In 2021, cloud Infrastructure as a Service (IaaS) was predicted to expand at a rate of 32.7%, accounting for roughly 46% of total investment. In the next few years, IaaS spending is predicted to overtake cloud software spending, owing to infrastructure development being allocated in a phased deployment over time to support growing expansion and upgrade.
Software as a Service (SaaS) is the second most popular, accounting for 41% of total spending. With a 12%, platform as a service (PaaS) comes in second.
Since software-as-a-service (SaaS) spend is more easily addressable than that for perpetual license spend, the connected costs of SaaS mean that there is a significant opportunity to optimize and get more value from such spend.
When thinking about SaaS cost management, you may just be considering the immediate direct costs of the service itself. However, other factors can affect the overall cost and value of SaaS: for example:
- are these services secure and robust enough for the managed data, since using the wrong services opens up organizations to unacceptable risk? Services should be aligned to the individuals or business units consuming them, considering that a less effective service may be cheaper but may also deliver less value.
- Another factor is knowing if there are additional costs in storing data, integrating, and supporting the platforms. Compare the total cost, not just the cost of a license or subscription.
- Also consider if these services support the enterprise architecture and strategy of the firm, since some tools will not integrate effectively and may create friction between the services.
By looking at these connected costs, a more realistic Total Cost of Ownership (TCO) of the SaaS spend can be derived, and management can discover value levers that can be addressable in a shorter timeframe than the SaaS contracts themselves. For example, if an organization decides to stop using one of its virtual meeting technologies and consolidate—savings against additional storage and support costs may justify this decision even if the licenses still have time to run.
What are TBM and FinOps?
Since SaaS is a major part of current and future software spend, traditional-style Software Asset Management (SAM) and IT Asset Management (ITAM) disciplines are changing.
The SaaS challenge fits more with core problems of spend management, Technology Business Management (TBM), and cloud financial operations (FinOps) rather than the other complexities of owning assets. With TBM and FinOps, teams have more influence on their choice of tool.
- FinOps allows teams and end-users to choose appropriate technologies and get control of their spend. The option to use a SaaS application rather than host on-premises means a transformation in how this application is supplied. The implementation and ramp-up can be swift and can lead to a quick realization of value.
- There is still a need to support and integrate the application into the overall enterprise architecture, and this may require new skills and a stronger analysis of the risks involved. This approach can address the risk-based concerns raised above and align the service to the consumers, and ensure that the application keeps delivering value.
With ITAM, this is a challenge because the data in the app is managed externally by the company. The TCO for the SaaS application is important to consider, as is its value to the business. Understanding how applications deliver value means understanding the unit costs and whether these costs scale favorably or not to the value-driven from the services.
In addition, TCO is addressed as follows: The investment in these apps becomes more flexible as the whole stack of spend in the application is addressable, and becomes operating expenses (OPEX)-based, rather than viewed as a long-term capital investment. Not only can CIOs and management address and right-size the license cost, but the total cost of additional services, storage, development, project work, and others can also be addressed and right-sized in a shorter time frame—in some cases purely on a demand basis. When the demand ends, that cost component can be reduced completely, or when more is needed, that component is quickly available.
SaaS vs hosted apps
Some businesses choose SaaS over hosting apps internally because it dramatically simplifies the TCO of the application.
Looking at the overall cost of delivering the application as a service internally, CIOs have the software cost as a small portion with labor, infrastructure, and project work, resulting in large OPEX and capital expenses (CAPEX) investments.
Using SaaS allows CIOs to enable new technologies and replace old ones quickly. With this fluidity, service owners need to constantly check that consumed services are still relevant, and that the total cost is well understood and put in perspective.
While finding cost savings for SaaS licensing is essential, the more significant value gains come from ensuring how the apps provide business value and managing and rightsizing the other costs of supporting, integrating, and ensuring the use of the applications.
Using TBM for SaaS portfolio management
Understanding the total cost of SaaS applications and services is vital for CIOs and business leaders. It is not just about the immediate contracts with vendors, but how the service provides value and the other necessary components to deliver the service.
How are CIOs managing SaaS spend? Are they treating it as a legacy cost-based exercise, or looking more at a holistic way of planning and measuring value to your organization? A TBM-aligned tool can help them effectively understand, manage, optimize, and govern your SaaS portfolio.
Essentially, using a TBM-aligned tool can help CIOs and management effectively understand, manage, optimize, and improve governance of their SaaS portfolio.