Exploring the True Costs of SaaS

There was a recent email thread in my Enterprise Irregulars group about exploring the true cost of software as a service (SaaS). While many of the folks participating in the dialog requested that their views not be shared outside the group, I still think it's valuable to suggest to the Spend Matters community that the SaaS business model might not be all it's cracked up to be for all companies. As one person in the email thread noted, "SaaS pricing right now is aimed squarely at early adopters and it is starting to hurt adoption. Prices have to rationalize in order for the market size to grow. I think that is true for both Enterprise and small business apps." But it's not just about price. I recently heard about one deal where the ability to customize a particular solution in the Spend Management area helped a best of breed vendor to win an installed deal over many of its on-demand competitors.

While SaaS has become ubiquitious in some areas of Spend Management technology (e.g., sourcing), it's not necessarily become the dominant model in such areas as contract management or eProcurement (despite the marketing spin of many vendors). Many companies still like the flexibility to customize and configure installed software at a level which many SaaS products do not allow. And given the willingness of many vendors to negotiate hard in competitive situations, it's often possible to get the lifecycle pricing for installed solutions -- especially in cases where companies have gotten their IT management costs down by offshoring, shared services models and open source capabilities -- down to levels which can make SaaS options look pricy by comparison. One of the keys here is negotiating maintenance costs down -- which for many, is still more art than science.

What do you think? Am I a lunatic for suggesting SaaS might not be the only wave of the future? Believe me, when it comes to applications where content and community matter as much as the core business process, I'm all over SaaS models. But I'm not sold that traditional license models will become any less relevant in the future for core platforms. Will we see a software license renaissance of sorts? Doubtful. But in my evolving view, the rumors of the death of the CD are greatly exaggerated. OK, flame away ...

- Jason Busch

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