Is SaaS a Waste of Money?

While IT executives who have embraced cloud-based business applications are usually pleased with their decision, interviews with IT workers who have done so reveal that there can be significant expenditures associated with SaaS. Recurring costs include per-user fees, platform charges, and partner per-user fees for added services. In addition, implementation consulting costs can be comparable to those for on-premises systems.

According to cloud providers, the actual benefits of SaaS are not in direct cost savings, but in the flexibility, agility, and scalability gained by moving systems to the cloud.

For businesses to make informed judgments on cloud service, they must first understand the relative costs of SaaS vs. on-premises systems.

To put it another way, is SaaS wasting your money?

Here Are Four Theories:

• It is likely that clients underestimate the cost of maintaining and servicing on-premises systems, as well as the cost of future upgrades. These are costs that SaaS either removes or significantly cuts. Customers, on the other hand, do not account for these savings because they are unaware of their costs. Alternatively, they may be deferring improvements to on-premises systems because of the cost, not recognizing the cost their firm is experiencing by failing to stay current.
  
• SaaS can save money, but only when you completely eliminate your on-premises systems will you see those savings. If you still have the majority of your systems on-premises, moving just one of your systems to the cloud will not eliminate your data center or data center employees. As a result, the cost savings from the data center’s decommissioning aren’t achieved.
   
• SaaS helps suppliers save money, but the savings aren’t passed on to customers. In other words, even while SaaS applications are less expensive to develop, deploy, and maintain, SaaS providers are just matching on-premises suppliers’ costs and generating higher revenues.
   
• SaaS services are more expensive than on-premises systems. Although SaaS does not save money, the flexibility, agility, and scalability it provides are so valuable to clients that they are willing to pay a premium for it.

With the proper tool for SaaS companies, businesses can better understand the true costs of SaaS and make informed decisions about which systems to move to the cloud and how much they are willing to pay for those benefits. Also, companies can negotiate with SaaS providers to ensure they are receiving the best value for their money.

These four hypotheses are not mutually exclusive. SaaS, for example, may save money (Theory 1) while still allowing vendors to profit from some of the savings (Theory 2). (Theory 3). Alternatively, while a hybrid of on-premises and cloud systems does not save money (Theory 2), it provides clients with greater versatility (Theory 4). Furthermore, depending on the SaaS service, the response may differ. For example, while cloud CRM may save money, cloud ERP does not.

The Question Is Still Unaddressed. Is SAAS a Waste of Money From the Customer’s Perspective?

Computer Economics has conducted a survey plugin to answer this topic. We’re searching for companies that have shifted most or all of their application portfolio to the cloud as part of our annual IT spending and staffing study. In other words, we’re searching for companies that don’t have an own data center or just have a small number of on-premises computers. We’re inviting these clients to participate in our usual yearly survey, and we’ll compare their IT expenditure ratios to our standard industry ratios for IT spending and personnel.

Conclusion

Computer Economics wants to be able to address three primary questions as a result of this research. To begin, do businesses that have largely adopted cloud computing spend less on IT than those that have not? Second, how is the IT spending mix different? Finally, how do clients perceive SaaS’s business value?