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SaaS the most cost effective option in terms of TCO

The appeal of Software as a Service (SaaS) is growing rapidly world-wide. Many organizations are deploying SaaS to meet their key IT needs and overcome challenges posed by the rising cost of deploying and managing traditional software systems.

This rapid success id due to the cost savings of multi-tenancy solutions compared to standard on-premise software applications whose annual cost (own and manage) can be up to four times the cost of the initial purchase: companies spend more than 75% of their total IT budget just on maintaining and running existing systems and software infrastructure.

The SaaS revolution allows companies to subscribe to software applications and outsource operating the back-end infrastructure to the SaaS vendor. In most cases, the SaaS vendor can do this much more cost effective; providing overall cost savings for the company. As a result, companies can spread their IT budget across many more applications to support and grow their business operations which will in turn contribute to the bottom line.

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 makes comparison between SaaS and On premise software delivery difficult, since, although software and hardware costs are easily considered when assessing the TCO, human resources associated with traditional software applications are often underestimated or omitted. 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 the human resources are correctly accounted, deploying a SaaS application becomes the more cost effective option.