Gartner: Don't assume SaaS is cheaper

While SaaS costs less at the beginning, that changes over five years

IT managers should not assume that software as a service is cheaper than on-premise software, Gartner has said.

The analyst house said there had been a "great deal of hype" around SaaS, and that businesses had misconceptions about its cost.

[ Analyst house IDC and others this week are saying that cloud security concerns are overblown. Read Ephraim Schwartz's column, "Calculating the cost of SaaS." And follow the cloud with InfoWorld's Cloud Computing blog. ]

SaaS is cheaper during its first two years of use, Gartner said, but five-year total cost of ownership would be lower for on-premise software. Part of this was from an accounting perspective, as the capital assets for on-premise software would depreciate.

Calling for businesses to have a "reality check" on SaaS, Gartner VP Robert DeSisto said: "The concern is that some companies are actually deploying SaaS solutions, based on these false assumptions."

In its report "Fact-Checking: The Five Most-Common SaaS Assumptions," Gartner also warned that SaaS was not necessarily faster to implement. While vendors quote 30 days as the normal implementation time, some software still takes up to seven months, it said.

Businesses are equally wrong to assume they will be billed according to usage, Gartner said. In "the vast majority of cases," it explained, firms were pushed to sign pre-determined contracts with a fixed fee.

But companies also underestimated SaaS, the report stated. Many felt they could not integrate the software with on-premise applications or data sources, but data could be initially loaded to the SaaS application then updated regularly or in real time using Web services. Additionally, Gartner said, firms needed to remember that SaaS applications can be customized and are no longer only for basic functions.