdest places (government data processing, for instance) and I suspect this will continue to grow until there are some high profile data leaks at such SaaS providers. Way too many important eggs in single and often badly secured baskets.

edoceo 9y ago
Like when MJ Freeway had a breach in Jan affecting Nevada Marijuana enforcement? A SaaS the State purchased?

deathhand 9y ago

Not necessarily as overhead operational costs are lowered with the SaaS model and that's not true 'rent'. Licensing fees would be considered 'rent' but obviously necessary as a motivator for production.

ben_jones 9y ago
Isn't that a case of "get everyone hooked then raise the prices"? How much is pricing currently subsidized by VC and early access promotions (like GCP, AWS, Uber) which will go away over the next ~10 years.
- pm90 9y ago
  AWS is currently minting money. Amazon and Google don't offer no subsidies, Amazon at least, invests all its profits back into the business, which is def not a subsidy in any sense of the term. As the competition heats up and providers become more efficient, I actually expect prices to go down even further.
kem 9y ago
I agree with the "not necessarily" part, but one thing that concerns me is in seeing large, critical institutions, like large hospitals and universities, outsourcing critical infrastructure off-premises. If you look at operational costs per se, and licensing fees in a scenario like that, you're missing a huge proportion of the most threatening costs. Consider hospitals, for example, and recent problems with ransoming electronic health system data. What concerns me with SaaS is that the biggest costs are very catastrophic or serious risks (like lock-in dependencies, or hacking due to monocultures--by the way, is that a formal, modeled concept in computer security, like it is in agriculture? The vulnerability of a market to "infection" due to monocultures?) that are maybe high probability over a very long-term period, but very low over a short-term period, and hidden.

s73ver 9y ago

No more than paying for any other software.

Analemma_ 9y ago

No. SaaS is a pricing model, rent extraction is a business model. You can have rent extraction on-prem and competitive business with SaaS.

ViViDboarder 9y ago

By default, I'd guess, no. But I feel it can and, often enough, is. Many SaaS companies will raise prices year over year without providing any additional value. That increase seems to fit the definition here.

nikkwong 9y ago

Can someone care to enlighten me on how SaaS can qualify as rent extraction? I'm sure there is a lot of fudge, but the US is a "capitalist" society—in that I mean you're not required to continue paying for a SaaS product if you deem it's not worth the money. How is this 'rent extraction'?

e12e 9y ago
Assume for a moment you have 10 000 employees and 10 years worth of business correspondence in Gmail, Outook.com or similar. Now for email, there is usually at least one or two open apis for getting that data (pop/imap) - but even so, migration is a costly affair. You could move all new correspondence to a new (eg: on premises) system - but you'd have to keep paying to retain the same access to your business history. Take any of the many business/crm-apps, where there's no clear migration path (you'd want both history and business process rules) - and it's easy to see how SaaS might easily facilitate "rent extraction"? As others have mentioned the problem isn't unique to SaaS - but with an on premise solution, you might be able to move some terabytes of data by simply moving some physical drives - or at least have local access via you SAN. With a cloud provider, many businesses would struggle to get at the data at a higher rate than 100mbps even with the help of the SaaS provider. And there's often no option to keep access to "old" system/data without paying rent, unlike some on premise solution (keep the old system, on it's own network segment, ticking along for historical records (or: in a VM).
gwbas1c 9y ago
Because if you have significant amounts of data in a SaaS product you just can't leave. You have to continue to pay as long as you need that data.

jackcosgrove 9y ago

No because on-premise software has not been regulated by SaaS providers. Customers are choosing SaaS. SaaS is indicative of greater concentration and the possibility of oligopoly, though. I think it's only a matter of time before the cloud platforms begin coordinating price rises beyond the value they provide. If they try to regulate on-premise software then it's time to break the glass.

jbooth 9y ago
It doesn't have to be regulated to be rent extraction. You just need to make the switching costs really high, no help needed from the legal system. Look at Oracle.
- pm90 9y ago
  You're making good points but the nice thing about capitalism is that if a business finds switching costs too high, then another business will come up with a cheaper technology and kick the older businesses' ass. What we really need is to ensure that in these scenarios, the older business doesn't use its power and resources to stifle the upstart. That is one purpose of AntiTrust laws, I believe.
  - svachalek 9y ago
    That's an effect of competition, not capitalism. As mentioned in the feature article, capitalism itself has a tendency to create monopolies and extract rents since that produces a much higher ROI than engaging in competition to produce useful goods.

GlennS 9y ago

Only when vendor lock-in and inaccessible data silos comes into play. And that's not a problem specific to SAAS.

e12e 9y ago
True, but bandwidth and lack of "raw" access (eg: b/w limited api) might make some types of migrations extra hard with SaaS. Good luck getting 1-10 Gpbs data transfer from most public SaaS to your own datacenter without having to pay over and above your current fee for Internet access (eg: have a look at what it costs to get just a TB data out of S3 -- on any budget (or prime) dedicated provider, 10-50 TB of data would be included - per month.

friedman23 9y ago

It depends if they are actually increasing the value of the product.

fragmede 9y ago

Maybe if you're an economist. If you're an accountant, categorizing Saas as OpEx (vs CapEx) certainly also make it seem that way. However, as a software developer, calling it rent-extraction glosses over architectural differences and value derived from not having servers tucked away in an office closet. Flexibility and capacity on the server-end, as well as huge benefits of software distribution over web-browser reducing support costs. I derive a ton of value in never having to drive to a data-center and paying EC2 by hours-used seems reasonable since there is actually a server (albeit virtual) running for my money. However, it's certainly rent-extraction when the only thing thats going on via the Internet is a licensing check. Adobe Photoshop switched to the cloud model, so graphic designers now pay 30-$70/month for the entirety of their career. Yeah it's always an up to date version, but before the shift to a SaaS model, it was some $600 but it would keep working for years if you couldn't scrape together the cash for the latest version.

petra 9y ago
Well, non-rent model would be you buy the software(forever, if you want you can pay for updates), and in a click of a button you get hosting+backups etc, with some very cheap monthly rent(which is a more realistic representation of that part of the work). And you own that bundle of software + data.

pm90 9y ago

Hardly. I mean it does look that way at first, but as long as there are good competitors around, the price of SaaS products won't be exorbitant. Besides, technology seems to have a very cyclical progression: we went from time sharing computing on big vendors' computers, to personal computing, and now back to hosting with big vendors, via cloud. I'm gonna go out on a limb and say that future progress would once again make having one's data with oneself more attractive.

kem 9y ago
"as long as there are good competitors around"--that's the key, and not something I necessarily trust to be the case. Net neutrality, for example, would be a non-issue if there were good competition, but there's not.