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Weighing the TCO of On-Premise Vs. SaaS
Written by Tom Hoffman

TechTarget.com recently posted a thought-provoking article which explores whether Software-as-a-Service applications might actually cost enterprises more in the long run versus traditional premise-based apps. While the upfront costs of deploying SaaS apps are cheaper than premise-based systems, some analysts quoted in the story question whether integration costs and other expenses might place on-demand applications over the top.

The article raises some salient points, including how SaaS apps have generally been found to lower customers’ support needs, according to a recent study by Forrester Research.

However, one of the pros in defense of the on-premise model cited by the article is that as the price point on hardware continues to drop, this makes hardware considerations more manageable.

While there’s some inherent truth in this, I find this kind of logic a bit shortsighted. Here’s why: if you’re a CIO for a Fortune 1000 company, are you really looking to add more servers, more CPU cycles, more staff to manage these machines and more overhead? I doubt it.

Most forward-thinking CIOs are trying desperately to shrink their IT footprint and to lower their fixed IT costs, including hardware. SaaS isn’t for everyone and there’s still too much angst among many IT leaders to hand over proprietary company data to a third party. If anything, most enterprise CIOs are willing to dabble in SaaS at this point for non-mission critical apps like CRM or workforce management.

For too many CIOs, fixed IT costs represent 65% to 80% of their organization's total IT spending. That means if your shop is hovering around the 75%-to-80% range, the 20%-to-25% of your organization’s IT costs that are variable leave you with very little wiggle room to go after new revenue and other business opportunities when they arise.

Do you want to run an IT organization that’s stuck in the mud or agile enough to move quickly on new initiatives? If you’re the latter, I doubt that you’re looking to add more hardware, regardless of how much cheaper it might be.

 




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