What’s The Fully Loaded Cost of Software Delivery by Platform?

I wish I had a dollar for every time I found myself in a debate over whether SaaS is cheaper than on-premise software over a 5- or 10-year period. Well, here’s some ammo that’s not going to win me friends in the on-premise camp.

This morning’s edition of the GigaOM blog opened with a piece written by George Gilbert, partner and co-founder of TechAlpha, and Jeurgen Urbanski, managing director, TechAlpa. They reference a new book by Dr. Timothy Chou, former president of Oracle On Demand, entitled “Cloud: Seven Clear Business Models.” What captured my attention was the data on fully loaded costs for the following deployments.

“Traditional legacy applications such as Oracle or SAP have a fully loaded cost of delivery of $1,000-$1,500 per user per month. Several years ago, Oracle On Demand got that cost down to $50-$100, whether it was Oracle-hosted or customer-hosted. Salesforce.com has squeezed that cost down even more to $7-$10, though admittedly just for the much lighter-weight CRM portion of the suite.”

I have to admit that I want to see the spreadsheet with all of the fully loaded costs. Still, if Dr. Chou is even close to being right about $7-10 per user per month, that’s going to grab the attention of the most SaaS-averse CIO.

Comments

[SaaS Solution Seeker]

I must back-up Dr. Chou here. Although I doubt legacy applications were costing $1,500 per user per month, I can confirm that SaaS solutions can be found for $7-10 per user per month. I recently did a wide search to find a good, affordable SaaS collaboration tool for my consulting business. Most SaaS solutions prices are well beneath legacy application prices. Some, such as http://www.HyperOffice.com, are as low as the $7-10 range mentioned by Dr. Chou. While the monthly rates are good, you'll notice the true deal comes when the product is purchased in an annual contract.

[mike]

I am really interested in these numbers. We are currently looking at this exact issue and for the life of me cannot understand how anyone can come out with a simple cost per FTE measure. WE have broken these costs down further to a cost per functional point per user which I believe provides a much clearer picture of what one is comparing - Mike

[Dave]

Don't forget that the comparison relies heavily on the time horizon of the analysis. In a three year model, on-premise costs will dwarf on-demand. In a ten to fifteen year model, the results are much different as one-time costs are amortized over a much longer period.

Also, with SaaS, you do not have a perpetual license and just like a car lease, once you stop making payments the ride ends.