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Copyright 2013 TechVentive, Inc., All Rights Reserved - Unauthorized reproduction, storage, transmission or quotation strictly prohibited. 4 these studies focused on larger firms and their software implementations, we believe the same relative cost issues apply to small to mid-sized firms, as well. Hosted solutions have their own cost issues. While some of these solutions can be acquired on a monthly fee basis (in lieu of an up-front license), customers need to perform application updates/maintenance themselves and/or utilize an expensive reseller or integrator to make the upgrades for them. Beyond lower maintenance costs and the avoidance of large, up-front capital expenditures, multi-tenant software users also point to another major benefit. Because the multi-tenant vendor maintains the application software, the customer's IT personnel can now focus on more strategic, value-added tasks/projects. W Where Does the Money Go? Software vendors spend your money quite differently depending on the deployment method they support. When you follow the money, you gain insight into how multi-tenant solution providers and their competitors differ. Multi-Tenant Cloud Vendors We examined recent financial data for several multi-tenant application software vendors. We observed that a significant amount of revenue (42% of total expenditures) is subsequently spent on sales and marketing activities. This does not come as a surprise as many of these vendors must expend a similar amount of sales costs to acquire a customer as an on-premises or hosted solution provider. But, unlike on-premises vendors that collect a hefty upfront license fee that helps offset their sales costs, many SaaS vendors only receive one or a few months of subscription fees in the year the initial sale is booked. Implementation Services and other professional services made up the second largest cost category at 19%. These costs include the current period labor costs of the vendor's professional services personnel that assist customers with implementations. Multi-tenant cloud vendors appear to be spending 18% of total costs on R&D activities. These funds are being used to add new functionality to existing applications and develop all new applications. Interestingly, this percentage appears to track with the R&D expenditures of non-cloud based software firms.

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