Software as a service (SaaS) applications are typically\n rented on a per-user-per-month basis. There are no up-front\n licensing costs, and no need for up-front equipment and\n development resources. The subscription fee covers software\n maintenance and operational costs as well as any upgrades.CIOs like that model. In fact, \u201cI would like to\n convert traditional applications to pay-as-you-go,\u201d says\n Peter Young, vice president of IT at pharmaceutical firm\n MedImmune\u2014something he\u2019s begun to discuss with his\n traditional vendors come upgrading time. (\u201cThere\u2019s\n no requirement to link subscription pricing to\n on-demand,\u201d notes Rebecca Wettemann, an analyst at\n Nucleus Research.)Perhaps the toughest aspect of SaaS pricing is figuring out\n whether the subscription pricing leads to a higher total cost\n of ownership (TCO) than deploying the software internally.\n While enterprises know how much the licenses cost and what the\n annual maintenance fees are, most don\u2019t know the\n operational costs\u2014those for the operations and support\n staff, the hardware, the network resources and so on\u2014so\n they can\u2019t compare in-house TCOs to SaaS costs. Those\n that can make the calculations also have to estimate how often\n they expect to upgrade and what the upgrade would actually\n cost\u2014not just the new licenses, but also the integration,\n training and operations, notes Rick Milazzo, CIO of retailer\n American Eagle Outfitters.Similarly, predicting usage of SaaS applications is inexact.\n \u201cThe costs are not perfectly predictable either\n way,\u201d says AMR Research analyst Rob Bois.But for many, it doesn\u2019t matter what the TCO is for\n SaaS. Enterprises make a rough calculation that if a SaaS\n application costs no more than a traditional license amortized\n over five years, plus the maintenance costs, it\u2019s worth\n buying. Even if it costs a little more up front, not having to\n manage the software is often worth the price.