In what appears to be a first editorial of this sort, Barry Rosenberg and Craig Wright discussed how CIOs and CFOs should work jointly to evaluate economic benefits of SaaS vs alternative software services procurement methods on a more comparable ground. The authors looked at specific fixed and variable costs of developing and maintaining the software application in-house, outsourcing or investing into license to SaaS subscription costs.

The article illustrates the challenges of comparing disjointed cost categories. While in-house development is often characterized by capitalized hardware/software/salaries costs, the subscription model generally fits into a different expense capegory (operating expenses). In-house development costs may also be spread over a longer time period i.e. 5-year rent for facilities cost. In contrast, while some SaaS contracts stipulate several year lock-ins, typical contracts are on a month-to-month basis.

Other considerations include:

1. Comparative scalability: typically not an issue of concern with SaaS but possibly a can of worms in case of in-house development in terms of hardware/software expenses, and resources utilized.
2. Sunk costs: even if SaaS costs will be lower overall, it may be difficult to make the right decision if there are already resources invested in the in-house project. Software ages very quickly and continual investment is necessary to keep it in line with the current needs.
3. Opportunity costs: of using competitive apps or engaging the workforce on the more strategic tasks
4. Costs of upgrades and maintenance: again, largely immaterial to SaaS
   data security/ownership risk: while executives may feel that in-house data maintenance is “more secure,” the comfort zone may have a higher price tag attached compared to the SaaS vendor who enjoys economies of scale and is able to spread the costs across the subscriptions.
5. Administrative expenses: vendor/contract management, hr for in-house staff
6. Usage considerations: if the application is part of a company’s “core competencies” in-house development may be more beneficial given greater potential for customization, quicker responsiveness to changes, customization to accommodate specific new initiatives and ability to “branch out” into related functional areas. On the other hand, if the application is not a part of company’s strategic initiatives and is aimed at supporting specific infrastructure i.e. HR, CRM, Sales, SaaS may be a better alternative.
7. What are some of the additional issues to keep in mind when comparing the two approaches?

Just as I was finishing this post, I came across Andrew Conry-Murray's article where specific cost comparison for similar licensed and SaaS products is done. That brings me back to the point I wanted to make - even though it is a bit more complicated, side-by-side comparisons (or the closest thing to them) are needed when evaluating both approaches and their implications.