Evaluating the TCO of SaaS

SaaS vendors claim that the key drivers to SaaS adoption are lower TCO, rapid deployment and reduced IT operations and support costs. However companies need to make a conscientious effort to measure the value provided by SaaS from a TCO perspective. Therefore, on the one hand companies need to constantly monitor the TCO of a SaaS solution, while on the other hand companies need to ensure that the capabilities served by the SaaS provider continues to meet their business needs within the context of a rapidly evolving business climate i.e. features, capabilities and performance provided by the SaaS vendor is in line with business expectations.

Measuring the TCO

The low acquisition cost of a SaaS solution is appealing; however, customers should evaluate the TCO every 12 to 24 months to verify that the SaaS solution does in fact continue to offer a lower TCO as covered to investing in an on-premise version of the application/solution. While measuring the TCO, consider the impact of the following items on the total cost of ownership.

More Users: The impact on the TCO as more users from within a company adopt the SaaS solution. Furthermore as more users adopt the solution, more storage is required which translates to additional storage costs. Moreover additional data storage costs may lead to additional back-up costs as well.

More features/functions: Is there an additional cost associated with getting access to new features/functionality? A lot of vendors provide the basic functionality out of the box; however, in order to gain access to advanced features may result in additional expenses.

Provisioning: How easy is it to provision new users, change existing workflow rules? Since SaaS solutions are more often than not geared towards the business user, a business user or group of users are usually tasked with the responsibility of provisioning accounts for new users or modifying/updating the workflow rules. Do adding new users or changing workflow rules take an in-ordinate amount of time; thereby, taking away precious time from the business user(s) that could have been utilized towards accomplishing more business-critical tasks/objectives.

Data Portability: How easy is it to move data to and from the SaaS application? The SaaS vendor may charge extra for moving data in and out of the application. If the SaaS vendor is not equipped with the necessary data migration tools, then companies may have to invest in tools that extract, validate, repair and transform data which could result in a higher TCO.

Integration: Does the SaaS provider offer the necessary integration capabilities to exchange information with other disparate SaaS solutions or on-premise systems? Nowadays companies try to differentiate themselves via the uniqueness and efficacy of their business processes. More often than not, these business processes traverse multiple applications i.e. a process may originate in an on-premise application and then get routed to a SaaS application for the execution and completion of a specific task. Therefore, information exchange between non-SaaS <-> SaaS applications and amongst disparate SaaS applications is becoming increasingly important. If the consumer of a SaaS application has to engage with third-party cloud data brokers to facilitate the information exchange, then it would have an impact on the TCO.

Customization: How easy is it to customize the SaaS solution? If the consumer of the SaaS application has to depend on a services engagement to customize the application, then the additional costs incurred as part of a services engagement will have a negative impact on the TCO.

Highlighted above are some items companies must consider while evaluating the TCO of a SaaS application.

The "Tuned-In" Process

Towards the end of April, I read an interesting book titled "Tuned In". The book details a six step process that could be utilized to create break-through product or service experiences that truly reasonates with the user base. Being a Product Manager over the last few years in a high tech firm , the six step process outlined in the book seems very intuitive; however, many companies focus solely on innovation without much regard to whether the innovation really addresses an unresolved business problem. Instead of purely focusing on innovation, companies must concentrate on innovations that reasonate by adopting an "outward-in" approach to any new product or service development initiative.

Another powerful message cited in the book resolves around the notion of listening to customers. Yes, listening to customers is vital; however, true break-through disruptive innovations can only happen by "tuning-in" to prospective/potential customers. This is a truly eye-opening concept. In the book, a break-through disruptive innovation is categoried as something that addresses an unresolved business pain point, a pain point that afflicts a large number of people/organizations.

Why is this an "eye opening" concept? Reason: Listening to existing customers will only lead to small incremental enhancements to your product or service. The existing customer base has already adopted the product and service and in most cases will demand new features/functions that augment the existing functionality leading to small improvements in the product or service over time. But, break-through innovations can mostly be achieved by focusing on prospective/potential users to understand/determine how the product or service can be adapted to address an unresolved business need. Taking an "outward-in" approach towards new product or service design and focussing on different buyer personas within the potential user base will lead to the creation of solutions that provides a cure/panacea for an unsolved business need and as a result the solution will be sought after by a large proportion of the intended user population. By providing a much needed solution to a business problem, the disruptive innovation creates a "win-win" for both the user as well as the vendor. The user benefits since now they have a much needed solution to a problem; whereas, the vendor benefits due to a much bigger revenue opportunity (in any business, the potential/prospective user base usually constitutes the largest portion of the revenue opportunity) and increased customer satisfaction (a key to foster viral adoption).