Subscribe to CIO Magazine »

Total cost of ownership is only part of the SaaS picture

Using TCO as a measure in isolation can lead you to make suboptimal buying decisions

Andy Pattinson

Andy Pattinson

I would like to expand on an earlier post on whether total cost of ownership (TCO) is the best meausure to compare SaaS applications to more traditional on premise solutions when making purchasing decisions.

For me TCO is only part of the picture. Using this measure in isolation can lead you to make suboptimal purchasing decisions. I am writing this with my Salesforce experience front of mind, however it can apply to most SaaS providers.

It may be possible, with enough time and effort, to re-model your current IT budget into a per user/per month cost model, enabling a true TCO comparison between on premise and SaaS alternatives. There is, however, a great deal to factor into doing this, including but not limited to:

On premise infrastructure – Specification, vendor negotiation, purchasing, configuration, testing, implementation, networking. All required for the development, test, production and disaster recovery environments with costs including time, effort, $$, opportunity cost and room for error in any of these areas.


SaaS infrastructure – SaaS providers area of expertise. Local responsibility for good governance to ensure you are getting the service you’re paying for and the vendor is accountable.

On premise software – Vendor negotiation, time to complete proof of concept, time to implement, benefits realised at end of implementation, requires up front investment, software maintenance fees, usually a complicated and costly process to upgrade the application, IT operations can be a significant overhead, business will often struggle to understand why it takes so long to implement, delivery is big bang with related adoption issues that fosters. On premise customisations can cause significant future difficulties.


SaaS software - Some vendor negotiation but usually a fixed price per user/per month, proof of concepts are usually straight forward, implementation time and cost are usually less than on premise, some project benefits can be realised early, costs are usually OPEX, upgrades are generally part of the monthly fee with little downtime, negligible IT operations involvement required, rapid deployment satisfies business needs. Customisation is easier to achieve and even easier to manage on going. Security is baked in to the lowest level objects in multitenant environments meaning significantly more control. You benefit from the experience all tenants on a multitenant environment bring to the platform, problems fixed for one are fixed for all.

This is far from an exhaustive list however it goes someway to highlighting TCO isn’t the best measure for comparison, the sheer complexity of achieving a true comparison over a useful timeframe is a major hurdle. I believe return on investment (ROI) to be a more useful comparison and something the business will better understand.

It’s important to steer the improvement of your departments performance, to take away tasks that aren’t your organisation's core competence, to free people's time for innovation and deliver business value.

Who wants to spend their time managing infrastructure when there are more valuable things to be done? Who wants to spend their time explaining to the business that the old way of doing things is going to continue? Who wants to create their successors legacy rather than build their own future?

The business is looking at IT and asking questions like these. It is IT’s responsibility to deliver answers and the value business is looking for. SaaS is a compelling way to do this; it delivers on the investment and enables you to build a better future.

Andy Pattinson is the former CIO of Carnival Australia. Follow him on Twitter at @CIOinOz. This post appears on his blog, Customers Eyes. The views and opinions are his own and do not reflect those of his employer or any other corporation or individual.

Join the CIO newsletter!

Error: Please check your email address.

Tags infrastructureSaaSCloud

More about TCO

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.




Control and ownership of data is missing from the list. This is a pretty big point, when you consider that

a. your competitors may one day own the service provider.
b. your data protection laws may preclude data being transferred out of the region?
c. integration with other systems is all but ridiculous. relatively speaking with salesforce, compared to say, on premise Dynamics CRM where you can just get straight at the current snapshot via the back end.

I recognise the advantages of outsourcing with companies who are small, have virtually identical requirements to some SAAS provider's product, or lack the competence or dollars to build an in house team, but integration complexity increases with the square of the components, and it also increases with the disparatity in provider organisation. There is no sense in firing three developers when you have to hire six liason managers.

It is only important to steer your business onto its core competence only if the service provider can be trusted to deliver what you're after. If it isn't, you've had your chips.

Also, as in many cases, outsourcing is the last resort of failed IT management, in order to hide the bottom line, I view with scepticism many initiatives to hand over control.

In this instance, I view return on investment as a time sensitive function. There is a world of difference between this year's dividends, and stock position in five years.



A little less head in the sand than the previous comment this is probably useful to any readers:

The uneducated and inexperienced comment about outsourcing being a last resort of failed it management, enjoy early retirement and fossilization! It did amuse me Charles.


Comments are now closed