Forrester says on-premise beats out SaaS economics for organizations with 500 or more users. (or that SaaS is not right for larger companies).
McKinsey says SaaS adoption in large organizations is about to explode.
Who is right? Neither...
Take Forrester's analysis. At 500+ users, after volume discounts, SaaS pricing for horizontal ERP and CRM functionality could be at $ 60 a user a month. After 6 years, the point where Forrester believes on-premise becomes more competitive, the total SaaS cost is around $ 4,500 per user. I challenge any on-premise vendor combined with an outsourcer to deliver license, maintenance at 17 to 22% a year, hosting, application help desk, maintenance/tuning, upgrades etc at that price for 6 years.
However, if Forrester appears pessimistic, McKinsey appears overly optimistic. There are just too few vertical applications for which there are robust SaaS offerings. Few large companies are going to use a generalized order entry or billing system. Or have zero customizations. Just as importantly, few of today's SaaS vendors would stand the security and SLA scrutiny of large company due diligence.
I think a far more logical solution for large companies will be a hybrid - what I call SaCS - a customized service. It is an aggressively negotiated software license and maintenance contract, combined with an on-demand outsourcing arrangement. The outsourcing would be a no-capex, utility computing, fractional resource, shared infrastructure, flex capacity with robust data center, connectivity, disaster recovery and security standards. Not completely multi-tenant, but uses multi-tenant concepts in appropriate areas.
The big problem is even after extremely aggressive negotiations per user pricing for such SaCS today would be $ 500 + per user per month (SAP's vertical engine licenses are not by user count - and amortized per user cost in the thousands). It needs to be closer to $ 150 per user per month - users will pay a premium over today's horizontal SaaS pricing but not much more.
Lots of inefficiencies and premiums in the software and outsourcing markets to be removed to get there. But then watch the market just take off. By then, both Forrester and McKinsey will have updated research papers out...