The hidden costs - How to evaluate software platform operating costs


The speed of technology change in the software industry makes it really difficult to define standards pricing models products and services. This means when looking to acquire a new software platform, the buyer will probably struggle to work out which option is going to be better value upfront and what the ongoing costs are likely to be over its lifetime.


Let’s look at the typical operating costs for a website and review the different ways that these can often be hidden.


Licence Fee

A licenced product is generally going to be charged as an annual fee. This fee gives you the right to use the product in a production environment. Some licenses also give you the right to have a development, test, disaster recovery, or multiple non-production environments under the single licence fee. When evaluating the licence fee, make sure you are clear with the salesperson about the number of environments which will have production traffic and have them give you the total licence costs for all environments.

You also need to look at the licence model. Are you being charged on a per user basis, concurrent users, server instances or something else? Make sure that you understand the costs of your licence fee at launch, as well as an estimate for how that will change year to year based on your site growth and usage.


Another gotcha on licensing is the length of the contract. Technology does change fast and so can your business. Make sure that there are suitable exit clauses included in your contract so that if you do decide to move to an alternative you won’t be slugged with unreasonable exit fees.


Open-Source

There are a number of high-end open source products available that should be considered alongside their licenced and SAAS competitors. Being open-source, we can generally assume that they are free. The buyer should question restrictions placed on the open-source licence. If you are planning on using the source code as a starting point and modifying it, make certain the open source licence allows it without any charge. Open-source products offered as part of a commercial deal will nearly always have some other annual fee tucked away in the proposal, support, maintenance or upgrade are common hiding spots, keep a look out for it.


SAAS

Software-As-A-Service (SAAS) products are becoming more and more common. SAAS products are normally billed on a month to month basis, however there are some products billed annually. With a SAAS product, you can expect to have a single all inclusive operating cost. This would include the hosting, licence cost and typically regular updates to the core platform. Make sure that you ask the salesperson to clearly outline what items are included in the SAAS fee.


SAAS products are typically priced on a per user basis but can also be based on the data transfer, storage size or a range of other parameters. Just like licence based costs, make sure you understand your SAAS fee at launch plus an estimated fee year to year based on the pricing model and your site usage.


Add-Ons

Ah the add-on. Does your licence fee include everything that you are going to need to operate your site? Are there additional add-ons or third-party applications that in reality you can’t operate the site without. These can be simple and cheap items like a backup utility or can quickly get very expensive like adding productivity tools to the Atlassian suite, when you have a huge user base. Again ask the question of your salesperson, are there any additional add-ons, plugins or third party apps that are being included in the solution or that you would recommend we use, that have ongoing costs?


Upgrades

When we start to talk about large software platforms, we should start to get worried about upgrades. If you are developing a solution that will integrate with a number of other systems, then your upgrade isn’t likely to be simple.


The majority of SAAS products will include platform upgrades as part of the subscription costs, but make sure that you confirm that with your salesperson. Even if this is the case, remember that it is going to be your responsibility to review your solution after the platform upgrade to ensure that the upgrade hasn’t broken any functionality on your site. You will need to have resources allocated to be able to complete this work in the a timely fashion. Make sure you understand the process for the platform upgrade. Will the upgrade be applied to a staging environment before going into production? Will you be charged for the staging environment? How long will you have to validate your site is still working? Can you choose not to receive the upgrade? How often are upgrades completed? Answering each of these questions will help you determine the cost of any internal resources required to support SAAS platform upgrades.


With non-SAAS products most software vendors will release new versions at regular intervals. It’s a good idea to look at upgrading the platform annually, as this ensures that you have new features available to your users. Also skipping upgrades adds complexity and risk to a future upgrade which will undoubtedly increase the cost as well.

If a regular upgrade is being offered then you will want to ask the same questions as with the SAAS product. Will the upgrade be applied to a staging environment before going into production? Will you be charged for the staging environment? How long will you have to validate your site is still working? Can you choose not to receive or delay the upgrade? How often are upgrades completed? In addition it’s a good idea to understand how much control you have on the timing of an upgrade. If you are an accounting company and the upgrade is offered at tax time, then it’s could be an issue for your business.


Don’t be fooled, upgrades are generally not easy for complex platforms. I would recommend asking to speak with an existing customer with a similar size and complexity to your solution. Try to find out their experience of completing an upgrade, the cost and the disruption to their business. If a supplier isn’t keen on you speaking directly with an existing customer, this may be a big red warning flag.


