Deciding between an in-house or on-premises and SaaS solution is an important element of an IT strategy. That’s especially true for large enterprises that are always looking for a competitive advantage. Choosing between the two depends on a lot of factors and there isn’t any magical formula that works for all kinds of businesses.
Things were pretty straight forward during the data hosting era just a few years ago. However, with the advancement in technology, enterprises now have many options to choose from, including multiple software delivery channels. This post focuses on helping users make a more informed decision while evaluating on-premises vs. SaaS (Software as a Service) software delivery and discusses the pros and cons of each.
PS: Many, including tech giants, believe On-premise is the right word when referring to locally installed and managed software, and the public opinion might eventually win. However, digging a little deeper reveals that on-premises makes more sense and conveys the correct meaning. That’s the reason we have used ‘on-premises’ instead of the widely-used ‘On-premise’ aka in-house.)
SaaS: A Brief History
Compared to the history of almost everything else, software history has always been pretty short as things change at a rapid pace in the industry. Not so long ago it was easier for businesses to decide between hosting their data in-house or have a provider worry about it. The data hosting evolved into a more complex concept in just a few years and cloud computing started to emerge. In the recent past, enterprises had to mainly deal with two things i.e. web hosting and data hosting. SaaS is more like a hybrid of these two, but it’s a lot more than where the data is stored.
The software came bundled with the hardware in the early days of computing, but things changed in the early 90s with the migration from mainframe to Client-server computing. The early 90s was also the time when ASPs (application service providers) started offering single-tenant and managed hosting solutions. It wasn’t until the mid-2000s that SaaS ecosystems started to emerge, including Salesforce and NetSuite. Today a majority of enterprises rely on SaaS as their preferred software delivery method.
On-Premises vs. Off-Premises
An On-premises solution can be defined as an in-house hosted solution that may be supported by a 3rd party. An off-premises solution is often used interchangeably with cloud-based solutions and can be a solution hosted and supported by different 3rd parties. On-premises solutions are tied to a particular building or premises, while off-premises solutions are ‘baked’ outside and can serve different venues. SaaS, on the other hand, is (mostly) hosted and maintained by the same provider and allows users to access information remotely without having to request information from enterprise servers.
Off-premises is a software solution hosted on dedicated hardware located outside the enterprise premises. Admins have remote access to the servers, but they do not have complete control over what happens at the backend. Vendors are responsible for providing the solution, not explaining it.
SaaS examples: Office 365, Adobe Creative Cloud, Salesforce
On-premises examples: Microsoft Windows 10 and Office 2016, Adobe Creative Suite, AutoCAD
The ultimate goal of delivering software using SaaS is to improve efficiency, enhance customer experience and make them happier. The customer does not care whether the content is stored locally or hosted on the cloud. What matters to them is the user experience, and SaaS promises to deliver the best experience possible. But is SaaS a really a more cost-effective and better way of delivering software than in-house solutions?
SaaS is hosted and maintained by a 3rd party provider, freeing enterprises from the worries of managing everything themselves. This saves them from having to heavily invest in IT infrastructure and human resources, which allows them to focus more on and improving their services. But businesses don’t have visibility into what’s happening at the backend. This can be a deal breaker for businesses that want complete control over their data and are restricted by compliance requirements.
Choosing between SaaS and the on-premises solution involves evaluating data before deciding about the software delivery method. Here are a few points that can help the user make the correct decision:
- Do you have a specific requirement in mind aka business need?
- How much data (relevant) is within the scope of the project?
- Is the existing hardware good enough to deal with the current requirements?
- Are you able to scale the storage capacity according to growing business needs?
- What is the current cost of data, including hosting fees, IT infrastructure, maintenance, and other internal resources?
- How many users need the data and when aka touch-points?
SaaS is a better option if you are dealing with a huge amount of data and are using old hardware. Storage scalability is another reason that favors SaaS, while many businesses don’t have the human resources needed to make an on-premises solution a success. On the other hand, SaaS isn’t the best solution if security compliance of an enterprise does not allow 3rd party hosting, making on-premises solutions a better (or the only) option.
