SaaS WCM TCO Comparisons are Premature

I have read several posts recently about the merits of SaaS WCM and the reduction in Total Cost of Ownership (TCO) that they bring.  I’m not going to bother linking to them here because, to me, they read like marketing schlock from some SaaS WCM vendor.  I think any TCO comparisons between SaaS and traditional WCM deployments are premature, especially in the enterprise market. 

I say this for two reasons: first, there are very few WCM vendors with SaaS offerings, and none in the enterprise market, so any comparisons are likely to be apples-to-oranges.  Second, just because SaaS could theoretically create efficiencies and opportunities for cost savings, it is too soon to know if this shift will actually result in TCO savings for WCM customers.

As Irina Guseva discussed in her recent post, the SaaS WCM market hasn’t yet achieved “liftoff”.  The biggest players currently in the space are entry-tier, mid-market or niche vendors such as WordPress, Clickability, CrownPeak, and OmniUpdate.  TCO comparisons between these vendors and other traditional competitors within the lower and mid-markets might be valid, but claims that these SaaS offerings provide TCO savings for enterprise applications don’t make sense.  These are different markets with different requirements and products that have different capabilities.

It doesn’t make sense to compare the cost of my beloved stovetop espresso maker (roughly $20) with a Franke Sinfonia 1-Step Superauto ($22K).  They both make espresso, but have very different capabilities and are intended for very different markets.  The difference between mid-market and enterprise WCM solutions might be less striking, but I suspect very few enterprise WCM clients would consider one of the today’s SaaS WCM solutions to be a suitable alternative.

Even when the enterprise WCM vendors do enter the SaaS market, it has yet to be seen how that will affect TCO for customers.  These services are not priced based on what they cost to provide.  They are priced based on what customers are willing to pay – and that willingness is shaped by perceived value, pricing of suitable alternatives, and budget constraints.  If a SaaS solution creates efficiencies for a client (e.g. reduced IT staffing, hardware purchases, etc.), it increases the perceived value and frees up IT budget dollars, thus justifying an increased pricetag.   It is entirely possible that vendors will price their services to capture those saved budget dollars.  SaaS might not result in TCO savings; instead, it might yield higher margins for the enterprise vendors.

One example of this phenomenon is server hosting.  It is actually more expensive to host a single virtual server for a year on Amazon EC2 than hosting a dedicated server at Rackspace, even though the cost for Amazon to provide this service should be lower.  Amazon EC2 adds value to customers by allowing them to quickly spin-up and tear-down servers and use them for short periods of time, and that value translates into higher TCO for clients if they are doing long-term deployments.

Of course the hope is that once enough enterprise WCM vendors enter the SaaS market, the competition will help drive down prices closer to the true cost of the vendors to provide the service.  I have very little faith that this will actually happen – especially in the enterprise market.  The traditional WCM enterprise market is full of vendors now, but they are not exactly engaging in a race to the bottom on pricing.  The bottom line is that we still have to wait to see how SaaS WCM offerings will affect TCO in the enterprise market.