Most people quickly answer this question in the affirmative.
I certainly do. However, there are people out there who aren't sure. They look
at the monthly cost of a SaaS application and compare it to the equivalent
licensed product over an extended period of time. Given enough time, you will
eventually hit a point when the SaaS product appears to be more expensive.
Let's look at it from the perspective of the total cost of ownership (TCO).
The true cost of a licensed product is much higher than just
the software. Here are other things to factor in:
•Hardware costs: You have to either buy machines or add your
software to existing servers and manage them. If it is a mission-critical
application, you will probably need dedicated machines and back-ups.
•Additional software costs: You will most likely need an OS,
application server software, a database, monitoring software, etc. Many of
these products are open source now, but there are still associated costs.
•Implementation costs: In my experience, the implementation costs
associated with a behind-the-firewall solution are always higher than those of
a SaaS application. There is simply more to do. You will either pay consultants
or use your own valuable resources and time to worry about installing software,
integrating it, building servers, configuration, etc.
•Maintenance labour:
If you have in-house software, there is going to be some level of effort
required to keep it happy. Your IT people will need to take care of it, which
will keep them from doing more value-added activities.
Another huge factor
here is the ability to get the latest and greatest technology. Once you install
software in a data center, it becomes more difficult to upgrade and maintain it
(especially if you customize it). In such a case, you will be stuck with old
software that you will have to replace in the same time frame described above.
In other words, unless you are absolutely sure, beyond a shadow of a doubt,
that your licensed software is going to meet your business needs for 5 years or
more, then SaaS might make financial sense.
Let's look at a real-world example. A 100-person company has
been sharing files via email and internal servers. The executives have finally
concluded they need to join the 21st century and put a solution in place. One
option is to implement SharePoint. Here is a rough estimate of what that might
cost:
Year 1
MOSS server = $4,500
User client access
license = $90
Hosting and
maintenance = $5,000
Implementation and
developer support = $20,000
Total = $29,590
Year 2 and on
Hosting and
maintenance = $5,000
Developer support =
$3,000
Total = $8,000
I know of a SaaS solution that has 80% of the
file-collaboration functionality of SharePoint but charges $850 per month for
100 users.
Year 1
SaaS fees = $10,200
Implementation
support = $10,000
Total = $20,200
Year 2 and on
SaaS fees = $10,200
Total = $10,200
It would take over 4 and a half years before the
licensed software became cheaper. By that time, I'm quite sure there would be
another solution that could replace SharePoint, and the cycle would start
again. We can quibble about the numbers, but you get the point. Plus, the
numbers don't reflect that the SaaS solution is likely to improve and innovate
faster than the licensed software by a significant amount.
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