Is SaaS Really Cheaper than On-Premise? Maybe, Maybe Not …

If you sat in my shoes, you'd have the chance to drink many different flavors of kool-aid on what might feel like an hourly basis. While I confess that my job is to taste, sample and move to the next flavor, even I sometimes get caught drinking too much of the stuff from one company or another. Still, I'd like to think that I have not drunk the SaaS kool-aid as much as some, especially when it comes to the total cost of ownership of SaaS applications relative to installed ones, at least in certain areas over a long-term horizon. Yes, cost-wise, they absolutely make sense in certain situations (e.g., eProcurement) provided your environment is not overly complicated. But in other areas, the answer to the question is more nebulous. A recent article over on SAP TechTarget confirms that SaaS may not always be the long-term deal that it's cracked up to be in certain cases.

The article suggests "while the upfront costs of SaaS application deployments are typically cheaper than on-premise, analysts debate whether the perpetual subscription cost, integration concerns and gaps in functionality may make them more expensive in the long run". Citing words from fellow Enterprise Irregular member Josh Greenbaum, TechTarget quotes my colleague noting that SaaS vs. on-premise cost advantages are "very much up in the air ... There's a high probability that the long-term costs are going to be comparable to on-premise".

What are some of the hidden cost-negative components of SaaS that companies aren't factoring in? For one, Josh suggests that "the cost of hardware is going down all the time ... making hardware considerations more manageable when deploying on-premise". Moreover, "moving to SaaS doesn't guarantee that a company will be able to retire hardware or people because many are keeping on-premise software to fill gaps in the SaaS deployment". And "some companies find they're spending more money on change management and integration than they did with on-premise software".

Not to disappoint, I have a few thoughts on the subject as well -- not to mention the fact that I don't believe on-premise is going away anytime soon. Earlier this year, I wrote in a post that "while a SaaS backlash may be overstated, I do suspect that we'll see a number of installed fans quietly getting together in the shadows. Like smokers who feel shamed congregating outside office buildings and restaurants when they need to light up, these installed purists will face the smirks and grimaces of their colleagues. But maybe -- at least in some areas -- they'll be the ones getting the last laugh (or puff). At least within the confines of some of the more complicated and fortified Global 2000 walls." And perhaps, depending on your perspective and the application area they're working with, they'll be paying less to light up than you might think.

Jason Busch

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