Hosting

It’s been coming for many years and it’s here. Hosting is a commodity, don’t be fooled and don’t be scared into thinking of it as anything else. Amazon (AWS) has disrupted the hosting market and driven costs down and the quality of service up at the same time. They have also released products like LightSail to make it easier for a less technical operator to manage. If you are looking for website hosting of a site with a low traffic volume and are getting quoted above $5,000/year then you should review.


The most common argument against AWS by other hosting vendors, is that it is a wholesale offering. So, unless you have advanced System Administrator skills available, you just won’t be able to manage AWS yourself. This is a fair argument, but just be aware there are a number of service providers who do offer managed AWS hosting. This means they do the setup, maintenance and monitoring for a fixed fee. You can look at the AWS hosting cost plus the managed service as a comparison to the hosting deal a vendor is providing.


The other area that can affect hosting price is the availability. The majority of the better hosting platforms will provide 99.9% availability. With a Disaster recovery (DR) environment, this will typically go up to 99.99%. As you availability goes higher then so will your hosting costs. You should ensure that each of the hosting options you are evaluating have the same availability value and that you actually need that level for your business. If your not sure how availability works, it basically comes down to how many minutes in a year your site will be down and unavailable. You can’t choose when the site will be unavailable, so assume it is going to be on the busiest day, at the worst time. A site may be down for a few minutes here or there over the year or it might come all in one big block, you can’t choose that either so I recommend being pessimistic. The table below shows the availability level and the total number of minutes in a year.



Your hosting company is most likely to assume the total downtime is calculated over a full year as that is easier for them to achieve, if that doesn’t work for you you can change it to be calculated or a day, week or month. Just remember that the shorter the period the harder it is, so the more your hosting is likely to cost. It’s worth asking for the stats for the previous three years to see what they were actually able to achieve, especially if you are hosting a business critical application. If the hosting provider fails to hit their target there are normally penalties defined in the contract. Make sure that you are aware of what they are and that you are comfortable that you will be adequately compensated. Many hosting companies will only compensate you a pro-rata amount for the outage time and this is often in the form of service credits rather than cold hard cash. If you are not satisfied with the compensation being offered, negotiate before you sign.


Support

There is a lot of crossover between support and hosting, so make sure that you have covered everything that you will need between these two areas. At a minimum, you want to ensure that your site availability is being monitored 24/7, if your site goes down your support cost include getting it back up and running, your hosting or support include backups and storage of backups, the number of backups that are kept available and the restoration times are suitable for your business. You will also want to confirm that Operating System patches and updates will be regularly applied to your system and that these are included in your support costs.


Your support provider may have a range of support offerings with different hours of support 24/7 or maybe business hours only. If you are operating a business critical system then you need to ensure that you have 24/7 support with appropriate resolutions times. If the system isn’t business critical, do you really need 24/7 support? You could save yourself a significant amount by dropping down to business hours support only.


Once you work out the hours of support, you will also want to know the response and resolution times that you are buying. A lot of support packages will not provide a resolution time guarantee but they will provide a target. While this isn’t great as a client, it’s pretty much impossible for the provider to provide a resolution time guarantee and if you get one you will pay a lot for it. The response time guarantee is pretty useless in reality, because any vendor who is any good will have an automatic email response setup when they receive your support ticket which meets the criteria for the response to be satisfied. It does give you an indication of their quality but to be sure again ask to speak to an existing client who has raised a critical (severity 1) incident in the last 12 months.


The other common gotcha with support is that while you are paying for monitoring and someone to be there at the end of the phone, you actually don’t get any services included to fix the problem. If you want someone to fix a problem, you may be expected to pay an hourly rate for that time. Make sure you are clear about how many hours of actual problem fixing is included and the cost of more hours if you need more.


On-going Development

Regardless of what you think right now, you are going to want to do some development on your new platform in future. This might be big or it might be small. Working out how much ongoing development is going to cost is really difficult. There are a number of variables including the hourly cost of developers at all skill levels, how much you can realistically do yourself, how tedious it is to develop in the platform (i.e. is it quick or slow) and how many developers there are on the market. Be cautious of proprietary platforms where only the vendor or a small number of companies can develop on. Going with a platform like Drupal, Wordpress or SiteCore with thousands of developers worldwide helps keep development costs lower. This is another area I recommend speaking to two or three existing clients to find out how much they spend annually, how happy they are with the quality and the responsiveness of the vendor.


Final Thoughts

It’s exceptionally complicated to evaluate the ongoing operating costs on a platform. My advice is to break down each area into a chart and evaluate the different competitors against your common criteria. Drop me a message on the Contact Us page, if you would like a copy of my CMS Operating Cost Comparison Matrix to help you get started.

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