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ROI of Software-as-a-Service A Forrester Report

A Total Economic Impact™ analysis uncovers long-term value in SaaS.

September 2, 2010
Sponsored by SAP Business ByDesign

by Liz Herbert and Jon Erickson

Executive Summary

Firms almost always consider software-as-a-service (SaaS) as a cost-advantage over on-premise in the short run due to its quick implementation times and pay-as-you go pricing.  But many firms question the long-term value of SaaS, wondering if the rent-versus-own model necessarily has a cost crossover point and if so, when? As SaaS continues to move into a broader range of applications and into larger, more strategic deployments, Forrester examined client decisions across a range of SaaS solution areas and found that firms obtain longer-term value with SaaS solutions.

Three Factors Determine the ROI of SaaS

As SaaS grows beyond its early roots of popularity in a few select application areas such as HR & CRM technologies, it is now gaining acceptance across a broad range of applications for business and IT users alike. It is imperative to objectively evaluate the financial impact on business when considering the adoption or avoidance of SaaS. How? Companies can use a simplified version of the Forrester’s Total Economic Impact™ (TEI) model to systematically consider:

  1. Benefits how will your company benefit from SaaS?
  2. Costs how will your company pay, both the hard costs and resources, for SaaS?
  3. Risks how do uncertainties change the total impact of SaaS on your business?

Key Benefits: SaaS Enables Fast Deployment, Better User Adoption and Reduced Support Needs

Organizations that implement SaaS benefit from the ability to deploy applications rapidly from initial deployment to adding new users and new modules. Firms also frequently report better user adoption and an elimination of the “shelfware” that is common with on-premise deployments, as well as a reduced burden on IT and admin for user support. The scale, timing, and duration of these benefits can be estimated by considering one or more key metrics and the value to the organization of improving those metrics over time. 

Key Costs: Subscriptions Balance With Reduced Implementation, Upgrades and Training

The TEI model considers scenarios of firms moving from existing on-premise deployments to SaaS solutions rather than net-new purchases of SaaS versus on-Premise. Therefore organizations implementing SaaS will incur subscription costs for the SaaS solution, but will eliminate many costs elsewhere that are associated with running existing on-premise applications, such as resources, hardware costs, and maintenance. Firms that would like to analyze a net new purchase should factor in significant additional upfront time and expense for a new on-premise deployment.

Risk Analysis: Cost Savings and Adoption Rates Can Be Uncertain

No change or avoidance of change is without risk. Factoring this uncertainty into the analysis of SaaS implementation options converts an optimistic and potentially unachievable plan into one with higher accuracy. Two key risks, if factored in, allow the refinement of the analysis: 1) Moving to SaaS does not guarantee retirement of hardware or people resources. 2) Softer benefits around adoption, training, and scalability require planning and monitoring.

In summary, SaaS can be a long-term win as well with benefits beyond cost savings. To read the full Forrester white paper, including further analysis and charts, click here.