From a customers viewpoint SAAS came in as an alternative because of the extra(Resources, People, Technology) costs which come along with buying the perpetual license and paying the license fee as a Single CAPEX cost.
This statement is not absolute and there are monthly subscription based S/W solutions which need to be refreshed by paying the monthly fee and many other things in place….but costs like IT have to be borne by the customer.
From the ISV’s view it was a good way to grow market share by balancing the risks which were borne by the customers. So do a TCO analysis and factor in all the costs which come along – /add/subtract/multiply/Divide/competitively adjust and charge the customer a Fee, per month.
The Cost Of Goods before Sales for a ISV increases many-fold here. So asking an ISV – "Hey, we understand that costs are being transferred to you with a markup(Margin) for the extras which come along. But we don’t want to borrow a loan from a bank whose interest rates are high"…..
So, an ISV looks at cutting costs everywhere to keep the interest rates low – Offshore, share resources, reduce sales team size and utilize more cost effective marketing based, innovate, Do, blah blah ..blah blah..AND OBVIOUSLY cut the IT Infrastructure costs which hosts the customers solutions.
I’ve been in the ISV space for sometime and agree to what Timothy Chou(former head of Oracle’s On Demand business) says – " On the customer side, the total cost of ownership of business systems is heavily weighted toward on-going support. Customers often worry about the cost of software licenses. But the license cost is dwarfed by the support cost. The rule of thumb is that a customer is going to spend four times the purchase price of the software per year to manage the software.".
Please look up this interesting post here.
So, when I looked up, smoothspan at his post here, I felt good. I’m at least thinking like some other people around. He makes it very clear when he says, "Everyone seems to agree that the purpose behind multitenancy is to lower costs for the SaaS vendor. These savings are translated into lower costs to their customers and a better shot at profitability."
He sounds even better when he says –
"Let’s get one thing absolutely crystal clear before going further: there is no single implementation or architectural design pattern that can be called multitenancy. Rather, multitenancy is an abstract concept largely rooted in benefits more than features."
So, his working definition for Multi-tenancy is:
Multitenancy is the ability to run multiple customers on a single software instance installed on multiple servers to increase resource utilization by allowing load balancing among tenants, and to reduce operational complexity and cost in managing the software to deliver the service. Tenants on a multitenant system can operate as though they have an instance of the software entirely to themselves which is completely secure and insulated from any impact by other tenants.
He also worked out the AAS (as a service costs) for SAAS companies from data available –
This works out to be 26%. So using 2 data-sets(AAS + Chou’s 4X), a well developed Multi-tenant model should have a cost advantage of 1:16.
This means the BANK/ISV is trying it’s best to keep the interest rates and payment options good. Go for it, users….
Posted by Digvijay "VJ" Singh Rathore