Although you can sell traditional software both as perpetual license model and a subscription model, the fact that true SAAS players go that extra step and take care of delivery means two things:

1) Total cost of Ownership for end users are drastically reduced
2) ISVs are able to capture the hardware & people costs of software as REVENUE.

Just my two cents,

Framing “recurring revenue” from the customer perspective, however, may attack the perceived risk directly without requiring that a switch be analyzed strictly from a cost analysis perspective.

In plain English, traditional software can be sold both as a perpetual or rental license (I have done both), but you do not have this option with SaaS, because the customer can never really own the software or hardware infrastructure, i.e., your option 3) above is not really possible…it is a red herring.

From the customer’s perspective, it is really a question of risk. Renting reduces risk by making switching easier. Purchase reduces risks associated with lack-of-control (in most cases inflated and emotional, but real in others).

The real benefit of SaaS is extreme cost reduction, which in most cases trumps risk.

Chinese people don’t like to “pay forever” for something. Recurring model is very difficult to succeed in China. We have to introduce “payment installment” concept to promote SaaS. Hope when customers pay up their balance ( usually after a few years), we will come up with new ideas to make them continue to pay ( Any ideas are welcome :) .

Frank @ http://www.oksbt.com

I think that is exactly what Sinclair is trying to explain.

The benefit of SaaS for a customer is not that it is on a pay as you go basis. It is the fact that you pay as you go because you expect more services so in reality you continue to pay for improvement on the service.

The burden of proof is entirely on the providers; they need to win your business again and again by ever improving the software.

So the important point to outline when you talk about pay as you go; or recurring revenue, is not necesarily the way you pay, but what you are getting in return (All the benefits of SaaS).

Also, when selling a SaaS solution the customer will usually anticipate new features and functionality (future versions) being added to the solution without reinvesting in the product - someting I belive points in the direction of a reccuring revenue model.

All in all I believe traditional software mostly comes with a one-time license fee because most of the investment in the product is up-front. With SaaS solutions there is a need for an ongoing investment in the product - so a recurring revenue model makes more sense.