This content is part of the Essential Guide: SaaS applications integration: Strategies and best practices for success

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On-premises vs. SaaS: Making the choice

Choosing between on-premises or SaaS is a common problem in today's IT world, but there are many things to consider before making that decision.

The benefits of SaaS for SMBs with small or non-existent IT organizations and larger corporations looking to lower...

operating costs are clear. But the SaaS route is not risk free.

Organizations that have been using on-premises software for many years have little-or-no experience with SaaS. Many organizations, however, appear to be willing to take a serious look at SaaS. 

The problem with making a choice between on-premises and SaaS is that there are several conflicting arguments. Table 1 presents some of them.

On-premises vs. SaaS: Pros and cons

Table 1: Pros and cons of on-premises software vs. SaaS




Cost Pay as you go, per user, per month, etc. Up-front capital costs for hardware, software licensing, lab space, air conditioning, etc.
Customization Limited customization Somewhat customizable depending on software vendor
Hardware Hardware and software owned reside at provider site Customer must provide hardware and system platforms to run apps
Security Access to SaaS apps is via Internet, creating security risks Less risky because of on-premises location
Mobile access Accessible via browsers running on mobile devices Limited access to business applications via browsers running on mobile devices
Integration Limited integration, even though this is an important requirement Integration with existing software is commonplace
Control SaaS provider controls systems and is entrusted with customer data Control of systems and data

Given these conflicts, each of them important to customers, how do enterprises make the choice between on-premises or SaaS? 

Be wary of promises from SaaS providers and vendors

SaaS providers and on-premises vendors will try to make you believe that their solution provides the best resolution for you with respect to the conflicts listed in Table 1. For example, one of the most difficult questions to answer involves SaaS versus on-premises costs over a long-term period, such as five years or more. 

On-premises vendors often argue that over a five-year period, your infrastructure costs to support your business apps will have paid for themselves. After the five-year period, SaaS is going to cost you while the on-premises solution has no incremental cost, even if you add more users. This argument should be questioned because software updates, new hardware additions, backup/recovery, and the like, are all ongoing costs. To be safe, you need to do the arithmetic on your own for the SaaS case and for the on-premises case.

Use a multistep process to evaluate on-premises and SaaS

Making the decision whether to stay with on-premises or move to SaaS is a multistep process. A hugely important question that you must answer is: Is there a SaaS provider available that provides the software that you need and that you can trust? If you cannot find a SaaS provider that you trust and provides the software that you need, then the decision is easy. Stay with on-premises.  

If you find at least one SaaS provider that offers the software you need, the next step is to work your way through the conflicts between on-premises and SaaS. This will help you determine if you want to proceed with SaaS or stay with on-premises. If your analysis indicates that SaaS is best for you, then you have to decide which of the SaaS providers, if you have more than one that looks promising, you will select.

Cost is not the only important consideration

Cost is a primary concern, but so are security, customization, control, compliance, and so on. A subscription service could become expensive as your business grows. Customers are entrusting their data to a third-party SaaS provider; what happens if the SaaS provider fails? Customization of software and integration with existing data center systems can be a big issue. SaaS providers generally don't allow the degree of customization that you can often get with on-premises software. SaaS solutions will likely have to operate in the context of corporate apps, such as mail systems and existing HR (human resource) apps. SaaS apps need to integrate with these types of apps.

Lack of control over data and processes could render an IT organization inoperable. There are often landmines in the path, so you must be careful what the SaaS providers and on-premises vendors tell you and promise you.

Understand your business needs

You need to know your basic needs for deploying a new app, or replacing an old one, before you try to decide between SaaS and on-premises. If you do not know, then you can forget about looking at various SaaS providers and on-premises vendors. There are so many choices and options and conflicts, you need a baseline of needs to start any decision process.

Get a free trial from SaaS providers and on-premises vendors

Before replacing an existing on-premises app with a SaaS app, get a free trial from the SaaS provider. This should be easy to do because of the SaaS delivery model. You should do the same with on-premises vendors if you are selecting a new app for your organization. The problem with on-premises is that you might only get a demo of the app, versus a real free trial.

Check the suitability of apps for SaaS or on-premises

On-premises is well suited for specialized apps, such as financial apps with sensitive data or apps that require large data transfers and manipulations, such as BI (Business Intelligence). SaaS is good for apps that improve collaboration and productivity, manage information, and so on. These apps include HyperOffice collaboration, CRM and HR apps (areas where and others have been successful).

Know the vendor relationship difference between SaaS and on-premises

One of the main differences between on-premises and SaaS involves the customer-vendor relationship. With on-premises, the vendor sells the customer a software license for the software and subsequent updates and upgrades and then disappears (unless the vendor comes around later asking for customer input on new features for the next release or asking the customer to be a beta site). The relationship between a SaaS provider and a customer is ongoing from day one. You are entrusting a SaaS provider with sensitive business data stored at the provider's site, and you are dependent on the provider on an ongoing basis for smooth running of your software, innovation, support and, sometimes, training.

Dig Deeper on SaaS support and licensing