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5/6/2010
10:05 PM
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SaaS Solutions 77% Cheaper Than On-Premises

Analyst research comparing midmarket SaaS and on-premises CPM solutions finds significantly lower TCO for on-demand options.

Software-as-a-Service (SaaS) corporate performance management (CPM) solutions have a significantly lower total cost of ownership (TCO) compared with on-premise solutions according to a research study released Monday by analyst firm Hurwitz & Associates. The research, commissioned by Adaptive Planning, the on-demand financial planning and reporting provider, indicates that the TCO for SaaS CPM solutions is as much as 77% lower. As the number of users increases, the cost of advantage of SaaS does taper: the 77% savings for 10 users slides down to 64% for 100 users.

The research focused specifically on CPM solutions from midmarket vendors, including Longview Solutions, Prophix, and Clarity Systems. In addition to the TCO analysis, other findings include:

  • SaaS application software costs are approximately 62% of total solutions costs.
  • On-premise application software costs are approximately 17% of total solution costs.
  • SaaS applications require no infrastructure costs
  • On-premises infrastructure costs range from $150,000 for 10 users to more than $275,000 for 100 users over four years.

Commenting on the findings, Hurwitz & Associates partner Sanjeev Aggarwal, said, "Via the SaaS model, companies of all sizes can gain access to enterprise-class solutions without incurring large upfront costs, or having to hire expensive IT staff for initial implementation and ongoing management. It's clear that SaaS is fundamentally changing the software equation in profound ways."

CEO of Adaptive Planning, William Soward, added, "The comprehensive analysis performed by Hurwitz & Associates provides clear evidence of the significant economic benefits that the SaaS model provides compared with the traditional on-premise model in the CPM space."

Though the report indicates a clear case for considering SaaS CPM, and by extension SaaS solutions in other categories as well, the analysts also noted that proper vendor assessment is crucial to realizing the potential savings of SaaS solutions. To that end, Hurwtiz and Associates included guides for evaluating SaaS vendors, cautioning business and IT decision makers to "try before you buy" and review the following points with care:

  • Service Level Agreements (SLAs) and contract terms
  • Data security
  • Application customization requirements
  • Benefits provided by a third-party VAR or system integrator
  • Pricing transparency
  • Multi-year contracts and commitment

The complete Hurwitz & Associates research report is available for download here [PDF].


Benjamin Tomkins is editor of InformationWeek SMB.
Follow him on Twitter @ http://twitter.com/benjamintomkins


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Professor Frank
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Professor Frank,
User Rank: Apprentice
11/1/2011 | 3:53:22 PM
re: SaaS Solutions 77% Cheaper Than On-Premises
Benjamin, thanks for sharing this information. I was doing some research on SaaS costs and this helped a lot. I have some students at the University of Washington that have been looking into this and related questions around "what are small businesses doing to maximize profits during an economic squeeze." One point not mentioned in the blog is the costs associated with moving from an existing on-premises system to a SaaS system. The cost of this transition can be greater than a couple of years of savings if there are data incompatibilities and major changes in process. I thought you might want to add this to the mix.

I am also the CEO of CoreConnex, the company that produces the Corelytics Financial Dashboard. Small businesses use Corelytics to track and forecast financial performance and to get their team on the "same page." We have been seeing patterns that indicate that small businesses are reluctant to take steps with new systems, in spite of savings, if the transition is going to mean a disruption. We are also seeing some cool ways to outsource some of the transition steps and internal training support that can take a lot of the pain out of change.

Eventually the move to SaaS systems is going to be essential to remaining economically viable. But for now we are still early stage.

Thanks for the info!

Frank
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