The 3 Biggest Mistakes to Avoid When Choosing a SaaS Model

Posted by on May 26, 2016


We can expect an increase in worldwide Software as a Service (SaaS) market dominance over the next four years. Leading research firm IDC predicts cloud software will grow to surpass $112.8 billion by 2019, at a compound annual growth rate of 18.3 percent. SaaS has been one of the more disruptive trends in all of IT, impacting all markets – most notably the ITSM market, which has seen the lead of market share switch from vendors peddling traditional, on-premises products to those offering SaaS-based solutions.

I think it’s safe to say the hype around SaaS has largely quelled, and IT organizations have a solid understanding of the model in terms of both the risks and the benefits. Aside from organizations with data privacy or performance concerns, the SaaS (or cloud-based) model is often the default choice.

Tweet this: #Saas has been one of the more disruptive trends in the #ITSM market, here are 3 mistakes to avoid

Take the very popular and much debated iceberg infographic below as an example. At first glance, why anyone would consider the traditional on-premises model may appear baffling. After all, look at the all the STUFF they have to deal with when the IT organization doesn’t choose the cloud-based model. It’s enough to sign the purchase order right now. Not so fast!

Iceberg Infographic

I use this infographic often when I speak to IT organizations about the many considerations they must juggle when evaluating software. Moving to the cloud isn’t an insignificant choice. These can be million-dollar decisions, which means reputations, if not jobs, are on the line, should anything go south with the implementation. The conversation I have about this slide speaks against my own interests as a leader at a software company that offers a cloud-based solution, but it’s a conversation to have just the same.

Just recently when speaking at a local forum for Higher Education financial leaders, I asked them to take a moment and listen clearly to what I was about to tell them, as it’s likely that no vendor/solution provider has uttered these words to them over the past 10 years:

“SaaS, in itself, is not your savior.”

With that said, here are the three biggest mistakes I’ve seen companies make when committing to a SaaS model, along with my advice for avoiding them:

Tweet this: The 3 biggest mistakes companies make when committing to a #SaaS model and advice to avoid them

Mistake 1: Assuming SaaS is the less expensive option

SaaS can be way more expensive – and not just when it comes to licensing costs. SaaS models generally offer lower expenses in the first few years because you’re buying a subscription, rather than purchasing the solution and paying for a relatively low annual maintenance outright. However, in order to understand which model costs “less,” time horizon is everything. On average, subscription licensing tends to break even with perpetual licensing after 3.5 years, after which you start paying collectively more for your subscription model.

Furthermore, the argument that SaaS saves money in other areas, specifically hardware and administration, is not always true. There’s still software to configure, customize, integrate, and upgrade. While some newer SaaS-based applications may be easier in that regard, the notion that just because the vendor licenses via SaaS doesn’t mean these challenges automatically go away, and can often require specialized (read: costly) skills and resources to manage and maintain your instance.

How to avoid making this mistake: Don’t assume SaaS always requires less administration. Exercise due diligence when researching a SaaS option. In addition to testing the performance and security rigor of the product, do not overlook the flexibility and power of the software. If you find that you’ll reduce maintenance and administrative burden by hosting the application in-house, ensure that the overheard doesn’t come back in the form of software administration.

It can be a challenge to test and understand how easy it is to configure, customize, and integrate the solution, and then see how easy the solution is to upgrade versions after those changes are made – but talk to customer references or conduct a proof of concept to test. The time spent slowing down will be time well spent later down the road for the IT resources who will be working with the product on a daily basis.

Mistake 2: Assuming all SaaS models are the same

Many IT organizations like the subscription model cloud-based solutions offer, giving them the opportunity to pay as they go, so as long as they are getting value that’s commensurate with the cost. However, finance organizations may have a different take on the model based on the fact that leasing an asset means there is no asset to depreciate over time. But financial preferences aside, what happens if the vendor, within their contractual obligation, decides to change their pricing model, increase subscription costs, or start charging for capabilities that were previously built in?  What if the value no longer exceeds the costs, but the IT organization has signed a contract with fixed costs and a fixed term?

Furthermore, the subscription often begins on a set date, whether the solution has been moved into production or not. I recall speaking to one organization who signed a deal with a large SaaS ITSM vendor, and could not secure the resources they needed to go live with the product. Still, they were legally obligated to make quarterly payments on a solution that was providing them no value.

How to avoid making this mistake: Distinguish between the licensing model of SaaS and the deployment model. The easiest way to understand it is knowing whether your organization prefers to own the software or subscribe to it. Then determine where your organization wants to put the software – in your data center, the vendor’s data center, or someone else’s data center. In that regard, the organization can own the software and IT can have it hosted offsite. Should the need to mix and match ever arise, understand the costs and services associated with switching.

Finally, be smarter about the contract you sign. Consider stipulating that payment won’t begin until the product is fully deployed, or look into implementing protections that prevent your vendor from switching licensing models mid-subscription. Involve your legal team to ensure you are protected on all sides before signing anything.

Mistake 3: Believing you can control performance and availability:

Regardless of what controls and approaches to risk mitigation are in place, there is still no guarantee a vendor can provide relating to performance and availability. IT organizations are also at the mercy of the vendor’s maintenance windows – their downtime is your downtime. SLAs and clauses in the contract might provide service credits or financial compensation if the system goes down, but you can’t buy lost productivity – or worse, damaged reputation – back with the money. Granted, the majority of SaaS organizations have built solid levels of redundancy to address availability, but what about performance, and the definitions around it? There are few things more frustrating than paying for a subscription, only to find the application is lagging, buggy, or completely unavailable. Does your contract specify how you can communicate, rectify, and be compensated when such issues arise?

What to Do: Availability is relatively easy to measure, but be clear on how the vendor measures it and what the definitions around planned and unplanned downtime actually are – as well as how and when to receive notification in the case of such of an event. Also ensure there is an understanding of how to handle situations when connectivity to the vendor’s site is the issue, as well as having the means and capabilities to track the vendor’s performance – it’s rare for a vendor to self-report issues, the onus often falls to the customer.

Tweet this: When deciding whether or not to purchase #SaaS, there is more to consider than price alone

Remember, when you are deciding whether or not to purchase SaaS, you have more to consider than the price tag itself. By understanding the potential pitfalls of choosing the wrong hosting or licensing model for your needs, you could be protecting your organization from significant expense and headaches down the line.

Are you curious about where your current ITSM solution ranks? Check out the Forrester Wave™: ITSM SaaS Delivery Capabilities. This analyst report can tell you how the top 10 ITSM vendors rank based on their SaaS delivery capabilities, plus much more.