Software as a Service (SaaS) spend is growing fast—amazingly fast. Gartner estimates cloud spend will grow 23.1% in 2021, and SaaS spend will grow to $122.6B as a category, even in the face of unfavorable economic conditions. In fact, SaaS spend is estimated to be bigger as a category than PaaS (Platform as a Service) and IaaS (Infrastructure as a Service) spend, which are categories with more mature cost management practices such as FinOps. Since SaaS spend is more addressable than perpetual license spend, the connected costs of SaaS means that there is a big opportunity to optimize and get more value from this spend. Let’s look at these in more detail.
Additional SaaS portfolio management costs to consider
When thinking about SaaS cost management, you may just be considering the immediate direct costs of the service itself. However, there are other factors to consider that can affect the overall cost and value of SaaS:
- Are these services secure and robust enough for the data being managed? Using the wrong services opens up organizations to unacceptable risk.
- Can these services be better aligned to the individuals or business units consuming them? A less effective service might be cheaper but deliver less value.
- Are there additional costs in storing data, integrating, and supporting the platforms? The total cost is what you should compare, not just the cost of a license or subscription.
- How do they support the enterprise architecture and strategy of the company? Some tools won’t work effectively together and will create friction between the services.
By looking at these connected costs, you get an understanding of the Total Cost of Ownership (TCO) of the SaaS spend and discover value levers that can be addressable in a shorter timeframe than the SaaS contracts themselves. For example, if your organization decided to stop using one of its virtual meeting technologies and consolidate, savings made against the additional storage and support costs may justify this decision even if the licenses still have time to run.
Why is SaaS portfolio management more effective with Technology Business Management and FinOps?
Since SaaS is a major part of current and future software spend, this means 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 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 choice to use a SaaS application rather than host on premises means a transformation in the way this application is supplied. The implementation and ramp-up can be extremely fast and lead to quick realization of value. There is still a need to support and integrate the application into your overall enterprise architecture, and this may require new skills and stronger analysis of the risks involved. This approach can address the risk-based concerns raised above and also the alignment of the service to the consumers.
- You can ensure that the application keeps delivering value. With ITAM this is a challenge because the data in the app is managed externally to the company. The total cost of ownership for the SaaS application is important to consider, as is the value it delivers to the business. Understanding the way that applications deliver value means understanding the unit costs and whether these costs scale favorably or not to the value driven from the services.
- You can address the Total Cost of Ownership. The investment in these apps becomes more flexible as the whole stack of spend in the application is more addressable and operating expenses (OPEX)-based rather than a long-term capital investment. Not only can the license cost be addressed and rightsized, but so can the additional total cost of additional services, storage, development, project work, and so on. These costs could be addressable in a shorter timeframe—in some cases on a pure demand basis. When the demand ends, you can just reduce that cost component completely, or when you need more, it is quickly available.
These challenges are a core part of TBM and part of the reason Apptio is a great technology partner to plan, optimize, and make these decisions on how to deliver business value with SaaS applications.
Why use SaaS vs hosted apps at all?
Now that you’ve learned more about total cost considerations, why would you look at SaaS at all? Some businesses choose SaaS over hosting apps internally because it greatly simplifies the TCO of the application. If you look at the overall cost of delivering the application as a service internally, you 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 also allows you to quickly enable new technologies and replace old ones. With this fluidity, service owners need to constantly check that services being consumed are still relevant and that the total cost is well understood and put in perspective.
While finding cost savings for SaaS licensing is important, the bigger 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.
How to get started managing your SaaS portfolio
Getting an understanding of the total cost of SaaS applications and services is vital for CIOs and business leaders. It’s 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 you managing SaaS spend? Are you 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 such as Cloudability SaaS can help you effectively understand, manage, optimize, and govern your SaaS portfolio. To learn more, check out the latest advancements in Cloudability SaaS and the way it can provide value quickly in understanding and managing your portfolio.