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The High Cost of a Low-Price SaaS Solution


Modernizing legacy systems by replacing them with an off-the-shelf SaaS solution seems like an easy upgrade. SaaS applications have a relatively low upfront cost (typically a monthly fee), an easy onboarding process and integrate with the latest technologies.

Spend a year trying to get your SaaS applications to bend to your wishes, however, and you will find yourself rethinking those assumptions.

While the upfront cost might be low, the long-term consequences of going the SaaS route may end up costing your business far more. Below are three common reasons why.


Issue No. 1: One Size Doesn’t Fit All

The SaaS model is so successful because those businesses are able to deliver software to thousands of businesses for a relatively low monthly price.

By appealing to so many businesses, however, the software ends up lacking specific functionality enterprise businesses need.

In particular, relying on a network of SaaS applications makes it hard for businesses to offer a truly innovative and differentiated service, writes Jodi Alperstein, senior vice president at Twilio-Segment.

They’re often incompatible, too. “Off-the-shelf solutions lack the flexibility to interact and integrate with existing tools and processes, meaning data is often left siloed between departments and teams, resulting in lost insights or confused customer experiences,” Alperstein writes.


Issue No. 2: Data Security

When you integrate SaaS applications, you give third-party companies access to your internal operations and your data.

That introduces several risks, says Matt Kelly, editor and CEO at Radical Compliance. If your vendor lacks security controls, an attacker could use their systems to breach your data. Similarly, if they lack sufficient security measures, attackers can access the data the SaaS company stores on your behalf.

“That could leave your business exposed to regulatory enforcement (say, under the EU General Data Protection Regulation) or reeling from the loss of important intellectual property,” Kelly writes.

Ultimately, data security is taken out of your hands, and you must rely on SaaS providers to keep pace with security standards. While providers may boast about security credentials on their sites, says Allan Jay, a senior writer at FinancesOnline, there’s no guarantee those standards will remain high in a year or two.



Issue No. 3: High Long-Term Costs

The low monthly fee is one of the main draws of SaaS. But that fee can be misleading when you need several seats.

Work out the actual fee you’re likely to pay for the number of users you require and calculate that over five or more years, and the SaaS solution may not seem so cost-effective.

That might not be the upper limit of what you pay, either. Price increases are common with SaaS products, particularly when new features — some of which your business won’t even need — are released.

That’s why companies must “call out the full budget impact of the decision” when considering a SaaS application, advisor and strategist James MacLennan says. “Our frustration with our stale systems will go away, never to return — but the flat-to-decreasing support costs for those systems will also disappear, replaced with inexorably increasing invoices from our vendor.”

Finally, the low cost of acquiring SaaS tools is a problem itself. Philip Kushmaro, a partner at Gemba Finance, says enterprises could be using as many as a thousand cloud services across the business, most of which will be either underused or unnecessary. That’s a significant amount of wasted resources and redundant spending.


The Alternative to SaaS

For many businesses, SaaS will not be the best solution. “We have been lured in by packaged software before – earlier it was ERP, now we have SaaS, and while packaged software as a service, by definition, is not wrong to implement, it should not be the first decision made,” says Prashant Kelker, a partner at ISG.

If businesses choose a SaaS tool, they must be willing to shape their operations around the solution, he says, not the other way around.

If you are not willing to do that, implementing your own solution should be the answer.


Images by: Towfiqu barbhuiya, charlesdeluvio

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