According to Gartner, the annual cost of owning and managing software applications can be up to four times higher than the initial purchase cost; the result is that companies end up spending more than 75% of their IT budget just to maintain and execute existing infrastructures and software systems (Timothy Chou, The End of Software, SAMS Publishing, 2005). The key costs for any software implementation are:
• Software application costs.
• Costs for the hardware required to run the application.
• Services required to design, install, run, maintain and support the application.The traditional software pricing model is limited to the cost of the application or, in many cases, to the cost of a renewable use license over time. It is therefore up to the customer to determine the cost of the hardware and services, ie the TCO (Total Cost of Ownership). It can therefore be deduced that in a generic organization the IT budget is spent in three large areas:

• Software: The programs and data that the organization uses to process and process information.
• Hardware: Desktop computers, servers, network components and mobile devices that provide users with access to the software.
• Professional Services: The people who guarantee the continuity and reliability of IT operations.

Of these three is the software that is most directly linked to information management, which is the ultimate goal of every IT organization. The hardware and services, although vital and important components, support the software in the production of results and in information management (to put it another way, any organization would like to add functionality without acquiring extra hardware or services, vice versa no organization would buy hardware or services without adding new software).
So in most cases, for the reasons mentioned, the IT budget is absorbed by the hardware and services, leaving a minimal part available for the software.

Starting from these considerations, many customers have begun to consider the new payment models offered by SaaS solutions: subscription of a periodic fee including the costs of software application, hardware and services, or payment lines based on use (for example number of users, number of transactions, etc.).

With the new SaaS model the costs are linked to the use of the solution and not to implementation and ownership (theoretically this means that the customer may not even have hidden costs). Furthermore, the On-demand model has a huge advantage on its side: it is more flexible and grows more naturally with the growth of the customer’s business.
So what are the evaluation meters to choose between a licensed model and a consumption model?
In his book, Living on the Fault Line, Geoffrey Moore sets the example of those companies that should only focus on core activities and outsource the rest: “For core businesses, the goal of businesses is to differentiate as much as possible from the competition every variable that impacts the customer’s purchase decision, must commit the best resources in this regard. Any other activity that is not core is context. The winning approach for context tasks is not differentiation but rather an execution that is as effective, efficient and standardized as possible.”
When cut out in the field of software, the notion behind Moore’s definition is that companies can become more effective and efficient if they focus on software that helps them differentiate and if they outsource context applications to IT vendors specializing in that. ‘area. The major implication of Moore’s theory is the emergence of discrimination in the offer model.

As a criterion for choosing between the two models, it is therefore possible to consider the criticality of the activities / processes for which the software solution is required.