The benefits of software as a service (SaaS) may not be as clear cut as they seem, with the focus on the initial savings hiding issues that could reduce its advantage over packaged software in the longer term.
One of the main issues identified by analyst house Gartner is that although SaaS is cheaper in the short term due to the lower capital investment, total cost of ownership could actually turn out to be more expensive in the long run.
The main reason for this is that SaaS requires regular payments to the vendor by companies which use the software--as opposed to one-off payments for on-premise software.
Gartner VP Robert Desisto said: "SaaS is an operating item which stays at a certain rate and never comes down."
And while upgrades on packaged software can push costs up again, in general the investment required becomes less each year, he said.
Desisto said the economic situation is undoubtedly boosting SaaS, with businesses having less money to invest: "There's a natural attraction to SaaS right now because of the fact that it's less expensive over the first few years, which quite frankly people are thinking of right now."
But Desisto said the issue that SaaS may turn out to be more expensive in the long term is something businesses should be aware of.
Gartner also questions whether SaaS is faster to deploy than more conventional software, and argued the time to deploy both types of software is comparable once customization, configuration and integration are taken into account.
"The real time that goes into deploying enterprise apps is not so much in the technical aspect but in the other elements of developing the data model, work flows, business process and integration--and with that kind of stuff you're not going to gain any advantage with SaaS," said Desisto.
Gartner suggests that despite SaaS vendors saying businesses only pay for the capacity they use, like utilities, in reality organizations normally have to sign up to contracts linked to the number of users rather than how often apps are used.
In terms of integration, Gartner says SaaS is similar to traditional software but is complicated by the fact it takes place outside the corporate firewall as well as bandwidth.
Tim Ferguson of Silicon.com reported from London.
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Present Value
When it comes to the cost, companies should consider the present value. In the case of traditional software, it’s one lump-sum cost up front, and a stream of future upgrade/maintenance cost; while in the case of SaaS, it’s more like an annuity that lasts for however many years the company decides to use it for.
Therefore, whether or not SaaS is actually cheaper than traditional software depends on the situation of individual firms, their time horizon of using the software/SaaS solution, and the fee associated with the two different solutions.
To make things easier for the SaaS users (and providers), there are luckily some companies that specialize in usage monitoring and metering, such as eVapt. This allows accurate tracking of usage, which means better billing for the customers.
It would be very interesting to see an analysis of the costs associated with SaaS vs. the cost associated with traditional software.
Posted by Beibei Zhang on Tuesday, February 24 2009 02:21 AM