Pardon my language, but GFQ: Good Fracking Question! With the way that most providers price these days, it’s really hard to tell and bravo! to Chain Link Research (CLR) for taking up the issue in a recent 2-part piece on SaaS Pricing: Insanity or Good Deal for Users (Part One and Part Two). When I first broached the subject back in 2009 in my series on An Enterprise Software Buying Guide (Part I: Overview, Part II: Cross Functional Team Formation, Part III: Need Identification, Part IV: Potential Solution Identification, Part V: Cost Model Definition, Part VI: Cost Model Calculations, Part VII: Negotiations and Part VII: Contract Definition & Management), I thought I was the lone crazy voice talking to the cat in the corner that wouldn’t listen because, at the time, everyone thought SaaS was always cheaper and the wave of the future. (Sometimes it is, sometimes it isn’t.) The reality is that up-front license cost or annual subscription fee is only one part of the puzzle, and until the full puzzle is understood, it’s hard to figure out what the true cost is and, ultimately, what’s the right solution for the organization.

As the CLR articles point out, the first thing you have to figure out is what you’re buying. Is it on-premise, hosted ASP, or SaaS/Cloud, and then, more importantly with respect to today’s cost models, is it enterprise or community? I.E. Is it 100% internal to your organization or does it allow you to connect with different organizations within the extended enterprise as well as supply chain partners? Is the price fixed, per usage metric, or based on Spend Under Management (SUM)? If your organization only has 20% SUM today but is buying the solution to get to 80% spend under management, then the cost of the solution is going to quadruple overtime. What sort of user connectivity is supported? Is it in-house only? Remote? Multi-location? And, today, multi-device? (Executives want everything, whether it makes sense or not, to work on their iPad and/or iPhone.) How secure is it? And how much hardware and/or how many data centre resources are going to be required to support it?

If it’s on-premise/hosted ASP, is the license perpetual or for a limited term? If it’s SaaS, is it single-tenant or multi-tenant? What sort of availability or security assurances are there? Is anything being outsourced?

And then, once you get a grip on the basic delivery model, you need to start coming to terms on how the solution is being priced. For SaaS, what is the frequency of subscription payments? What is the payment based on — site license, number of seats, number of transactions, CPU utilization, bandwidth utilization, storage requirements, and/or dollar volume processed? And what are the up-front costs? Is there a one time integration or implementation fee? Any customization fees? Any training fees? The list goes on.

Similarly for enterprise. Is the license fee fixed-term or perpetual? Site license, by user, by server, or by CPU? Does it require any middleware that must be licensed separately? What is included in the way of implementation and integration? In terms of user training and, more importantly, site administrator / developer training? How much customization is required? The list goes on.

For an average business user trying to select the best solution for the business, it’s like trying to compare apples to oranges (which can be compared, by the way — see this post) to processed fuel (which is of an entirely different composition and has an entirely different production cost model, unless, of course, it’s corn-based ethanol). But there is hope! Stay tuned for Part II!