How SMBs Can Save Money Using SaaS

By enabling an “as needed” approach to software, software as a service offers significant savings for small and medium-sized businesses.
Posted February 16, 2009
By

Jeffrey Kaplan

Jeffrey Kaplan


Today’s economic crisis makes it imperative that organizations of all sizes find new ways to perform their operations in a more cost-effective fashion. This is particularly true for small- and mid-size businesses (SMBs) which often operate with thinner margins than their larger enterprise counterparts. A new generation of Software-as-a-Service (SaaS) solutions can help SMBs reduce their operating costs and improve the effectiveness of their operations.

SMBs have always been at a disadvantage when it comes to leveraging the latest technology innovations. This is because most new, and even many mainstream, hardware systems and software solutions come with a steep price tag, and require sophisticated technical skills to fully deploy and utilize them.

As a consequence, most SMBs haven’t been able to adopt powerful business applications, such as customer relationship management (CRM) or enterprise resource planning (ERP), to manage their operations. They can’t afford the upfront perpetual license fees, additional servers, dedicated staff or third-party consultants to implement and administer these complex enterprise applications.

Today, SMBs can acquire these enterprise applications via SaaS alternatives to the traditional, on-premise software packages of the past. There are now SaaS alternatives in nearly every horizontal application area and many more emerging to address industry-specific, vertical market requirements.

In fact, THINKstrategies’ SaaS Showplace online directory has over 950 companies offering SaaS solutions across eighty application, industry and enabling technology areas – and this may be less than half of the total population of SaaS offerings available in the market!

What makes SaaS especially appealing to SMBs is that it enables them to save money in multiple ways. First, many SaaS solutions offer free 30-day trials which permit SMBs to get a feel for the software capabilities before they buy. This mitigates the risk of wasting money on software which won’t be used.

SaaS’s pay-as-you-go subscription pricing model also permits users to pay for software incrementally, based on actual usage levels. This represents a cost savings over having to pay upfront for a perpetual software license that may not be utilized right away because of long deployment cycles or slow user adoption.

Eliminating upfront perpetual license fees may also reduce an SMB’s financing requirements. SaaS also eliminates the need to over-provision software licenses in anticipation of future growth. This frees up precious capital for other purposes.

Because the SaaS vendor is responsible for operating the infrastructure that supports the application, SMBs no longer have to pay for the servers, ancillary software, third-party consultants or in-house support staff to keep it up and running.

SMBs can also save money on real estate and utility costs by eliminating needless floor space and cooling systems which were once necessary to house the servers which supported their applications.

Some SMBs may also choose to reduce their staffing costs, while many others will be happy to redirect their limited staff to more important strategic initiatives rather than have them spend the majority of their time on operational issues that are now the responsibility of the SaaS vendor.

While all of these cost-savings are attractive in today’s tough economic climate, they are of little value if the SaaS solution isn’t meeting a SMB’s business needs. One of the myths about SaaS solutions is that they are skinnied down versions of traditional, on-premise, enterprise applications. The truth is that many of today’s SaaS solutions offer comparable functional capabilities without the deployment and management hassles, or upfront and ongoing costs.

While large enterprises can make the claim that SaaS solutions are not able to be customized to meet their complicated workflow requirements, SMBs don’t require a lot of customization to satisfy their relatively straightforward business requirements. Therefore, many of today’s SaaS solutions are well-suited to meet the SMBs’ needs with only limited reconfiguration.

Not only are today’s SaaS solutions comparable to many traditional enterprise applications, the web-based architecture of SaaS solutions gives them a fundamental advantage over on-premise applications. SaaS solutions are easier for a dispersed workforce to access than on-premise applications hidden behind the firewall. This anywhere/anytime accessibility can permit SMBs to further reduce their office costs by encouraging their workers to do their jobs from home or the road.

But it’s not just about reducing costs with SaaS solutions, In the same way eCommerce leveled the playing field in many industries by creating a low-cost channel to market that SMBs could exploit equally with large-scale enterprises, SaaS is becoming an important equalizer for SMBs seeking to leverage powerful applications which were once only available to large institutions.

Kaplan is Managing Director of THINKstrategies (www.thinkstrategies.com), an independent consulting firm focused on the business implications of the on-demand services movement. He is also the founder of the SaaS Showplace (www.saas-showplace.com) and Managed Services Showplace (www.msp-showplace.com). He can be reached at jkaplan@thinkstrategies.com.




Tags: software, vertical, SMB, SaaS


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