Choosing between cloud-based or on-premises solutions has become an important decision to make for enterprises and SMBs that want to evolve alongside technology and stay competitive. While businesses try their best to commit to the most valuable, secure and accessible tools, choosing between different types of solutions can be tricky. Cloud computing has been steadily gaining momentum and has become a better investment than on-premises solutions in many ways. However, despite the promising technologies, cloud-based or SaaS solutions still might not be perfect for all businesses.
The total cost of ownership is one of the most important factors in determining if SaaS is the right solution for a business. Although SaaS and cloud computing are often used interchangeably, cloud computing can be broadly categorized into three main categories i.e. SaaS (Software as a Service), PaaS (Platform as a Service) and IaaS (Infrastructure as a Service).
Cloud vs. One-Premises Computing
The key difference between SaaS/PaaS/IaaS and an on-premises solution is that business have to install and manage on-premises solutions themselves on their own servers, while cloud-based solutions run in the cloud and usually come with free upgrades and support. A business might choose to hire services of a 3rd party to support its on-premises system, while a cloud services provider can also outsource different functions to a third-party.
On-premises systems are mostly tied to a specific premises or a building. Cloud-based solutions help reduce the total cost of ownership as enterprises don’t have to heavily invest in the IT infrastructure. However, cloud services providers are responsible for providing the promised solutions and are usually not keen in explaining what happens at the backend. This means enterprises don’t get the kind of control on-premises solutions have to offer.
Although on-premises solutions provide more control over enterprise data and have their own merits, cloud computing enables enterprises to operate at the forefront of modern technology. Cloud-based solutions are inherently designed to reduce the total cost of ownership, increase efficiency and accessibility. That’s why it’s no surprise that adoption of SaaS and other cloud services is expected to increase in the coming years. A large number of businesses are using some form of cloud-based services, which makes SaaS one of the most popular delivery channel.
Businesses using old hardware and dealing with a large amount of data can greatly benefit from cloud based services. Before making the switch, they need to have a specific business need or requirement in mind and consider the amount of data that’s within the scope of the project. If the existing hardware isn’t good enough for the current requirements and you constantly struggle to scale the storage capacity, considering a SaaS solution might be a better option than investing millions in infrastructure and maintenance.
Enterprises that do not allow third-party hosting due to compliance requirements or want complete control over their data prefer on-premises solutions. Cloud service providers are more concerned about delivering services instead of explaining how everything works at the backend.
Advantages of Cloud Computing / SaaS
- Significantly lower initial costs
- Highly scalable
- Simpler budgeting
- Can be quickly deployed across multiple sites at once
- Easier to use and configure
- No separate security and maintenance and costs
- Seamless upgrades and customizations
- Bundled support and upgrades (mostly free)
- Integration with a variety of other enterprise systems and apps
- Multiple data backups
Key Benefits of Cloud Computing
Significantly lower Initial costs is one of main reasons behind popularity of cloud-based solutions. The provider is responsible for installing and maintaining the hardware and software. Enterprises have the freedom to implement the solution according to their own requirements and access it using the internet.
Implementing a cloud-based solution usually takes less time than implementing an on-premises solution. But each provider has its own training and support rates, which businesses need to consider before making the final decision.
While the initial costs of SaaS solutions might be significantly lower, the year-on-year costs of SaaS subscriptions can add up to a large amount of money in the long-run.
Maintenance and Support
SaaS and other cloud technologies save businesses from having to maintain or repair the hardware themselves. Low downtimes, timed incremental backups and other services take most of the time consuming tasks off the IT staff shoulders. As a result, enterprises save money that otherwise could have been spent on maintaining and troubleshooting on-premises solutions.
In case of cloud solutions, maintenance is mostly limited to validation review, but a business needs a trusted partner for storing and processing their corporate data. Businesses have to make a choice between having complete control over their data or letting a provider deal with almost everything and delivering the services as promised in the SLA (Service Level Agreement).
Upgrades and Customizations
Upgrading or customizing an on-premises solution can be a tedious and time consuming task. On the other hand, cloud service providers are responsible for ensuring seamless upgrades across the board. This means businesses get access to the most recent version of the software without having to worry much about compatibility and portability. The upgrades become available to everyone once implemented, while customizations can also easily be ported to future software versions in most cases.
Customization of on-premises solutions is also possible, but it’s hard to port those customizations to future software versions because they are usually linked to the current deployment. Difficulties in porting customizations to future versions means the IT staff has to test all customizations all over again when it’s time to upgrade.
Cloud-based solutions can be easily scaled up or down, depending on the workload and business needs. Long-term planning is required when it comes to scaling with on-premises solutions. Growing businesses often struggle to scale their operations and find themselves in the upgrade loop, which makes cloud-based solutions a better option for them.
Business need space, ventilation, electricity, security system and trained staff to operate on-premises solutions. Enterprises don’t have to provide these things when using a cloud-based solution as the provider is responsible for almost everything, including securing the data centers. Additional security and time is needed for regulatory compliance and supervision of on-premises data centers and network.
Performance and Time Management
Cloud solutions can be deployed across multiple regions and divisions in very less time (compared to on-premises solutions). The time-to-market is reduced as businesses don’t have to procure and install new hardware for multiple sites. Adding a large number of new users is possible without having to worry about the infrastructure as SaaS solutions help businesses easily scale as they grow.
Cloud-based systems are more adaptable to organizational needs and are designed to provide optimal performance according to the workload. This allows businesses to easily upgrade as their operations grow, but they need to ensure that everything including the platform, apps and software work cohesively.
Total Cost of Ownership (TCO)
The TCO of an on-premises solution includes the hardware, software, network, backup systems, human capital, security system, support system, space and regular maintenance costs. SaaS subscriptions allow businesses to manage their financial risk in a better way by spreading costs over time. Considering the NPV (Net Present Value) of a SaaS subscription, the licensing costs of on-premises and SaaS systems usually catch up by the third year.
So what’s the benefit of SaaS/Cloud computing when there isn’t such a huge difference in licensing costs in? TCO is only one angle of comparing on-premises and SaaS solutions. The real advantage of cloud computing is that businesses don’t have to install and manage their own infrastructure and spend countless hours in maintenance, security and ensuring availability of services.
On-premises solutions come with a huge opportunity cost. Cloud-based solutions on the other hand enable businesses to spend money on things that help grow revenue by offering better products/services and customer services.
Cloud-based solutions, especially SaaS help lower the TOC by eliminating costs related to installing and maintaining infrastructure. Significantly lower upfront costs and spreading costs over time makes it easier to predict monthly operating expenses. Scalability is another important factor that allows businesses to effectively deal with demand spikes. SaaS solutions make it a lot easier to launch digital presence in new markets and allow businesses to quickly react to market developments.
Technology is evolving at a rapid pace and reputable, reliable and leading cloud services providers ensure that businesses keep pace with these advancements. SaaS and other cloud computing technologies can put businesses in a competitive position in the long run by helping them focus on delivering great products/services and customer experience.