SaaS; A Comprehensive Look at the Total Cost of Ownership of Software Applications

Tim Douglas, ACS Marketing, uncovered a white paper from SIIA that covers the true cost of owning software vs. subscribing to a service.  Here's the full paper.   

"The key cost drivers for any software implementation are the cost of the software
application, the hardware required to run the application and the people services required
to design, deploy, manage, maintain and support the application.

• Traditional software pricing is limited to the cost of the software application, in most cases an upfront fee in exchange for a perpetual user license. It is up to the customer to determine the cost of the hardware and the people services.

• SaaS applications are charged on a subscription basis. The subscription fee
includes the cost of the software application, the hardware and the people
services.

This difference in pricing models can make an apples-to-apples TCO comparison
“tricky”. Software and hardware costs are well understood but the people resources
associated with traditional software applications are often underestimated or omitted in a
TCO analysis. As a result, the usage driven subscription cost of SaaS applications can
seem to be the more expensive solution over a multi-year period. However, when these people resources are correctly associated, deploying a SaaS application becomes – in many cases – the more cost effective option."

Comments

[Bob Warfield]

SaaS is both cheaper to own, and cheaper to deliver. The reduced cost of delivery for the vendor can be passed along to the customer either directly or indirectly.

I recently wrote a post that walks through side by side what happens when customers have problems with SaaS vs On-premise:

http://smoothspan.wordpress.com/2007/08/31/with-saas-you-are-100-helpless-and-much-better-off/

Looked at this way, the TCO advantage for SaaS is obvious and large.