I'm very surprised that an analysis of SaaS costs "across the product?s lifetime" doesn't even mention the continuous upgrade dimension of SaaS. This is one of the most distinctive cost (and opportunity) benefits of SaaS over conventional on-premise software and is a big factor in lowering the lifetime costs of SaaS compared to on-premise.
It also invalidates the analogy to buy-or-lease because the car stays the same whichever you choose. The whole point about SaaS is that the software doesn't remain static, it continues to get better throughout the subscription.
Is SaaS a smart choice for you?
Summary
Despite what’s best – the bottom line is that everything comes down to budget says FrontRange Solutions' Michael McCloskey.
Topics
Commentary - Many factors influence a technology choice. The availability of skilled people, corporate strategy, and the prioritization of resources are a few of the factors that must be considered. Ultimately, Information Technology managers are faced with tough budget decisions and are expected to justify spending. It’s always assumed that costs will be sliced as a result of using the “latest and greatest” technology. Despite being the expert in the field of IT, managers are constantly being challenged by upper management and the CFO to lower costs, increase revenues and align to the corporate strategy. They must have hard evidence to support what they are buying, and explaining why it is best for the organization. Despite what’s best – the bottom line is that everything (yes, everything) comes down to budget.
This new era of operating executives and CFOs collaborating with IT has helped SaaS become a popular choice by nature of how the technology is delivered. The perceived rapid implementation (therefore faster time to benefit), elimination of capital costs and reduced initial investment, and the ability to focus scarce resources on strategic corporate priorities, makes SaaS the poster child for inexpensive technology implementation - but is that actually the truth?
When making decisions, IT mangers should consider several factors when choosing SaaS vs. on-premise. One of the biggest differences between the traditional license model and SaaS is how each approach’s costs are spread out across the product’s lifetime. The truth is one option is likely a smarter fit for certain companies based on their needs and budget.
Below is a realistic look at the differences of SaaS and on-premise when it comes to cost, followed by a recommendation on how to make intelligent decisions on the job moving forward.
The real deal: on-premise
• 99.9% of the time there will be a bigger outlay in terms of the amount paid upfront to purchase a product license.
• Additional payment is often required to purchase a server to run the software, as well as to have IT staff install and set up the software.
• Once the application is up and running, further costs accrue for maintenance, support, product enhancements, and the internal IT personnel who are tasked with managing it.
• The advantage of this model is, to some extent, is the fixed nature of the costs. Once paid for, a system’s maintenance figures remain relatively constant, thus enabling the organization to have largely “capped” its cost to a known quantity.
• Very large organizations are often able to negotiate an attractive license fee, whereby they can effectively serve a high number of users for a specific price; consequently, the incremental cost of supporting new users is marginal.
The real deal: SaaS
• The initial outlays are less than those for the on-premise license model because instead of purchasing the software outright, organizations commit to using the software for a minimum period of time (i.e. 12 months) in a relationship that is more like a rental.
• Rather than purchasing a certain number of users or capacity, the SaaS model allows an organization to add new licenses as needed.
• This option provides the choice to start small and expand later, steadily increasing the number of users and the associated costs as their organizational needs expand.
• As SaaS software is deployed over the web, the IT department may be much less involved which will result in lower costs.
How to make the best decision:
No one solution is right for every organization, but if IT managers have all the information they can make smarter decisions. It’s just like deciding whether to buy or lease a car; you have to look at your access to capital compared with recurring bills. When considering on-premise vs. SaaS solutions, organizations must carefully consider the cost portfolio over an extended number of years. This should include as many hard costs as possible, including such items as licensing and maintenance vs. ongoing costs of renting, costs associated with maintaining the system, configuration and deployment costs, server and infrastructure costs, and personnel costs.
biography
Michael McCloskey is the Chief Executive Officer of FrontRange Solutions, a company that provides IT Service Management, IT Asset Management, and Customer Service Management solutions.
Just In
@philwainewright you're right! The nature of SaaS which is under-promise/over-deliver vs. the on premise model which over-promise/under-deliver is what makes this great dynamic where SaaS vendors constantly need to win their customers.
I called this recently - SaaS on the house, here: http://blog.totango.com/2011/02/saas-on-the-house-dialog-about-value/
I called this recently - SaaS on the house, here: http://blog.totango.com/2011/02/saas-on-the-house-dialog-about-value/
Here is another blog with a slightly different angle to this topic. This talks about the choice of SaaS as a user while http://lf1.me/jj/ talks about from the perspective of someone looking to build a SaaS application (for selling). It talks about the factors to consider to make a SaaS software successful.
SaaS is a good delivery model but, you need to take care of a few things before you can hope for success.
http://lf1.me/jj/
SaaS is a good delivery model but, you need to take care of a few things before you can hope for success.
http://lf1.me/jj/
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