Want to Save Money Using SaaS? Be Wary of Contract Terms

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Vendors may pitch software as a service (SaaS) to help companies avoid high up-front costs of deploying IT systems, but these applications can end up being more expensive than in-house software programs, warned a speaker at Springboard Research's SaaS Asia Conference 2009 in Singapore.

IT managers considering SaaS offerings have to consider the total costs that will be incurred over the life of the application, said Paul Sharp, vice president of information technology and supply chain at AdvalTech Omni, a maker of precision tooling and molds.

Done right, SaaS offerings -- sometimes called cloud computing applications -- can eliminate capital expenditure costs required to roll out new systems and reduce service and maintenance costs. But a badly negotiated contract can end up being an expensive burden that can last for many years, long after arguments that these contracts save capital expenditure costs have been forgotten, Sharp said.

"If you go into this blindly, you'll end up paying a lot more than doing it in-house," he said.

Many Asian companies are considering SaaS applications as a way to cut their IT costs, particularly capital expenditures, said Michael Barnes, vice president of software and Asia-Pacific research, at Springboard Research.

"There's an absolute focus on cost savings. Everyone is talking about capex and being able to cut down that up-front expenditure," he said.

After 12 percent growth during 2008, IT spending in Asia-Pacific, excluding Japan, is expected to grow by 7 percent in 2009, driven by demand from India and China, as well as government stimulus programs, Barnes said.

Technologies that are getting the most attention from Asian companies right now are virtualization, collaboration tools and cloud computing, Barnes said, noting that e-mail, customer relationship management and security are among the most popular SaaS applications in the market.

Barnes advised conference attendees to resist the urge to cut spending on IT, saying investments in SaaS and other technologies can make them more competitive -- a factor that is more critical now that key economies are mired in recession.

"In a growth market, even turkeys can fly," Barnes said. "To avoid being left behind, to position yourself to succeed, you absolutely need to be investing now."

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