Juan José Salas
Director General
NetLogistik
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Expert Contributor

Benefits & Drawbacks of SaaS: Achieving a Successful Purchase

By Juan José Salas | Wed, 01/19/2022 - 11:15

Making the decision to implement Software-as-a-Service (SaaS) is not an easy task. Offers from providers contain several details that are worth considering before purchasing. This guide can help you choose the right software for your company’s needs.

There are different software distribution models. On one end is the traditional “on-premise” model. In this model, the client directly buys software licenses from the supplier — and sometimes support licenses, too — installing them in the company’s own infrastructure and taking care of their maintenance. On the other end, the SaaS model consists of outsourcing software operations: the client buys a periodic subscription and, in return, obtains internet access to the software; this allows the client to forget all about the infrastructure and maintenance needed to manage their data. Other models lie in the middle.

Among the benefits that suppliers usually mention, you should consider the following points:

  • Low Total Cost of Ownership (TCO): Customers should ask the SaaS provider to send them the detailed calculations of this benefit and then review those numbers. Calculations usually include the cost of infrastructure (servers), cost of third-party software (operating system and database), and cost of the IT personnel (DBAs). If calculations do not make sense, keep working with your supplier until you have a solid business case. Purchasing a SaaS model only makes sense if it brings savings and other benefits.
  • SaaS fees are OPEX, not CAPEX: This is an advantage for most companies, but it comes down to how each organization reports its expenses on the Profit and Loss (P&L) Statement and how easily it approves new projects. In the end, a SaaS subscription is only beneficial to the company if the TCO is lower than the total cost of the subscription. If this is not so, the on-premise model might be a better option.
  • Lower upfront payments: Given that the SaaS model requires periodic payments rather than a few large ones, there is a lower risk of decapitalization. However, you should make a rigorous analysis of how payments will be made during the subscription, since several providers ask for an upfront annual payment. Agreeing on quarterly payments will substantially benefit your finances.
  • Lower implementation time and costs: Several companies and analysts say this is an advantage but that is not always true. Ask your provider to explain in detail why a SaaS implementation will reduce the implementation time. One important benefit of the SaaS model is that software becomes available on the first day of implementation, contrary to an on-premise approach, where you place an order for the servers and wait several weeks to receive them.
  • Scalability: This is one of the greatest benefits of a SaaS model. Usually, if your business experiences a significant increase in sales volume, more infrastructure will be needed. The traditional on-premise implementations require buying more servers (or CPU or memory), which can take weeks, and you also end up absorbing the costs of updating those servers. On the other hand, SaaS offers you more computing power in just a few hours or days.
  • Remaining up to date: This benefit is only partially true, as it depends on the solution and provider you are working with. Make sure you understand the update model that your provider is offering, and whether you will have immediate access to all the latest software versions. Some solutions may not offer this benefit.
  • Top-of-the-line IT resources and tools: It is true that for customers, it is a challenge to develop such skills and tools within their own I.T. department and providers will usually have a dedicated team that maintains your solution in optimal condition through infrastructure (redundancies, backups, disaster recovery plans) and operating systems and databases (archiving, purging, reindexing). The benefits of this maintenance include lower downtimes, optimal performance and improved security. Also, providers will use tools like automatic monitoring or automated scripts. Make sure that your supplier explains how they plan to keep your SaaS solution in good shape.
  • You stop paying when you stop consuming: This statement is not always true but it depends on your software solution. Providers might ask for a three-year minimum contract, but once you implement the software, changing it or stopping its use won’t be easy. Therefore, when you select a SaaS solution, consider the fact that you will use it for a long time.
  • Predictable cost: Even though this is mostly true, make sure you understand how the provider will measure your consumption or use of the software solution. Sign an agreement that will cover your growing needs for the following years.

 

Other factors that customers should consider when buying a SaaS:

  1. Only start paying when you start using the software. Sometimes, the software is only needed weeks or months after the implementation process begins.
  2. Usually, customizations are needed, so you should understand how they are going to be handled during implementation, including the extra cost of support and the process of migrating to newer versions.
  3. Most of the time, providers will include different environments into the proposal, besides production, such as development or testing environments. After a SaaS is working, those environments will be used a few times at the most. Ask your provider to include flexible rates based on availability, since it does not make sense to pay for environments that are not being used. The on-premise model requires those environments.

In general terms, the SaaS model is here to stay; its growing popularity has lately been driven by the fact that computing and the internet are getting cheaper. The SaaS model is enabling smaller companies to access the best technology and big companies to get a lower TCO, with less risk and fewer complications. However, SaaS models are not a panacea: you must consider all aspects of your provider’s proposal to make the right decision, as a SaaS model is not a benefit by itself.

Photo by:   Juan José Salas