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Rethinking the SaaS Cost Equation in the Cloud

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When On-Prem makes more sense than SaaS (Software-as-a-Service) in the “cloud”. A big change has been witnessed by veteran CTOs like me in the ISP industry. The culprit? Skyrocketing SaaS costs in the cloud. Companies are re-evaluating their options, and justifiably so. I mean really can you blame them? SaaS providers often bait and switch with 15-20% rate increases that you can buy down with compute commitments and so on. It’s madness.

Herein lies the problem. Many SaaS providers are stuck in pricing models that do not fit with the changing landscape. They will charge the same or even more for software licenses as companies bring the compute power in-house. This simply makes no sense.

Why Pay for the Hardware You Don’t Own?

Now, let’s unpack that. Sitting squarely in the middle of the value proposition is “pay for the software and let us manage the infrastructure.” The firms that chose on-prem deployment, however, are burdening themselves with a responsibility (and usually a cost savings) price to manage their compute resources.

Here is where it gets maddening. Many SaaS vendors hold their pricing at a point that, in essence, charges the customer for an amount of service (compute and storage) that they are not even consuming. This means the customer is short-selling themselves but also missing a golden opportunity. Now, I’ll be fair. SaaS works for ISPs. Smaller ISPs that may not have a team to manage a hosted infrastructure with high availability for example is one.

Open Source with a Hidden Cost?

And the fashion goes beyond the so-called traditional SaaS providers. Even the open-source movement wasn’t spared. A lot of open-source projects started offering “commercially supported” versions with big price tags. So, while support is valuable, most often these fees seem more like a thinly veiled attempt to recoup the lost revenue stream that had come from on-premise deployments. Grafana is an example of that. They have some great things happening but it doesn’t matter if you are in the cloud or on-prem, you are going to pay these same premiums and it makes no sense.

A Smarter Solution: Collaboration, Not Competition

SaaS providers will need to change their approach. Instead of trying to stem the tide of on-premise deployments that have to come, they need to find a way to be part of those discussions and considerations. This will be appealing to all: Tiered pricing: Offer up to a huge discount for on-premise deployments to reflect the cost on the vendor’s side. Value Add: Be the true software partner for the customer, provided through superior support, integrations, and continued development of new features. Open up and embrace open standards. Make on-premise infrastructure easily accommodative and open up and even promote a hybrid environment.

Finding Savings Through Partnership! That’s right I said the word, Partnership!

So, in my ISP, when we looked on-site, we found big savings. Still, we found value in the expertise offered by a software vendor. We are glad we found a provider who was really willing to embrace the new model but it wasn’t without pressure. Through the use of their software on our hardware—supported by the solid software management platform of a prime supplier—substantial operational expenses (OPEX) cuts were achieved. Nobody had a good answer on why would you charge me more if I’m doing all the compute. I usually don’t call out vendors but if I’m going to use the word partnership and given they listened. I’d like to thank Cambium Networks for stepping up and being willing to adapt.

Hey you, SaaS vendors, yeah you, get it together, do better.

Catch up with the times or be ready to lose your market share. Customers look for innovative value propositions, not outdated pricing models. Meaning thereby, you may as well embrace the on-premise trend, offer tiered pricing, and make sure you are a real software partner. Then only you can create a win-win situation for you and your customers. The number one reason I look for new solutions is the current one isn’t listening or unwilling to change. Where do you want to sit on that equation?

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