In The Dollars and Sense of SaaS - Part 1 the customer perspective was used to uncover the shortfalls of a product-based methodology.
Software license costs
Your costs over time are also important. Figure 4 shows that the obvious costs are the checks you write to the software company to pay for the software and for the major upgrades. But this chart can also be a little misleading—as we are depicting “one time costs” that add up over time. Showing this as a stair-step area instead of a series of spikes will make sense as you keep reading. The key thing to appreciate is that once you make a purchase, your license purchasing costs do not go up again until you make another purchase.
Figure 4. License costs over time
At the start of the article, we identified several “ownership” costs—supporting the software and hardware, for example. It is critical that you keep those costs in mind when evaluating software license purchases. These costs are ongoing costs—so the more you use the software, the more the costs add up.
There are also training costs—the cost of lost productivity as people learn to use the software and adapt to changes in the software. Figure 5 reflects the ongoing infrastructure and training costs as they expand over time.
Figure 5. Ongoing software costs
When you combine these costs, you get a model for the total cost of purchasing a software license over time. The jargon for this is Total Cost of Ownership (TCO), reflected in Figure 6.
Figure 6. Total Cost of Ownership (TCO)
As you can see, “purchasing” software one time actually has a continuously increasing total cost of ownership. Different types of software will have different relative costs for infrastructure support, training expense, and license fees. But generally, training expenses are much lower than the other costs of ownership.
Comments