Truth about hidden SaaS costs
Some are arguing that there are so-called “hidden” costs in SaaS deployments, (such as Robert DeSisto, a Gartner analyst, see article here). The argument is that the SaaS model loses it’s advantage from a cost perspective in the third year of a deployment because on-premises applications depreciate as a capital expense, while SaaS applications are operating expenses.
This argument assumes of course that there are no upgrades to the capital outlay. Those that pursue this point are missing a meaningful element, which is that of the upgrade costs, which typically occur in the third year. In the SaaS model, upgrades occur regularly and carry no cost to the en consumer. In the traditional license model, when the third year hits and the initial capital expense amortization has thinned out, an upgrade cost fuels another round of depreciation. In other words, the conclusion is flat out wrong when compared apples-to-apples with like functionality.
However, SaaS vendors ‘will’ end up making more money in the end because they can deliver more functionality over time due to the lower overhead in the SaaS delivery model (but this is not apples-to-apples for like functionality). So, everyone wins… vendors grow, customers get more & do things faster.