The economic argument for accelerated SaaS migration

It has become almost a cliché to talk about the accelerated digital transformation of businesses and governments that has come about as a result of the pandemic.

As we retreated to our homes to work there was a flight to software-as-a-service platforms and applications, with business and government moving rapidly to operationalise a suddenly remote workforce.

But Australia is leaving a ton of value on the table. It has been somewhat slow in adopting cloud-based software-as-a-service, and while take-up rates have accelerated, the hyperbole of the pandemic has not changed this.

Australian enterprise software-as-a-service (SaaS) platform TechnologyOne commissioned first of its kind analysis from IBRS and Insight Economics found that fast-tracking a shift away from legacy on-premise systems would deliver $224 billion in economic uplift.

That’s the Australian GDP growing by an additional 1.3 per cent over the next decade – simply by eliminating the current over-spend on redundant technology.

To put that further into perspective, that’s more than six-times the economic output or GDP benefit that the much-celebrated Olympic Dam Expansion is expected to deliver for Australia.

“The economists have said this is a conservative number,” TechnologyOne chief executive officer Edward Chung said.

“And it’s $224 billion over the next ten years. That’s a number that’s too big to ignore.”

Giving employees access to Zoom calls and Slack channels is not quite a digital “transformation”. It is in the transition from legacy environments to SaaS-based enterprise software and mission critical software that will deliver transformative, economy-wide returns.

The $224 billion in economic benefits that are outlined in the TechOne report – which was produced independently by IBRS and Insight Economics and commissioned by TechnologyOne – were validated using the Monash Multiregional Forecasting (MMRF) model, which is frequently used by federal and state governments in the evaluation of new policy proposals and investment.

The research is the first detailed analysis of software-as-a-service that looks at the direct savings, the productivity impacts, and the broader national interest of SaaS. The study drilled deep into large markets, including federal, state and local governments; and health and aged care; higher education; asset and project intensive industries; and corporate and financial services.

Each year, more than $70 billion of the $98 billion spent in Australia on software goes to legacy, on-premise environments, costing the economy billions – because the total cost of ownership of software-as-a-service applications is measurably 30 per cent lower than on-premise environments.

The size of that total cost of ownership saving, and the fact that Australian enterprise has been relatively slow in adopting enterprise SaaS, means a rapid transition will have economy-scaled benefits for Australia, TechnologyOne’s Mr Chung said.

“Less than 10 per cent of those [enterprise] organisations have moved to software-as-a-service,” Mr Chung said. “The whole point of this research is to highlight that opportunity.”

“We want to express to decision-makers – that’s the CEO, the CIO’s, the policymakers, and to government – that these numbers are too big to ignore and that they should get on board.”

Mr Chung said the $224 billion in economic savings could be redirected to other productivity enhancing infrastructure and services. For example, savings across federal and state governments would amount to $62 billion over a decade.

“The savings that could be unlocked could then be used to provide critical infrastructure and services to [citizens],” Mr Chung said. “The scale of the opportunity is enormous.”

The value proposition for software as a service is pretty straight forward and is not just about the 30 per cent reduction in cost of ownership – although that’s what gets customers to transition.

But the SaaS platforms are more secure, allow far greater organisational agility, and let customers to remain fully up-to-date more easily, with new features, new functionality and new technology rolled out on a massive scale, twice each year.

“We spend hundreds of millions of dollars to invest in our product, to invest in speed and performance, to invest in security – and all of our software-as-a-service customers get the benefit of that investment,” Mr Chung said.

While the Technology One research covered the economy-wide benefits of an accelerated transition to SaaS – to any software-as-a-service, whether local or foreign controlled – there is clear additional benefits for Australia where software is acquired from local companies.

Currently about 85 per cent of government spending on software is directed at foreign companies. If that local proportion could be increased by just 10 per cent, the indirect payback benefits would be enormous.

It is something that government absolutely should be aiming at, Mr Chung said.

“That’s more jobs, more taxes, more intellectual property … there is a circular benefit that really comes from putting money into home-grown businesses,” he said.

This article was produced as a partnership between InnovationAus and TechnologyOne, You can read more about the economic impact of software as a service here.

Do you know more? Contact James Riley via Email.