The difference between SaaS and traditional license software is the Internet. With respect to lowering costs, the fundamental difference is the ability to aggregate customers onto a single, tightly integrated infrastructure. Take a look at these related posts…
http://chaotic-flow.com/2008/12/08/saas-model-economics-101a-aggregating-customers-for-low-cost-advantage/
http://chaotic-flow.com/2008/11/12/software-as-a-service-success-build-the-business-into-the-product/

That said, the basic economic principles for lowering TCO/TCS are available to on-premise software, provided it is fundamentally connected via the Internet AND it maintains a single application instance. The best example of this would probably be anti-virus software, which maintains a fat client, constant internet connection, server-based data and a shrink-wrap product image. And, it is routinely sold on a subscription/service basis….but, I would probably argue that these attributes are the fundamental attributes of SaaS and as such so are these applications…regardless of the client-side footprint.

Nice comment. It highlights very well the difficulty of identifying and counting hidden costs and shifting costs. The example you give would actually be an increase in costs across the value chain, decreasing TCS at the expense of TCO. The reason to consider both in parallel is to focus on lowering the total economic cost of delivering value (TCS + TCO). When you do this…without degrading and possibly improving service…you create a win-win scenario where the customer gets lower prices and the vendor increases profitability. If you only focus on one or the other, then you can have low prices and unprofitable vendors (the case for many a SaaS startup) or the scenario you describe of opportunistic cost cutting at the expense of your customers…both are bad business and unsustainable.

In the specific example, I would suggest that the issue is more about choosing your application and target customers wisely. A SaaS business that targets customers that prefer live support and offline documentation and has a complex application that entails difficultiy in learning or adoption may not be a great candidate for SaaS in the first place. In this case, I would blame the player…not the game. There are plenty of SaaS startups out there going after inappropriate applications and markets that are better served by managed services or traditional enterprise software.

However, TCO/TCS are “total costs” by definition and cannot miss a hidden cost in and of themselves, as they are merely mathematical constructs. Only, the people who are attempting to measure them can miss or inacurately measure a hidden cost.

Cheers,

JY

Printing manuals cost some fraction of a cent per page. Sending your customer a pdf and then having them print it out costs 25 cents per page. Sure, you save money, but your price isn’t linked to your costs. A user not reading the manual, and calling instead, increases the vendors cost well beyond the cost of a manual. But, yeah, SaaS never had a manual, and doesn’t really provide customer support. Instead, SaaS provides user frustration.

The more that these invisible costs are pushed off on to customers, the harder the product or service becomes to sell.

In reducing your costs, make sure you are not increasing your customer’s costs to use. Operational (use) costs always trump development costs.