Understanding TCO for Cloud and SaaS Solutions

Cloud software is all the buzz right now and vendors are rolling out new offerings extremely quickly. Saas models are coming in all shapes, sizes and application types.  The more common value propositions for going cloud are low cost of entry, fewer resources to manage systems, shorter implementation and almost zero hardware investment.  These are great benefits for smb companies to get into enterprise software systems but is the total cost of ownership for cloud systems and Saas fully understood by organizations ?

When looking at Saas offerings there are many components that make up the total cost of ownership.  To start with a company must look at maintenance, support, training, tenancy, security, integration and implementation resources and strategic fit to name a few. Even though the vendor is hosting the software, companies still have to implement the tool, integrate it with other systems as well as migrate existing data into the new system. All of which may not be taken into consideration when purchasing the technology.

With the ability to host software, vendors can turn on and off modules, functionality and measure usage by the user very easily, allowing them to customize offerings and introduce different types of SaaS models.  For example, there are some TMS Saas solutions that bill per transaction usage.  It’s more of a pay per usage type of model.  In this case if you don’t have an understanding of how many transactions are put through this system you can drive up your monthly bill.  Companies here that are using a TMS can be charged for storage, transaction volume, data ownership, supplier interactions can all be additional service charges that can be added to your monthly subscription.

The example of owning a car can relate to owning software.  The cheapest way to own a car is to buy it cash, after that is to finance the car, after that is to lease the car and finally the most expensive way is to rent.  SaaS, in most cases works the same way.  When you add up your monthly cost over a period of time it can become more costly than an on-premise license.  Many companies are okay with this. A common gotcha organizations are now facing is if you decide to bring the software in-house is there a way to export your data and import to the on premise version and is there a cost to release the data created over the several years of systems use as it is not always clear who owns the data.  This is usually hidden in the fine print of the SLA under the support and maintenance portion of the contract.

On –premise can offer certain advantages as can cloud, organizations must be strictly determine their organizational strategy and do their due diligence in conducting a full blown software evaluation where SaaS and on-premise are compared from a TCO standpoint.  In this case where a SaaS and on-premise vendors are compared it would be recommended to evaluate two SaaS vendors to assure an impartial software selection process that can provide additional insight to you on if the first SaaS vendor may be out of whack.

In the end it comes down to what is more valuable to the organization.  Paying a little more to get the technology right now or waiting to buy an on premise system later; capital expense or monthly expense. Can your organization wait to do so, which fits your strategic enterprise application and infrastructure vision, is it hampering your ability to do business, vision are all questions that will need to be answered before making this type of purchase.  Third party consultants that offer impartial advice and strategic consulting for your application and infrastructure vision are often a way to lower the evaluation time, and achieve maximum roi and decrease your chance of IT failure.   None the less, total cost of ownership should be investigated in its entirety before a decision is made to purchase any enterprise software tool.

If you are considering evaluating any type of enterprise software give us a call.  Use the Tru-Eval method to impartially evaluate and rank any type of enterprise software.  See www.eval-source.com for details or follow us on twitter @eval_source

Eval-Source is an Analyst/Consulting consulting firm that offers enterprise software evaluation, cloud computing consulting, business process optimization and technology planning for organizationsOur innovative professional services make your life easier whether it is to acquire enterprise software  or provide you with fact – based information to match your business with IT. Eval-Source provides critical  decision support to validate your technology investments using the Tru-Eval  system.  Follow our blog at www.eval-source.com/blog or on twitter @eval_source or our site http://www.eval-source.com

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Jim Love, Chief Content Officer, IT World Canada

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