I have just read the Gartner User Survey Analysis: Customers Rate Their CPM Vendors, 2012.... It states "annualized cost comparisons indicate that software-as-a-service solutions are NOT significantly less expensive than many traditional on-premises offerings. For both options, business value attained and total cost of ownership should primarily guide buying decisions." Your thoughts? PS. Obviously, the SaaS vendors will have a different opinion.
Are SaaS solutions for CPM/Budgeting more cost effective than on-premise ones?
Answers
The largest benefit in SaaS is in flexibility, not cost. SaaS vendors may argue that you have eliminated fixed cost, however, it is a migration of fixed cost over to longer-term variable cost (most costs are fixed in the short-term). Application performance isn't better, and, may not necessarily be worse (latency can be worse). There may also be
To echo Gartner, the decision to go SaaS needs to be based on business strategy and value. There are definite benefits of SaaS, but TCO may not be one of them.
David
Your answer implies that on premise is less expensive than SAAS. While it's impossible to generalize either way, a specific company can make a decision. Asked on TCO. If the firm needs to acquire additional equipment and personnel to run the CRM system, a SAAS solution may be more cost effective. If the firm has the existing capabilities and the marginal costs are low, the an on premise solution may be preferable. It takes less than 30 minutes to make this determination.
The question of SaaS vs. On Premise TCO is not as simple as it may first appear on the surface.
When calculating TCO for an On-Premise solution you need to assume that you will also be paying for an Annual Maintenance Support Agreement which is typically 20% of the On-Premise license fee, and generally covers the cost of product upgrades and access to technical support for a given period of time. Additionally, you may need to upgrade your hardware.
SaaS on the other hand may initially have a lower up front price point because you are essentially paying for a monthly subscription. The hidden cost that adds to the TCO is the fact that all of your data remains with the SaaS provider, if you were to cancel the contract, you also need to factor in the time and effort required to find an alternative solution as well as the additional time it takes to build out your model in another application. Finally, there comes a point in time (3-4 years) where the cumulative TCO for SaaS exceeds On-Premise primarily because of the time factor.
Before you make the decision you need to understand all of the pricing and business variables that you will be facing.
It is important to consider both costs and business benefits when comparing cloud to on-premises solutions, just as Gartner and many others advise. I recently did an interview about the key benefits finance organizations can realize when moving to the cloud. http://blog.intacct.com/2013/08/the-business-benefits-of-moving-to-cloud.html#more There is also a
Marc
Filed Under:
FP&A