The Connected Web

One of the things customers like most about SaaS and cloud computing is that they don't have to pay the upfront cost of installing the infrastructure. The provider bears that cost and recoups it from the customer on a pay-as-you-go basis. This does have implications for the provider's own finances, as Omniture CEO Josh James explained in a keynote at last week's SIIA OnDemand conference, but it leaves customers smiling. Many of them are finding that they're paying less for SaaS applications than they used to spend simply maintaining the application infrastructure replaced by the SaaS alternative.

Blogger Vinnie Mirchandani (like me, a member of the Enterprise Irregulars network) recently spoke to some customers of SaaS vendor Workday, and one testimonial stood out for me. Debra Warren of HB Fuller "did gush over her SaaS economics," wrote Vinnie. "She has a 'budget-neutral' deployment -- the savings from decommissioning their Oracle functionality is funding the Workday project."

Effectively, HB Fuller is getting its SaaS implementation for free, paid for by savings on maintenance fees and infrastructure costs for the software it used to run. "I have a feeling 75,000+ Oracle and SAP customers may want to take a peek at a budget-neutral migration model," noted Vinnie mischievously.

Another recent example I saw was reported by another Enterprise Irregulars blogger, Brian Sommer. He picked up on a customer comment in a NetSuite press release, discussing its move from SAP software to the NetSuite SaaS application: "We were spending 3% of our revenue on SAP. By switching to NetSuite, we reduced that cost to 0.1% of revenue." Brian notes: "If your firm is spending 3% of its hard earned revenue on an application software suite for its back office needs, I think you're spending too much ... If that customer was truly spending 3% of revenue, they probably had the wrong software or configured it poorly to drive up their costs so much."

Brian's comment brings to mind a third example that generated a heated debate both on the original eWeek story and in a follow-up item I posted to my ZDNet blog. This was Serena Software's claim that it was spending $1 million a year on providing Microsoft Exchange for 800 employees, and would save three-quarters of that by switching to Google Apps. Many accused Serena of overspending on Exchange, and thus no wonder it could make savings. But I found it interesting when I attended Microsoft's US launch last week of its own Exchange and Sharepoint Online hosted services that it said many customers find it costs less than running their own in-house infrastructure.

On balance, it seems likely that many of the savings enterprises make when they switch to SaaS come as a result of migrating from software that's no longer appropriate to their needs, rather than as a direct result of switching from on-premise to on-demand. But there's still a savings to be made from adopting a provider's shared infrastructure rather than funding it all yourself. If those savings are enough to bring the SaaS budget below the maintenance and running costs of the application it replaces, then you could certainly argue that you're getting your SaaS implementation for free.