Posts Tagged ‘SaaS’

SaaS Pricing: How to Compare the Cost of On-Premise vs SaaS?

April 15th, 2014

When considering a Software-as-a-Service (SaaS) solution versus a traditional on-premise software application, one needs to keep in mind several factors when calculating total cost of ownership and ROI. These variables come into play when determining the real bottom line, as in most cases initial out-of-pocket expenses represent only a fraction of the true dollar amount spent on the software over an extended period of time. Because significant costs are hidden in the details over the life of a traditional, on-premise deployment, SaaS solutions represent the best value in terms of true TCO. Both software providers and customers stand to benefit the most from the efficiency of the cloud’s economic model.
Pitfalls of Painting by Numbers

Consider the following comparison of a traditional software package versus a SaaS solution over a 3-year period.

The cost of the on-premise application consists of:

- A one-time $10,000 license fee to accommodate 5 users
- A 20% maintenance fee per year, which amounts to $6,000 ($2,000 x 3 years)
The total cost for using the on-premise solution for 3 years is $16,000 ($10,000 + $6,000)

In contrast, let’s assume a similar SaaS application would consist of:

- A flat $100 a month fee per user, or $1,200 a year ($100 x 12 months)
- For 5 users, the cost comes out to $6,000 a year (5 users x $1,200 = $6,000)
The total out-of-pocket cost for 5 users of the SaaS solution over a 3-year period is $18,000 ( $6,000 x 3 years)

Based on the figures above, the SaaS application seems to present a costlier solution to the customer. But let the buyer beware: the numbers do not paint the big picture in terms of overall expenditures over the life of the on-premise software application.
A Superior Value Proposition

Consider a typical IT department’s scenario in acquiring a traditional software package to be installed and managed in-house:

- The appropriate software licensing schema must be calculated and purchased per the organization’s needs.
- The application must then be installed on the proper hardware—which in turn must also be acquired and maintained.
- IT staff must be delegated to handle the above tasks. Furthermore, post-installation upgrades and patches will be required over the life of the application.

The TCO for the software is a sum of the licensing costs, hardware costs to host the application, as well as the cost of the staff associated with supporting the said ownership. A SaaS solution shifts all of the above to the service provider, leaving the customer with a flat, monthly usage fee. This operating model enables businesses to effectively trade fixed and/or sunk costs for a variable cost, allowing them to focus on core business processes such as delivering a better product or service to their own customers.

For the software provider, the migration of their traditional applications to the cloud results in similar, parallel benefits. By enabling their applications for cloud deployment, software providers eliminate the need to account for unique infrastructure considerations per customer. The SaaS provider controls hardware and operating environment, delivering the application in a multi-tenant, hosted model—with patch and upgrade delivery occurs across all customers simultaneously.

For this article, I have not considered the financial aspects like cash flow and IRR but I agree that they play an important role in the calculating the TCO.
Additional Benefits to Cloud Deployment

Aside from the aforementioned lower cost of acquisition, deployment and maintenance, various unique attributes of the SaaS delivery model benefit both consumers and software providers alike. A service-oriented architecture (SOA) allows users to build unique interfaces with the SaaS through web service APIs, resulting in greater flexibility and extensibility. By deploying to the cloud, software providers enable clients to customize the integration of the application as they see fit. This often results in an ecosystem and community built around a software provider’s application, which in turn translates to greater exposure and awareness around their product offering.

In short, both enterprise consumers and personal users have been migrating in droves to SaaS—and for good reason: by trading capital expenditures for operating expenditures, businesses and individuals realize a substantially greater cost savings. SaaS providers can justify the per user and per month subscription cost of their product by providing a lower TCO over the lifespan of the application’s usage. Customers stand to benefit greatly from adopting the cloud-based model of software delivery and consumption by trading fixed or sunk costs for variable costs, eliminating the overhead of traditional, on-premise software applications.

Looking to reduce time to market for your SaaS product , please join our Live Webinar on April 23, 2014 with Mark Eisenberg.


The Future of the Software Business – The SaaS Commerce Network™

May 24th, 2012

Promoting Software as a Service SaaS business application to millions of SMBs worldwide just became easier and more cost effective. Silicon Valley based, SaaS Markets has launched the SaaS Commerce Network™ (SCN), the largest global business network for Software-as-a-Service web applications.

The announcement of the SaaS Commerce Network (SCN) will allow SaaS application developers’ greater opportunity to distribute their SaaS based apps worldwide to an audience of over 71 million businesses through the network.

By participating in the SaaS Commerce Network (SCN), the application provider immediately gains exposure in 32 stores around the world, in 23 different countries (with significant targeted growth plans for 2012 to 100+ Stores). With hundreds of new SaaS apps being added on a monthly basis, businesses can quickly discover the latest app to streamline any process. While, SaaS providers can effortlessly promote their SaaS app to a global business network.

