Access and Feeds

SaaS: Even in the Long Term SaaS is More Competitive

By Dick Weisinger

When looking at the costs of a software solution deployed via SaaS versus one deployed via as a traditional on-site implementation, the cost benefits of SaaS are clear. There is no software license fee with SaaS. There’s no hardware costs involved with allocating servers or space needed within a datacenter. There’s also no need to get IT staff members involved with installation, roll-out, or networking issues. Software upgrades occur automatically and frequently, so there are no IT projects involving version upgrades.

A Gartner report had come to the conclusion that even though there were short-term savings with SaaS, overall the total cost of ownership of SaaS might actually be more. The logic is that SaaS becomes an operating item that has costs that are billed at a fixed rate, a fee that never drops. On-premise software, on the other hand, has large fees to set up, but after that, the on-going fees are often small. Very often on-premise licenses are based on the number of servers or CPUs used, so adding new users comes at little additional cost, which isn’t the case with SaaS. Gartner also argued that if customization and configuration are factored in, the time needed to implement the SaaS solution is often about the same amount of time that it would take to implement an on-premise one.

But Forrester disputes the Gartner analysis.  [Workday provides a free copy of this report.]  Their conclusion is that even in the long-term SaaS is the more cost effective option.  Forrester bases their opinion on a model they created called Total Economic Impact (TEI).  TEI combines  costs, benefits and risks of deployment into a consolidated view so that it is possible to better compare SaaS costs with those of an on-premise system.  Forrester cites the following benefits for SaaS:

Reduced cost of adoption –  reduced cost for licensing, training, and support
Quicker adoption – SaaS Web2.0 style interfaces are familiar to users and easy for them to use, maximizing their productivity
Lower On-premise costs – Fewer support staff are needed for help desk and server, application and network support.
Improved flexibility

Forrester also found that overall, on-going SaaS subscription costs tend to balance out with the costs of on-premise software, which include maintenance, upgrade and training costs.

After combining all costs and benefits using the TEI model, Forrester concluded that SaaS costs are generally significantly much less than those of on-premise software, sometimes as much as one-fifth of the cost of on-premise solutions.

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