Using SaaS to Better Define the Cost of Providing IT

Paul Mah

You have probably heard a lot about SaaS by now. Looking beyond the hyperbole and marketing fluff, however, what are some of the real-world advantages of implementing it in an SMB?


Let's take a look at a couple of them.


Software licensing


If your small and medium business is like most, you will be working with an annual budget allocated in advance for various costs and projects spread through the year. And unless your company is in a growth spurt, the bulk of your IT budget will probably be going toward software licenses and operational costs.


While there are perfectly sound reasons for working with a fixed IT budget -- and having a proper budget is indeed something that I advocate -- one weakness of such a system is that it generally reacts poorly to changes on the software licensing front. This is because the smaller size of SMBs means they typically do not have the purchasing clout to negotiate volume licensing terms, and instead generally purchased software licenses in packs of 5 CALs.


This means that any new hires could incur a disproportionate cost as more licenses than are actually needed are purchased; by the same token, any reduction in the workforce will see limited benefits since the various software licenses would already have been acquired for the year.


With IT being increasingly commoditized, it makes sense to tap into SaaS to break down the cost of IT to be less monolithic, and to be more reactive and agile. The reasoning is simple: by distilling the various applications used in the company into services, it becomes possible to better optimize the cost of software, paying only for whatever is used.


Managing hardware costs


One of the basic promises of SaaS is in its ability for businesses to avoid investing in costly hardware. The value of this benefit might not be intuitive to IT at first, but becomes apparent when viewed from the perspective of the CEO or CIO. For one, senior executives can now more accurately extrapolate the cost of expanding the headcount or even the opening of additional branches.


In the absence of SaaS, these executives could be blindsided by potentially complex licensing terms and pricing tiers, or by monolithic hardware which can only be at once place at a time. In addition, a reduced reliance on specific hardware translates directly into lower associated maintenance and support costs, which can vary greatly between geographical locations.


In my next post, I will be exploring some common software applications that are ripe for an SMB to exploit using SaaS, so stay tuned.

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Add Comment      Leave a comment on this blog post
Aug 10, 2009 6:29 PM Martin Thomas Martin Thomas  says:

Hi Paul.. Your post got me thinking...  What is more valuable for a software company (like facebook or flickr).  1,000 paying users or 100,000 non-paying users?  What are your thoughts?  View my blog post here: http://www.purlem.com/blog/?p=57

Aug 11, 2009 2:38 PM Joe piekarz Joe piekarz  says:

Hi Paul,

I see you will be exploring SaaS applications in your next post, but I have a comment about licensing. At our company we let SMBs buy promo codes that do not expire or count towards an annual license until applied to activate a subscription. Our SMBs tell us they like this strategy because, especially in trying economic times, staffing levels are so unpredictable.

Promo code licensing should be one of the innovative strategies SaaS enables for customers.


Aug 13, 2009 5:31 PM Shawn Shawn  says:

There are many SaaS offerings out there, like my company OnState, for example, that do not require you to purchase software licenses for the year. Our model allows you to start and stop when you want, and to scale up and down as necessary within. So to your point of having "limited benefits since the various software licenses would already have been acquired for the year," this is not true across the board. While SaaS providers enjoy the predictability that comes with requiring annual licenses, this is not always in the best interests of the customer, which is why we're flexible with it.

Aug 19, 2009 5:06 PM Joe Gleinser Joe Gleinser  says:

Many of our clients utilize either Microsoft's Open Value or OEM licensing. Open Value offers an annual true-up which brings on new users at a deferred cost. Upon annual renewal they pay for the current user level (always increasing though, you can't decrease count). OEM licensing, though of limited value of a long term, allows very low cost per-user licensing options.

SaaS has its place but the cost argument is a poor one especially in basic productivity apps. Apps like Salesforce really do reduce hardware and maintenance requirements but on-premise, capital investment models can do it for 30-40% less.


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