With Software-as-a-Service (SaaS) fundamentally transforming the way businesses of all sizes operate, and forecasts for the global market in cloud computing expected to grow from $40.7 billion to more than $241 billion in 2020, no longer will enterprises be subjugated to purchasing costly systems and software that require time-consuming installation, significant customization and maintenance. The internet is making it easier to utilize nimble point solutions in a way that’s more efficient, cost-effective and virtually maintenance free.

“I’ve spoken before about bringing ‘SaaS to the Masses,’” said Ferdi Roberts, CEO of SaaS Markets, “but this is greater than that. With the SaaS Commerce Network, we are building the platform that we believe will be the number one source of software sales globally. Every single software company on the planet needs to have a SaaS offering and there are hundreds of new SaaS Companies being born every year. The SaaS Commerce Network gives these new and established software businesses an instant route to market through our global network of stores”. “That,” he added “is a game-changer for the software industry”.

For buyers, stores in the SaaS Commerce Network (SCN) offers small and medium sized businesses the opportunity to browse, trial, and buy over 1,200 unique Software-as-a-Service solutions.


SaaS offering provides detailed analysis of your software portfolio

May 4th, 2012

Are you faced with the need to do a software portfolio analysis but find the prospect daunting given the scattered nature of your operation? A new SaaS-based offering from Cast might fit the bill.

Cast, which specializes in software analysis and measurement, today announced Rapid Portfolio Analysis, a cloud-based tool that complements the company’s Application Intelligence Platform (AIP), which is an enterprise software analysis measurement tool.

“RPA is a cloud-based offering designed to do the same kind of things that AIP does, but instead of looking at one application in great detail and monitoring that detail over time, it looks across many apps in a portfolio and provides a high-level assessment of where the risks exist,” says Cast Managing Director of Portfolio Analysis Solutions Peter Pizzutillo.

Like AIP, the SaaS offering is powered by a rules engine that assesses the state of your programs by taking into account software complexity and industry best practices, but it uses a smaller subset of those rules, Pizzutillo says, 14 versus 28.

Even though these tools almost always pay dividends, traditionally companies have been “more willing to pay someone to sit in the corner and flip through printouts than they have been to buy tools for this type of analysis,” says Jim Duggan, VP of research in Gartner’s Application Strategy & Governance group. “It’s one of those paradoxes.

“This new cloud offering gives people a way to get started without having to make a big capital investment. It puts a wading pool in place so people can get started without being heavily committed.”

Pizzutillo admits as much. “RPA will make it easier for us to get started with customers,” he says. “They have a notional, subjective belief in where their risks lie or where the bad apples may be, so we’re able to, in a week’s time, evaluate all their systems and build a smart, risks-based approach to how to apply software analysis and measurement to the handful of apps that are driving the risk, driving the maintenance costs in their organization.”

In use, Cast’s code analyzers — which have business rules built in — are sent to crawl through the customer’s source code counting violations against the rule set, looking for things that should be happening that aren’t and vice versa. The results are sent back to the cloud where they are aggregated into different dimensions. The client’s code never leaves their facilities.

Because it is cloud-based, the tool makes it easier to analyze programs that are either scattered across locations or even hosted by third parties.

When do companies typically realize it is time for code analysis? Pizzutillo says there are a handful of common scenarios, one being mergers and acquisitions that result in a mishmash of IT systems, some of them redundant, that introduce new risks that are hard to ascertain.

When it comes time to rationalize that portfolio, you want objective analysis about which programs are more complex, which ones are harder to maintain, which applications are easier to enhance, he says. RPA makes it easy to get going.

Another typical usage is in the planning and budgeting process. Companies that are looking to get a better view of their maintenance costs, for example, can use the analysis to gauge the maintainability of these systems.

The beauty of RPA versus other tools or consulting services is speed and price. “We’re doing 100 apps in a week, where it would take months” with other methods, Pizzutillo says. “We’re reducing the time to value to get analysis done quicker, we’re adding an objective, automated process to assess the technical risk, and at a lower price point.”

A one-time assessment using RPA costs $1,000 per application. “We just did 3 million lines of code for a client and charged $1,000 for that analysis,” Pizzutillo says.

Gartner’s Duggan says that “once you know you need to do a migration or a consolidation, or need to improve the quality of a piece of code, this kind of offering yields some pretty strong positives. I don’t know of anyone that has gotten into these tools and didn’t get value out of it.”

Although Gartner doesn’t do a Magic Quadrant for this market, Duggan says Cast is a “very consistent provider, with very sound technology that has been thoroughly vetted. They deliver what they say they’re going to deliver and are realistic about what they say they are going to do.”

RPA has been in beta since the end of last year, was soft-launched in Europe and enters GA this month. Pizzutillo says the company has a dozen clients using it and many more in the proof-of-concept phase.


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