The Total Cost of Ownership

The markets stink, the global economic mood is depressed, people aren’t spending money and every day the papers and Web news sites have new, bad news. Strange as it may seem, I’m excited. This is the ideal time for Software-as-a-Service.

Annrai O’Toole December 16, 2008
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The markets stink, the global economic mood is depressed, people aren′t spending money and every day the papers and Web news sites have new, bad news.

Strange as it may seem, I′m excited. This is the ideal time for Software-as-a-Service.

I think all the questions about SaaS—is it ready for the enterprise, is it really more cost effective, can multi-tenancy enable enough ′custom′ capabilities for big companies—are going to be answered more quickly and more broadly in this economic environment.

From a customer perspective, SaaS eliminates the huge costs associated with implementation, upgrades and maintenance; it moves the risks and costs of IT from the user of the application to the provider; the economies of scale associated with a centrally managed application are not just not available with on-premise applications. And when you consider that most ERP implementations have multiple instances, integrations and add-ons the costs and complexity only multiply.

Based on our experiences and customer data, we estimate cost savings of as much as 50% or more that SaaS can bring compared to traditional on-premise enterprise applications.

From a vendor perspective, the economics of SaaS mean we can invest much more in real R&D—meaning innovation—rather than maintaining a plethora of versions and patches.

But it is more than that. Take Workday Update 6.0 which we are announcing today:

Firstly, we are pleased to announce that the Workday Update 5.0 no longer exists (except in our archive). There is not a single customer using it, which means that Workday is not spending one cent of R&D on an older version. This efficiency of “shared” ownership is something that everyone of our customers benefits from: No traditional maintenance is needed to keep old things alive.

Secondly, this update is full of new features, top of which are Pay for Performance and Worker Spend Management. Let′s take the example of Pay for Performance: Here is a new feature that enables our customers to tie performance reviews, team performance and company performance to individual compensation. This is an amazing tool to help our customers better manage their business through the simple expedient of being better able to reward the people who really make a difference.

What did it cost our customers to take advantage of this new feature? Nothing – not a cent! It is included in their subscription. Workday moves them from Update 5 to 6 and they simply choose whether or not to turn it on—mouse clicks. From there, the only ′cost′ is deciding how they′ll use it internally. Did they have to roll out a new version of the software to their various geographic facilities? Implement it? Buy new servers? Of course not! Does it work for all their global employees at the same instant in time? Of course. Can they configure it the way they want to today, or next week, or next month? Absolutely. Will it require custom code? Never.

Software, like all other services that we need to drive our businesses, such as power and communications, is best delivered thru a shared ownership model. Private ownership of complex software is no longer a mainstream, business viable option. Think about it in the current economic conditions…a new software license, new servers, a consulting project, etc. vs… mouse clicks.

I think the current economic environment is going to bring the debate about TCO of on-premise vs. SaaS software into clear focus.

And thats exciting.

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