Is the Total Cost of Ownership of a SaaS application really low than a traditional application for an end user?

SaaS is buzzword in today’s delivery model of software. Many ISVs are hastily looking for converting their existing traditional applications on to the SaaS strategy. Once the product finally moves onto SaaS delivery model, then starts the process of attracting customers/end-users. The primary reason that customers (especially SMBs) are told to move to the SaaS product is that the total cost of ownership is low for them. The tenants don’t have to invest on the hardware, maintenance, employing IT staff etc. Moreover, customers are charged on per month/pay as use etc. model. SaaS offers so much of flexibility in terms of acquiring the software that customers fall prey of SaaS product immediately. The value proposition of TCO is so much tempting. That’s a good thing but at the same time this value proposition is basically confusing the customers about the other value propositions about SaaS. Not only this, at few instance the value proposition of TCO is actually wrong. There has to be a good understanding among both ISVs as well as customers about the concept and philosophy of SaaS in order to fully appreciate the SaaS model.

Let’s talk about the TCO of a SaaS application for a tenant. When a tenant buys a SaaS application, definitely, the TCO is low as compared to its traditional approach version. But how far? If we take an example where the customer is going to use the software for typically longer period it is quite possible (not necessary) that SaaS application will cost the customer much more than the traditional version. It will actually be cheaper for the end user to buy the software, build infrastructure and maintain it rather than paying on a monthly basis. Yes that is true.

I can give an analogy to the real world to understand the concept. When I go out to another city (maybe for vacation) I will need a vehicle to move around the city. I have two options there, buy a new car for me or hire a cab. Of course since I am there for a less period, the cab will intuitively be a better option. But what if I use cab even in the city where I live?  Definitely as time moves from one year to another and so on, I will realize that buying a Car was a better option. Similar is the concept of SaaS application. In software field, some things change and are not same as the real world of Cabs and Cars. Those differences are the real value proposition for SaaS according to me.

For example, in software world, our needs/business requirements changes and we will need a framework to accommodate these changes into our existing infrastructure without investing heavily. Of course, it will not be a good idea to get a new version of application according to our business changes. SaaS application is built from ground up keeping these business changes in mind. A SaaS application provides the flexibility to customers to change the business rules.

Among other features that make SaaS approach more valuable include ease of sharing Data to third parties, availability of backup data centers for disaster recovery and, especially for smaller businesses, having access to the enterprise level application services that would be near impossible to achieve in-house.

Among other benefits of moving to SaaS, if I start counting I see the list endless. Things like achieving on-demand scalability just by a little extra, turning variable cost into fixed costs by delegating the variable costs on to the hosting provider, Integration with other LOB applications… list is endless.

The idea that I want to convey here is that for end users cost is not the sole value proposition, but when we look at the total value that SaaS can deliver, SaaS becomes even more compelling.

 Rahul