Distinct Advantages of SaaS
A large number of businesses, including small and medium businesses find renting software a more cost-effective solution than having to purchase and maintain everything themselves. SaaS was once something exclusively used by enterprises. But the technology has leveled the playing field and now small and medium businesses can also take advantage of the technologies, tools and raw processing power SaaS has to offer. Compared to traditional installable software, SaaS provides some distinct advantages including:
- Helps make budgeting simpler
- Easy to configure and use
- No huge upfront costs
- Predictable costs
- Shortens the implementation time for projects
- Highly scalable
- Although limited, customization is comparatively inexpensive
- Upgrades are mostly included, not charged separately
- SaaS can be deployed even without the involvement of the IT staff
- Better integration with other systems
- Automatic data backup
- Enhanced data security, many providers use SSAE 16 (SAS 70) audit controls
SaaS vs. On-premises Comparison
The entry cost of both single and multitenant SaaS is fairly low compared to on-premises solutions. But the year-over-year cost of SaaS is high and businesses might end up spending more in the long run. SaaS pricing models are flexible, while upgrade costs are also pretty low. SaaS minimizes the costs related to internal resources and IT support as the provider is responsible for most things.
The entry and operations cost of on-premises solutions is high, but on-going maintenance costs are low. Businesses also need their own IT infrastructure and human resources to create a new environment and provide support. In-house solutions also come with higher up-gradation and maintenance costs.
Both single and multitenant SaaS solutions can be implemented in less time compared to in-house solutions. That’s because users can get started right away after signing up for a subscription. SaaS solutions leverage the existing platform that the vendor has already implemented, provisioned and tested. On-premises solutions, on the other hand, take time, human resources and money, while they also have to be upgraded manually, whether software or hardware.
Customization of multitenant SaaS solutions is usually not possible as a large number of users have to share the same application instance. However, customization of single tenant SaaS is fairly easy if the app allows it. On-premises solutions offer more flexibility in this regard and allow enterprises to customize almost everything. Better customization also relates to more control over how the information is processed, stored and presented, which is not something most SaaS vendor provides details about.
Maintenance and Support
SaaS requires very little to no IT dependency for app maintenance and support, which is mostly limited to validation review and customization. Since the provider takes the responsibility to ensure availability, security and disaster recovery, businesses don’t have to worry about the IT stuff. However, businesses have to trust the service provider with processing valuable corporate data.
As far as on-premises solutions are concerned, enterprises themselves are responsible for everything, including deployment and maintenance of the software. The internal IT staff also has to ensure availability, but in return, businesses get complete control over their data and a much better sense of ownership.
SaaS solutions can easily be scaled according to growing business needs, while they can also be scaled down to minimize wastage of resources. On-premises solutions require long-term planning for scaling and are often not the best solution for growing businesses as the IT staff has to constantly struggle in the upgrade loop.
On-premises upgrades are often costly and time-consuming, while the IT staff own the responsibility to plan, deploy and validate upgrades. SaaS upgrades are easier, iterative and require little involvement of the internal IT staff.
Security and Regulatory Compliance
On-premises solutions require additional time and resources for high-level security. High-end SaaS providers offer top-notch security and take care of supervision of the servers and network. The providers provide baseline validation for user review and enforcing regulatory requirements is fairly straight forward. In the case of on-premises solutions, the internal IT staff is responsible for validation and enforcement of the regulatory requirements. But since they have complete control over the environment, enforcing regulatory requirements is comparatively easier.
SaaS has many advantages over on-premises solutions, including low upfront costs, scalability and little participation from the internal IT staff. However, the cloud-computing technology might not be the best option for businesses that want complete control over their information and plan on deeply customizing the software. In addition to large enterprises, SaaS also works well for small and medium businesses that do not have large sums of money to invest in IT infrastructure and IT staff for maintenance and support. SaaS allows them to scale as they grow and frees them from the worries of having to manage everything manually.