olution feature for a benefit. Second, use company and industry data to
calculate a monetary value for each benefit. Third, understand and employ effective
financial tools to calculate cash flow, net present value, and return on investment.
Adhering to this approach shows business leaders that a SaaS-based solution is
strategic to the organization, not merely tactical to one department.
To calculate the value of software-as-a-service to your organization, use the research
and conclusions in this document as a guide, and then contact Astoria Software to
schedule a free ROI analysis of Astoria On-Demand. The value of SaaS-based solutions
is waiting to be unlocked.
A Business Whitepaper
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Calculating the Value of
Software-as-a-Service
to Your Organization 2

Calculating the Value of Software as a Service to Your Organization
www.AstoriaSoftware.com
Software-as-a-Service in Brief
Software-as-a-Service (often abbreviated as
SaaS) initially looks like ASP Hosting of the
1990s with a new name. Both models provide
software access from a remote location, and in
both models the hardware is managed by a
service provider. Beyond these commonalities,
the two concepts diverge. Key distinctions are:

Software. In SaaS, the software is likely
a back-office application, such as a CRM
package or an office productivity suite.
Access. In SaaS, access to software is
over the public Internet.
Pricing. In SaaS, the software is rented;
invoices appear as usage accrues, usually
on a monthly basis.
Strategy. In SaaS, the Service Provider
delivers both the software and the
hardware.
Introduction
By 2009, business executives worldwide will spend $10.7 billion on Software-as-a-
Service (SaaS).
1
By 2010, global organizations will fulfill 25 percent of their application
demands with hosted software.
2
Many essential business applications are now available
over the Internet via SaaS (see sidebar entitled
Software-as-a-Service in Brief
) and
the list is growing. Tools for building, managing, and assembling dynamic product
documentation now join this list of key back-
office applications that can be rented from a
software service provider.
Why is the popularity of software as a service
rising? A Cutter Consortium study of 118 IT
professionals, conducted in October 2005, found
that 86 percent of respondents expect SaaS to
generate cost savings, achieve greater ROI (27
percent), smaller staff requirements (24
percent), improved reliability and performance
(21 percent), quicker/easier deployments (18
percent), and systematic upgrades and updates
(8 percent). Bill Cannon, vice president of
consulting for AMR, summed up the growing
market interest in SaaS this way:
Users are saying I would be nutty not to at least give [software-as-a-
service] strong consideration going forward. Whether they do it is
another item, but upwards of 60% of customers are saying to get on my
short list, software-as-a-service is one of the key criteria I am looking
for. What they are saying is they recognize all the promised benefits of
decreased cycle time, faster time to value, lower cost per user, lower
[total cost of ownership], not to mention the change in the economic
model from a capitalized expenditure to a manageable [monthly]
expense.
3

The first step in justifying a move to SaaS is gathering details on how these claims are
established and supported by operational data. Unfortunately, those considering an

1
Worldwide and U.S. Software as a Service 2005-2009 Forecast and Analysis: Adoption for the Alternative Delivery
Model Continues, IDC # 33120, March 2005.
2
Kaplan, Jeffrey M. SaaS Soaring with Web Hosts, Web Host Industry Review, October 17, 2005.
3
The Rise of Software-as-a-Service, CIO Today, December 27, 2005. A Business Whitepaper


3


on-demand solution are often left on their own to construct a clear business case for
software-as-a-service, complete with financial justification. This may be asking a lot
when there is little hard data available in the public domain, and may explain why
respondents to a May 2004 survey by IDC identified tactical rather than strategic
catalysts for adopting SaaS
4
.
This paper addresses this problem in three steps. First, it gives criteria for identifying
the actual benefit of a SaaS-based service. Second, it describes the financial analysis
necessary to make the business case for SaaS. Third, it shows how to use that data as
input to key financial metrics. Throughout this paper, real-world examples are drawn
from Astoria On-Demand, a SaaS-based solution for dynamic product documentation.
Building the Benefit List
The first task in calculating the value of a SaaS-based service is gaining clarity on its
actual benefits. Most organizations can enumerate a half dozen or more ways to cut
costs, minimize risks and focus IT on strategic, mission critical projects. However,
identifying benefits that are clear and quantifiable rather than grand and sweeping
remains a challenge.
For example, Saugatuck Technologys
5
recent analysis of first-generation SaaS
providers found the following broad messages in common:

Reduction in software costs and total cost of ownership (TCO)

Service-level guarantees

Rapid implementation

Aligning IT expenses with business activity
6

There are four critical reasons the foregoing messages do not constitute quantifiable
SaaS benefits. First, the typical office worker does not have access to all the
operational data required to back up the claims. For example, TCO calculations
require information that is not usually widely available, and may not even be

4
Software as a Service QuickLook IT Survey, IDC, May 2004. The two
tactical catalysts identified were: 1) a drive to
reduce IT costs, and 2) the need for a major software upgrade.

5

McNee, Bill, Get Ready for SaaS 2.0, Sandhill.com, May 08, 2006.

6
To differentiate their respective messages, SaaS vendors talk about horizontal solutions, varying levels of
application configuration and data integration (perhaps through some use of web services), and the range of their
subscription pricing options. 4

Calculating the Value of Software as a Service to Your Organization
www.AstoriaSoftware.com
collected. To be sure, companies do keep data on the actual maintenance fees paid
each year. But what about the aggregate costs to use the software productively
throughout the organization? What about those costs projected over the lifetime of
the software? Or the lifetime of the organizations current business? Or the lifetime of
the organization itself? When establishing a benefit, sufficient operational and
financial data must be available to clearly support the claim.
Second, it is the rare organization that can equate specific benefits of a software
package with specific cost savings or revenue increases. This is not to say that such
equations dont exist; they do. However, the value ascribed to any one benefit of a
software application requires an ability to isolate that benefitat least to some
reasonable degreeand then quantify its value to the organization. For example, one
benefit of an on-demand document production solution might be to eliminate,
automate or improve key editing, revising, reviewing and publishing tasks for the
technical publications group. A second, independent benefit might then be reducing
the technical publication burden that falls upon Engineering teams. By contrast,
phrasing this second benefit as reducing the costs to produce technical publications
would overlap with the value achieved through the first benefit. Each benefit must
stand alone, representing clear and specific cost savings or revenue increases.
The third common problem is that features are mistaken for benefits. Features of a
hosted content management service, for example, include:

Zero installation costs

Complete platform independence

Anywhere/anytime access

Continuous product improvement
These features are not benefits in themselves and are not quantifiable. A true benefit
is a goal or objective that the organization wants to achieve with a new solution (SaaS-
based or installed). Furthermore, a true benefit is independent of any specific
vendors solution or capability.
The following table describes several true benefits for adopting a SaaS-based content
management solution. Note that zero installation costs from the feature list above A Business Whitepaper


5


will allow fulfillment of the benefit statement eliminate annual cost of maintaining
the legacy system. Other such mappings are possible but the guiding principle is each
benefit must be independent of any other in the list, and none can be a feature
masquerading as a benefit.
Category
Benefit Statement
IT Cost Savings
Eliminate annual cost of maintaining the legacy system.
Reduce paper printing and distribution costs.
Reduce cost of localization or translation.
Productivity Gains
Eliminate, automate or improve key editing, revising,
reviewing and publishing tasks for the technical publications
group.
Reduce technical publication burden on Engineering teams.
Quality and Compliance Increase competitiveness by improving information quality,
ease-of-use, consistency and timeliness.
Reduce litigation liability.
Future Digital Initiatives Improve competitiveness with better targeted digital
products.
Leverage data in other company departments.
Reduc