Total Cost of Ownership (TCO)
The total cost of ownership can be lower than a traditional installation, if you take into account infrastructure, on‐going maintenance, support costs and implementation costs. The SaaS vendor shares the cost of hardware capacity, support and business continuity across the whole community of customers. Implementation costs are lower. The periodic payments mean lower or zero upfront investment, and the applications tend to be designed with ease of use and lower training requirements, so they are like consumer service providers such as Amazon or Flickr. This also reduces risk by allowing a low cost pilot implementation, moving to a full scale roll out only when satisfied.
SaaS does not incur high upfront costs for software licenses and hardware. The ‘ pay‐as you‐go’ subscription model makes the typical SaaS implementation an operational expense item, not a capital investment.
Conventional software projects are often cost justified on a 3‐5 year pay back. But with no up front licence and infrastructure costs and the pay‐‐as‐you‐go model, if circumstances or business requirements change, the SaaS approach makes it easier and less costly to turn off the service or switch too an alternate service.
SaaS fosters closer relationships between suppliers and clients, and changes the balance of risk from the customer to the software vendor. Because the service is paid for on a subscription basis, the vendor needs to provide continuing value to the customer each month, not simply at the point of purchase. Equally, the supplier can monitor more directly how the client is using the software, where the pinch points are etc. This ensures better products and usability for customers as opposed to just effective sales and marketing pitches.
SaaS provides more flexibility than most installed software, because you can access the system from any internet‐connected PC, Mac or mobile device. This means easy access for customers, subcontractors, partners and employees, even when they are away from their normal office and PC. SaaS can provide access to software applications in the same way that the mobile phone has provided access to voice communications.
Next article How is Software as a Service different? Here I’m going to spell out exactly how SaaS is different…