The 80 20 Rule

A recent prospect who found us via this blog wanted to know, a bit cynically I think, "Where do you get your numbers?" He was referring to several different posts where I talk about on-premise software being 4 times as much as on-demand software as a service.

So here it is, from The Definitive Guide to On-Demand CRM:

Another advantage of using a hosted solution over on-premise CRM applications is the significant reduction in the cost of ownership. A study by Gartner Research that looked at the total cost of ownership of enterprise applications found that 80 percent of the cost of deploying and maintaining on-premise applications is not due to licensing, but to additional costs related to hardware and administration of the software.

"In an apple to apples comparison, from the customers' perspective, their total cost of ownership in an on-demand model is really 80 percent less than it would be had they done it on premise. And the resulting system is more reliable...

It really is amazing that these kinds of cost savings are possible. So why is on-demand software as a service still a huge leap forward for so many buyers? What makes them reticent to consider on-demand software? Probably security and just the strangeness of the new delivery model. Sometimes I have to pinch myself that I am in the IT business so I have been reading and thinking about this for years. But many IT buyers, especially CEOs, Presidents and CFOs have been busy running their companies. They have not fastened onto the software as a service concept yet. But they will. At 80% off even the CEO stops to take a look.