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Systematica Inc, Sara Corbett

Is Software as a Service (SAAS) Really Less Expensive Than On Premise?


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One of the biggest arguments I hear in favor of deploying software as a service (SAAS) applications as opposed to the traditional on premise is the promise of significant cost savings.  Being that I represent a reseller organization and am really impartial to the direction a customer takes, I like to present both options and let the customer decide.  Over the years I have come to the conclusion that it really depends on a handful of key factors.

Take a look at the following analysis below.  In this case we compared the software costs of selling Microsoft Dynamics GP as service versus buying the hardware and licenses outright.  Even after we included some estimates for the ongoing maintenance of the environment, operating system, and application upgrades, you can see that the break-even point on buying the software is only a little over a year out.   As expected, year one is cheaper with the SAAS option given the lack of upfront costs.

Now of course this doesn’t put a price on the argument that with a SAAS solution you don’t have to worry about setting up a server, managing updates, etc. and that some monetary value should be placed on allowing the organization to focus on its core business, but still 17 months is a pretty quick timeframe for making back your investment.  Even if you are able to come up with additional costs and this becomes 2 years, how long do you plan to keep your solution in place?  I would hope that it is most certainly longer than 2 years.

For the sake of full disclosure there are a few factors in the above example that I should bring to your attention.  First, this was a pretty sizable sale.  I have found in doing similar analysis for fewer users that the break-even is much further out.  Second, the customer didn’t have to hire an additional resource to manage their environment.  They already had Windows Server and SQL Database expertise in house.  Procuring another server and SQL database to manage did not require the company to hire additional headcount.  Lastly, we were able to leverage their existing infrastructure to minimize hardware and software licensing costs.  They were already using Active Directory to manage their domain and had SQL licenses from another application.

I realize it is difficult to draw too many conclusions from one example, but it does present an interesting argument.  For each new customer that is interested in exploring both options, we perform a similar analysis.  I am a firm believer is showing the costs and benefits of both as opposed to pushing my preference on the customer.  Not to give away too many details, but let’s just say to-date this Microsoft Gold Certified Partner, serving LA and Orange counties, sees the on-premise option is currently winning more votes than SAAS.  The argument may change someday, but until then I believe it is best to lay all the cards on the table.

By Mike Marcin, Systematica Inc.Microsoft Dynamics GP Partner

2 Responses to “Is Software as a Service (SAAS) Really Less Expensive Than On Premise?”

  1. Hopper Grace says:

    Ofcourse SaaS is less expensive compared all other systems.Nice blog keep it coming.

  2. The problem with this analysis is that it fails to calculate the full cost of the staff resources that are being used for the on-premise solution. The argument that the client doesn’t have to hire for the project is right in the short run but wrong in the long run. Management should understand that all committed costs are fixed in the short run but these same committed costs are variable in the long run. Accumlate projects for the internal staff and sooner or later there is “justification” for hirng more internal staff or “justification” for not laying off internal staff when times are tough. When either of these events occur, and they always do eventually, the full cost of the internal staff comes home to roost and the projects that were justified by not counting the cost of the internal staff become money losers. Managments should calculate the full cost of the internal staff on every project, and only undertake those internally that are justified by that full cost.