Not only do SaaS buyers avoid an upfront software license fee, but they also avoid the upfront cost of investing in infrastructure and associated testing and employee resource costs since the SaaS provider assumes those costs. While the SaaS model does offload some risk to the provider, this also means that firms are giving up a degree of control.
As sourcing professionals make purchasing decisions in times of economic slowdown, Forrester Research says software as a service (SaaS) can benefit organizations by offering a deployment model that lowers near-term expenditures, allows buyers to prove the value of a solution before committing to it, and shifts significant aspects of the investment risk from the organization to the SaaS provider. "Many firms see the value of SaaS regardless of the economic climate," says Forrester's Liz Herbert. "However, when software buyers are faced with fears of potential recession, SaaS offers even greater value, because it provides a more flexible way of investing in software." She cites the following benefits:
Reduce costs upfront and have more predictable costs over time. SaaS enables firms to significantly reduce upfront costs and even eliminate some costs, such as one-time software license purchases. Additionally, SaaS shifts software expenditures from a capex to an opex model, which can be beneficial from a cost-recognition standpoint -- and therefore a tax standpoint -- in the short run. SaaS is also typically easier to scale up or down to meet needs over time. Finally, since upgrades are seamless and automatic, firms do not need to worry about a spike in costs when they are forced to upgrade.
Prove value before committing and continue to demand value from the provider. Most SaaS solutions offer easy access to pilot services or a free trial solution before a buyer decides whether or not there is value in purchasing the service. Furthermore, SaaS makes rolling out software incrementally easier, meaning firms can prove the return on investment of their purchase in one department or division before rolling it out to other divisions or the whole enterprise. SaaS users also have more power to demand ongoing value from the provider than in an on-premise purchase.
Offload risk to the SaaS provider. Not only do SaaS buyers avoid an upfront software license fee, but they also avoid the upfront cost of investing in infrastructure and associated testing and employee resource costs since the SaaS provider assumes those costs. While the SaaS model does offload some risk to the provider, this also means that firms are giving up a degree of control over their infrastructure and software, and SaaS could introduce new risks if the SaaS provider does not have the proper measures in place in areas like security, backup, recovery and performance.
Herbert says firms should be cautious of:
Long-term cost of ownership. Ongoing subscription can mean that SaaS becomes more expensive than on-premise in the long run.
Hidden costs. Some SaaS providers charge additional fees beyond the standard subscription fee (for example, charges when firms exceed data storage limitations). Additionally, there may be other costs that firms forget to factor in, such as the high cost of bandwidth in some overseas markets.
Too many niche SaaS applications. Many SaaS applications only cover a small footprint of functionality, meaning that firms attracted to the SaaS model can find themselves with multiple SaaS applications deployed across the organization. This can create integration headaches and make support of end-to-end business processes difficult.
