Total Cost of Ownership (TCO).
It’s no coincidence that the last SaaS risk may actually be a SaaS
reward. SaaS entry costs are certainly lower and SaaS converts capital
expenditures into operational expenses (capex to opex). Studies form
analyst firms such as Yankee Group and Gartner have illustrated that
even with the recurring nature of the SaaS subscription model, the
cumulative effect of subscriptions may still be much less than the
one-time capital expenditure associated with on-premise CRM systems.
Verification strategy: As suggested, to determine whether SaaS TCO is a risk or a reward, create a multiple year cash projection that is reflective of your organizational environment. For on-premise systems, don’t shortchange the calculation by failing to include real world expenses such as computer hardware, redundant systems, platform software (such as databases, operating systems, backup programs, etc.), application software annual maintenance fees, and labor associated with system administration, database administration, near annual system upgrades, information security and IT trouble-shooting. Also remember that hardware must be upgraded or recycled about every three years. Realistic cost projections should also include the management time involved with operating in house information systems.
Focus on Core Competencies.
It’s been my observation that this SaaS reward varies in importance by
region; being a top purchase criteria in America and one of a top 3 or 4
in the Middle East, Latin America and Eastern Europe. In a conversation
I had with Gartner’s Rob Desisto, he commented that cost is not the
primary decision criteria for SaaS, instead limited resources and time
to market are the most influential factors. Clearly, outsourcing a
non-core competency such as business software administration to outside
experts removes what is often viewed as a headache function and
reallocates management time to more critical areas.
Verification strategy: SaaS providers manage the IT infrastructure, delivery platform, maintenance releases, new version upgrades, backups, disaster recovery and information security. Even though these functions are handled by the provider, IT buyers are wise to understand these processes and in particular their frequency and how they may affect the customers utilization of the application.
SaaS pricing models are normally per user per month subscriptions. This
type of utility based pricing is simple, predictable and reduces cost
surprises and overruns.
Verification strategy: The caveat here is to avoid shelfware, or maybe its now called cloudware. Vendors often require customers to prepay SaaS subscriptions in order to secure aggressive discounts. While such a move may be financially worthwhile, it is generally cost ineffective to pay for user subscriptions prior to the go-live cut-over or before those users come online. Instead, defer most user subscriptions during the implementation period and agree to a schedule whereby subscriptions are activated as users begin using the system.
Accelerated Time To Market.
With no hardware to implement and no software to install, SaaS
deployments are much faster than on-premise CRM software
implementations. Due in part to their browser-based interfaces and
intuitive navigation, on-demand systems often also achieve a shorter
learning curve and more successful user adoption.
Verification strategy: Implementation consultants are very valuable, but expensive. A time and cost implementation comparison between SaaS and on-premise deployments will reveal the cost savings.
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