In today's business landscape, the transformative potential of Software as a Service (SaaS) is widely recognized, with its flexibility, automation and cost-efficiency that makes an appealing strategic choice across various industries.
In the telecommunications sector, the discussion frequently centers on the challenges of achieving a return on investment (ROI). One of those is the perception that SaaS is costlier than traditional, license-based capital expenditure (CAPEX) models.
This perception is sometimes linked not only to the total cost of ownership (TCO) but also to the financial and accounting strategies of communication service providers (CSPs), where CAPEX-based spending serves as a key performance indicator and is closely monitored, sometimes encouraged.
Breaking down financial barriers
The main concern for finance and procurement departments is the perceived TCO associated with SaaS compared to the traditional perpetual licensing model, which involves an upfront software license cost and indefinite usage rights.
While many understand the advantages of SaaS, such as spreading expenses over time and having the vendor handle software infrastructure, perpetual licensing is still seen as a better long-term investment. However, this perspective overlooks the hidden operational costs of non-SaaS deployments.
Deploying non-SaaS solutions necessitates that CSPs either buy or uphold their own infrastructure, involving extra or concealed expenses like electricity, cooling and storage. Furthermore, specialized internal expertise and its associated costs are essential for managing and operating the hardware and infrastructure, which can result in substantial expenditures for staff training or recruitment.
These costs can be broadly categorized into three main phases of the software lifecycle: startup, operational and retirement. Each phase comes with its own set of financial and management challenges, which organizations need to navigate to ensure efficient and cost-effective software deployment and operation.
There are supplementary expenses related to application management after it has been delivered by a vendor, which goes beyond what is typically considered as 'additional costs.' These include aspects such as lifecycle management, operations, security, maintenance and the allocation of highly-skilled resources.
Furthermore, non-SaaS deployments require manual patching, updates and regular upgrades for software. In the case of data analytics, machine learning algorithms need to be retrained biannually, which can require weeks of work from data scientists. In the case of network cybersecurity, delayed upgrades mean the vulnerability database is not up to date, thus increasing the risk to the network.
Reaping the benefits of telecom SaaS
By comparison, SaaS vendors take responsibility for all those aspects in exchange for a single, all-inclusive subscription fee - paid monthly, for example - that is predictable and simplifies future spending forecasts. This approach spreads the investment risk over time, shared between the CSP and the SaaS vendor.
Moreover, the "pay as you grow" strategy enables CSPs to scale services with ease, experimenting with innovative ideas, and swiftly introducing new market offerings. It also minimizes sunk costs and fosters agility in business operations. And, should this approach not meet anticipated success, CSPs are not left grappling with redundant hardware.
This approach empowers operators to initiate operations on a modest scale, within their budget, and expand their SaaS subscription as the end-user offering gains momentum.
With SaaS, they can reduce proof-of-concept time and costs significantly compared to a non-SaaS deployment that would require hardware and infrastructure investments. Non-SaaS implementations can take about a year to complete due to the procurement/deployment process and multiple site installations, whereas SaaS enables a much faster time to market (hours or days), allowing CSPs to monetize the service faster.
Thus, factoring in all the various steps and considerations, SaaS's TCO is generally more favorable than the non-SaaS approach and that is backed by research. Analysts at Analysys Mason estimate that transitioning from on-premise software to SaaS can reduce CSPs' IT costs by 25% over five years.
Mitigating billing uncertainty
In addition to the pay-as-you-go model inherent in SaaS, it's essential to consider the positioning of subscription-based models based on a fixed scope that enables updates to the subscription at the billing cadence.
The pay-as-you-go model, as noted, can sometimes lead to unexpected cost spikes when monthly expenditures don't align with actual consumption, potentially resulting in 'bill shock' and budget management challenges.
However, bill shock is often associated with Infrastructure as a Service (IaaS) more than SaaS due to the distinct billing and usage patterns of these cloud service models.
IaaS providers typically charge based on the actual usage of resources, such as compute power, storage and data transfer, which can fluctuate significantly based on user demand and activity. For instance, a spike in traffic or data processing needs can lead to a substantial increase in costs, catching users off guard when the bill arrives.
In the realm of SaaS, guardrails are often established to prevent unexpected costs and ensure a smooth user experience. These guardrails can take the form of usage limits, alert notifications and predefined subscription tiers, which are designed to keep usage and, consequently, costs within a predictable and manageable range.
When users start a SaaS application, they typically select a subscription plan that aligns with their anticipated usage needs, whether it be based on the number of users, features, storage or other relevant metrics.
This proactive approach towards cost management and user communication in the SaaS model significantly mitigates the risk of unexpected financial surprises and enhances user satisfaction and trust in the service.
Strategic considerations for CSPs
SaaS represents a significant mindset shift in how CSPs do business. However, accessing network operations and management via SaaS is a smaller leap than they might think. This is a transformation journey for the telecom industry, and those who embrace it faster will reap the benefits more quickly.
For CSPs aiming to realize their financial goals through SaaS, here are a few considerations that come into play:
- Scale and flexibility: SaaS models offer unparalleled scalability, allowing CSPs to adapt swiftly to market dynamics. This agility can be a significant driver for cost optimization and revenue growth, and contributes to trialing and innovating faster.
- Technological innovation at optimal cost: SaaS platforms often come embedded with next-gen technologies like AI, machine learning and advanced analytics. These features, amortized over a larger customer base, become more cost-effective than developing them in-house.
- Resource optimization: The SaaS model allows CSPs to outsource non-core activities, thereby freeing internal resources for strategic initiatives. This has a direct impact on the time opportunity cost, a critical factor often overlooked in traditional ROI calculations.
The telecommunications sector stands at a pivotal juncture, with SaaS offering a viable path to operational excellence and financial optimization. The barriers to ROI realization are real and can be side-stepped by taking various proactive steps.
As they work with vendors to address their SaaS concerns, CSPs must understand these are hurdles, not roadblocks, on the path to SaaS. The adoption path can be gradual, starting with analytics, security and monetization.
By adopting a nuanced approach that goes beyond mere cost comparisons, CSPs can leverage SaaS as a strategic enabler for achieving their financial objectives.
