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Is saas too expensive?

by Dennis Howlett on October 6, 2008

Several years ago when saas applications were being pitched at around $50-75/user/month, you could say ‘Yeah, that sounds reasonable.’ We’d have been comparing that with costs from traditional on-premise vendors, evaluating TCO and concluding that at that level, the price comparison was reasonable. Today, less so.

As the market for saas solutions heats up, it is becoming increasingly clear that no-one has figured out a viable model. Everything from freemium models like Zoho through to flat pricing from the likes of Salesforce.com, Xero and many others makes for a difficult price comparison. To put this into perspective, in this analysis of LessAccounting, from CompleteAccounting.com, the author says:

The biggest problem with LessAccounting is cost. There is a free version but it can be too limited for certain businesses. Basically, you can only do 5 invoices, 5 proposals, and 5 expenses in the free version. This can work fine for home based businesses that use a different system for invoices and just want to keep track of payments and the occasional trip to Costco. Obviously, this is no good for businesses with a little more administrative use.

The pay version is $19.95 a month, which is ridiculous. When you do the math, that works out to $240 per year basically. You could get a full brand name accounting package for that. So, with LessAccounting, use free or nothing.

Our friend at CompleteAccounting is forgetting the infrastructure costs that LessAccounting is bearing, auto-upgrades and so on but the general point is not missed. When you only need say an accounts package then maybe $20 a month is OK. But when you start adding in other services like payroll and CRM, the costs quickly mount.

Some of this is to do with market maturity but the fact red flags are being waved now should be a warning sign. Especially in an economic environment that is looking tougher by the day. It is incumbent on vendors to justify their pricing. I know how this should be done but it is far from easy to explain to hard pressed business people. And while we’re at it, let’s not forget Google’s ‘office’ offerings.

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Tagged as: google, Salesforce.com, Zoho CRM, Zoho Office Suite

  • I think most SAAS solutions' strength is the multi-tenancy capability. This helps drive down prices as multipel tenants share the cost. I would speculate that lessaccounting's own cost is still quite high and there are not enough paying customers to share the cost.
    If someone figures out a way to offer SAAS for free yet still make a profit from it, existing vendors better watch out. Google can afford to give away almost all services for free because its business model is all about page views. The more traffic it drives to its websites, the higher chance someone will look at their ads.
    Maybe we should thank Google for training an entire generation of users to expect getting things for free and in return, give up controls of their data and privacy.
  • There is a way to do it for free and still make money and it doesn't involve advertising.
  • Dennis, could you expand on this subject please?
  • Someone else asked me that but it is not something I discuss publicly because it relates to IP I own.
  • Transparent pay-per-use pricing models such as those employed by Postcode Anywhere and TheWebService.com seem to fit the nicely IMO.
  • Pay per use only works in certain scenarios. For core business processes, it is very hard to come up with a model and make it viable to both users and vendors.
  • Speaking for Less Accounting I think there is a perspective that hasn't been mentioned. Our users are small business owners and freelancers who do their own books. We wrote Less Accounting to be easy (perhaps even joyful) to use. That is worth paying for. Even if Intuit gave Quickbooks away for free, people would still pay for Less Accounting because it saves them time and frustration. And that has a value. People pay a premium for Apple's OS X because it is less frustrating, people who know the value of their time and and energy save money by paying for software like OS X or Less Accounting. These people are a growing, virtually untapped market.
  • So when is FreeagentCentral announcing they are reducing their prices?


    Nigel
  • Surely the main problem is just that people inherently don't like renting.
  • @Nigel - no idea. I presume they'd continue to add features at no cost

    @Mr WS - and they enjoy continuing to pay for product that is supposed to be enhanced but is lucky to see significant development more than once a year?
  • Ali Choudhury
    Sage Instant is about £100 which is about five to eight months worth of "rent" for a decent online accounting service. There's no need to upgrade ; I know clients who still use v7. Saas is probably more applicable to businesses turning over in the millions who need more powerful software and support but would rather not pay for feature-bloat or the extra head-count to manage and trouble-shoot things on a daily basis.

    Clients wanting to do their own books, and who dislike Sage\Quickbooks, I'd turn towards VT Transaction. It's easily the best-kept secret in the UK accounting software market.
  • @Ali: If the only thing that clients want to do is keep books then fine. But that isn't the way I see it. Keeping the books just isn't enough in this day and age and especially now that we've entered a recession where cash is king. Tell me how your book-keeping is going to help with that problem?
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