Hybrid Cloud For Dummies

SaaS Economics

The proliferation of SaaS has changed the way companies pay for and maintain software. The following are some of the most important things to think about when you consider budgeting and SaaS:

Entry costs are lower with SaaS. When implementing a SaaS application, customers are often able to get a free trial period to assess the software. Additionally, companies can slowly ramp up the number of seats (users) who have access to the application. With traditional on-premises implementations, a company must make a large capital expenditure upfront to acquire the application. It then must install the software and possibly purchase additional hardware to support the implementation.

Maintenance and support fees are a thing of the past with SaaS. With on-premises applications, there’s a perpetual license software model. Companies need to enter into a contract with a software vendor or services provider to keep software up to date and free from glitches and security vulnerabilities. These contracts are expensive — typically, ranging from 10 to 25 percent of the original purchase price. SaaS sheds these contracts, and instead includes such support in the access fees.

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