Employees are expensive to pay, costly to train and require a larger investment to retain long-term. Alternatively, service contracts are inexpensive and provide you with peace of mind that your mission-critical applications and hardware are on someone's radar 24 hours a day, 7 days a week without all the negative aspects of employees. A typical mission-critical (24x7, 2-hour response) service contract costs from $80 to $150 per system per month. At first glance, this sounds like a lot of money, but to justify the costs, you should calculate the amount of money potentially lost during a downtime incident.
Even for internal use only systems, downtime carries a heavy financial burden. Every person on your payroll affected by the downtime costs you money. Their salaries, multiplied by the length of the outage, provide you with an estimate of that loss. If their time is billable to a project or customer, you're losing that revenue as well. It doesn't take long to see that $1,800 per year is a good investment for more than just peace of mind; it makes good business sense. For e-commerce or customer portal systems, downtime dollars easily skyrocket into the hundreds of thousands per hour or minute.
Additionally, having your employees tear into a system that's under warranty voids the warranty putting you in an even sticker situation: Down with no warranty.
Now that you have all those reasons to rid yourself of the employee plague permanently, let me tell you how wrong it would be for you to do so. First, who'll be there to handle those day-to-day tasks? A service contract doesn't usually cover preventative maintenance, adding and removing user accounts, maintaining web pages, verifying backups, rebooting systems that need it, patching application software and I think you're getting the picture. Second, you'll also need someone around who knows enough to call support when something goes awry. Connecting to vendor support sounding like a 911 call will only frustrate you and the first-level support person on the other end of the phone. Unless you know enough about your systems to attempt some standard "fixes" on the phone with support, you'd better have an IT staff to take care of you during these emergency situations.
Service contracts might not save you the zillions of dollars you thought they would by replacing employees, but having service contracts is an opportunity to save something more valuable than money alone: Time. And time, as you well know, is money. When you figure the risks and costs of downtime due to hardware failure, ask yourself whether you can afford it. The answer for perceptive business people is no.
To answer the question, "Are service contracts better than employees?" No, they're different, but they complement one another. One will never replace the other and frugal business owners know that employees empowered with service contracts protect the most valuable business asset of all: The Customer.
Ken Hess is a freelance writer who writes on a variety of open source topics including Linux, databases, and virtualization. You may reach him through his web site at http://www.kenhess.com.