Adding up One Company's SaaS Savings

Ann All

As I wrote last month, the tough economy seems to be increasing interest in software-as-a-service, especially among CFOs and other financial types.

 

No doubt quite a few organizations may believe that SaaS costs more than traditional on-premise software over the long run, as Gartner says it does. Yet many of them may still opt for SaaS over other software to reduce their short-term capital expenditures. In addition to savings on software licensing, SaaS can help companies cut costs for hardware, staff and other areas. For an interesting illustration of this, I found an Inc. article that details how exercise-equipment retailer 2nd Wind used SaaS to slice its annual IT budget from $670,900 in 2007 to a projected $259,250 this year.

 

Staffing accounted for one of the company's largest cost reductions. In 2007, it paid $166,500 for two full-time IT employees and $145,000 for consultants to assist with one-off projects. This year it expects to pay a single consulting company $95,000 to manage all of its SaaS-based IT systems. The cost of e-mail actually went up, from $12,000 in 2007 to the current $27,000, after 2 Winds switched to Google Apps Premier Edition. However, the company avoided what would have been a costly $300,000 upgrade of its e-mail software and servers, which were basically just limping along.

 

Hardware is one of the most interesting areas tapped by the company's CFO for savings. Because so many of its applications are Web-based, the CFO plans to switch from full-featured PCs to netbooks and thin-client terminals. The CFO figures this should save about $900 per workstation. This supports IT Business Edge blogger Rob Enderle's contention that netbooks seem like a great option (if bundled properly) for organizations with lots of applications in the cloud. He wrote:

Much like Apple did with iTunes and the iPod, the real opportunity for a netbook lies not in the hardware or the applications that run directly on it, but in the services to which the device connects. This may be the ideal platform for a blended mobile thin client offering, where the device is mostly connected via WAN, Wi-Fi or Wimax but has the capability to be used on a plane or otherwise disconnected in a pinch.

2 Winds now uses SaaS for its CRM and accounting, point-of-sale, and HR and payroll applications, which would surely qualify it to be featured if I ever do a follow-up to my story on Taking an All-or-Nothing Approach to SaaS.



Add Comment      Leave a comment on this blog post
Mar 3, 2009 6:56 AM Edunigan - TrackVia Edunigan - TrackVia  says:

I may be biased since I work for an online database company, but I feel there are savings associated with SaaS.
We are hearing from more and more companies that our SaaS solution is a more cost-effecitve solution than on premises software for the same reasons noted above. We are also hearing from more small to mid-sized businesses that SaaS offerings allow them to reap the benefits of enterprise level software without the cost.Here is a recent post highlighting the SaaS benefits
we have heard from our customers.

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Mar 4, 2009 3:17 AM Kim Terry Kim Terry  says:

Does SaaS save money? No, SaaS is an acronym. Is SaaS a more efficient way to deliver software? Certainly. But a saving determination is not based on a Gartner article or other publication that has no particular software, vendor or other facts in mind.

The conclusion as to if, in your circumstance, with your particular application, with a particular vendor deal, the answer is still the same as 20 years ago -  One must perform the individual financial analysis.

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Mar 4, 2009 8:05 AM Krystal Krystal  says:

Hi there, 

My name's Krystal and I work at collaboration software company Central Desktop.

I just visited your blog and read your latest post on Saas savings Pretty Nifty Of course, I'm a new reader HELLO to ALL! Lol!

Anyway, I thought you might be interested in participating in our upcoming webinar,

just a little FYI

Thanks again and I'll visit again soon!

Krystal

Oh yeah, if you don't mind, please spread the word

Reply
Mar 9, 2009 2:19 AM Alexis Ungerer Alexis Ungerer  says: in response to Kim Terry

I am an IT consultant. My fee is 50% of whatever I save companies' on their annual IT budget year over year. SaaS is one of the first things I bring up when speaking with companies. I typically suggest, MyOnVO, or My Online Virtual Office, because it allows employees to access all their software on any computer, anytime. Efficiency typically goes up with that feature; hence saving the companies money on one side by adding SaaS and then benefiting from that implementation after. (SaaS is making me some big money right now.) I typically save companies, SMBs, about 90K. SaaS can mean the difference of some companies staying in business or going out of business.

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Mar 10, 2009 8:19 AM d.Harland d.Harland  says:

I've been around for a while and worked both sides if the fence, as Product manager in a large software house, and Head of IT for large corporate firms. I agree strongly with the previous comment that each case needs to be justified on its merit. This has all the hall marks of another round of IT marketing hype. Just  a short while ago virtual was the solution for storage servers etc. Now we see endless blogs, marketing e-mails etc. telling us how to sort out the issues caused by virtualisation. Too often ideas are extrapolated bastardised and taken to far, result grief.

The numbers presented above are marketing wash, come back in five years and tell me it was as success. Oh! I forgot, by that time everyone will be on to thier new pancea.

The fee as a percentage of savings model is one I would not touch with barge pole. I've seen too many of those arrangements end in acrimony.

The best way to save money in IT is have a solid strategy aligned with you business and staff in both  IT and the business who are trained, and can get the most from the systems in place. And stay away from fads.

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