The world of enterprise IT is evolving rapidly, and businesses must consider many factors when selecting the proper IT infrastructure. One crucial aspect of any IT strategy is deciding between on-premises and cloud solutions. To date, with software-as-a-service and other cloud-based solutions on the rise, it may be challenging for enterprises to figure out which implementation would be the best fit. There is no one-size-fits-all model, as it depends on different factors that vary from one business to another.
Source: https://www.grandviewresearch.com/
A few years ago, data hosting was simple and easy to understand. But now, because of technological advancements, businesses have many options to choose from, including various software delivery channels. As digitalization continues to advance and more workplace software becomes available, it can be difficult for business owners to keep track of everything and determine the best solution for their organization. That's why there's an ongoing discussion about whether SaaS or on-premises solutions are better when it comes to navigating the complicated world of IT deployment options.
This article aims to assist you in making a more informed decision by comparing on-premises and Software as a Service (SaaS) software delivery and discussing all the advantages and disadvantages of each of the solutions.
On-premise vs. Off-premise. What is the difference?
The most significant difference between off-premise (or cloud) and on-premise solutions is that cloud models are hosted and maintained by a third-party vendor, while on-premise solutions are hosted in-house. On-premise solutions refer to the software that is tied to a particular building or premise and is installed and “hosted” directly on an organization’s servers. On the other hand, off-premise or cloud solutions are mainly hosted and maintained by cloud service providers and allow users to access the software and data remotely without having to request this information from enterprise servers. With cloud software, administrators have remote access to the servers but don’t have complete control over what happens on the backend.
Cloud computing is an IT infrastructure that is accessible via the Internet. It represents the on-demand accessibility of remote computing resources, including processing power, storage space, and application software. This model usually exists in three options:
- Software as a service (SaaS). With this option, users get on-demand access to the complete, ready-to-use, cloud-hosted application software.
- Platform as a service (PaaS). PaaS offers users on-demand access to the complete, ready-to-use, cloud-hosted platform for developing, running, managing, and maintaining apps.
- Infrastructure as a service (IaaS). With IaaS, users get on-demand access to cloud-hosted virtual and physical servers, storage, and networking to run applications and workloads in the cloud.
Source: https://www.grandviewresearch.com/
Software as a service, commonly referred to as SaaS, remains the most popular cloud model for businesses of all sizes. Global SaaS adoption and market share of software as a service solutions keep growing. According to statistics, the global SaaS market size is projected to grow from $251.17 billion in 2022 to $883.34 billion by 2029 at a CAGR of 19.7%, holding the major share out of the three most common cloud computing service models.
Off-premise solutions and SaaS, in particular, offer organizations a range of benefits, such as scalability, accessibility, and affordability, although some organizations still prefer to use traditional on-premise software. Below, we’ll compare these two models, evaluate their pros and cons, and determine what types of businesses benefit the most from each. Whether you're a small business owner or an IT professional, understanding the differences between SaaS and on-premise software can help you make an informed and weighted decision when it comes to choosing the right solution for your organization.
What is SaaS, and why is it so popular?
Software as a service has become a real revolution in IT product and service delivery, allowing businesses worldwide to significantly reduce their need to build, design, deploy, and maintain the software required for their business operations. The ultimate goal of delivering software using the SaaS model is to enhance customer experience and boost efficiency.
SaaS is hosted and maintained by a third-party service provider, freeing organizations from the worries of managing everything themselves. Moreover, with SaaS, enterprises don’t have to invest heavily in IT infrastructure and human resources, which allows them to focus more on the quality of their services. With this model, businesses purchase a subscription to specific pieces of software provided by the vendor. Once the subscription is activated, company employees or anyone authorized can access the software from anywhere via the internet.
The SaaS model is based on cloud computing technology that frees companies from the need to manage, maintain, and upgrade the software. In the software as a service environment, the service provider manages the following:
- Applications;
- Data;
- Runtime;
- Middleware;
- O/S;
- Virtualization;
- Servers;
- Storage;
- Networking.
With the growing popularity of remote work, SaaS is evolving, and the growth of the SaaS market isn’t going to slow down. This cloud services model is considered one of the most crucial technologies for business success, and according to one of the reports, companies today use seven times more SaaS products than they did five years ago. Gartner predicts that by 2026, half of the organizations using multiple SaaS apps will centralize these applications’ management and usage metrics using a SaaS Management Platform (SMP) tool. SaaS technology is prioritized by many business owners who choose it over artificial intelligence (AI), internet of things (IoT), and blockchain. Thus, in a survey published by Harvey Nash Group, 73% of 1,724 respondents stated that SaaS technologies are essential for implementing business goals, while for AI, this figure was 52%.
However, despite SaaS technology's numerous benefits, it isn’t a solution for everyone. As SaaS clients transfer control of their internal systems to third-party software providers, they don’t have visibility into what’s happening at the backend. In most cases, not worrying about the SaaS infrastructure is convenient, although, in certain circumstances, it can be a barrier to business. For example, organizations that want to retain complete control over their client data and are restricted by compliance requirements will have a higher degree of control with in-house software.
SaaS vs. On-premise comparison
Access and implementation
The SaaS implementation process is pretty straightforward. Because the service is available over the Internet, you can get started immediately, wherever you are, once the company has opted for a SaaS solution. It significantly saves time and effort. Both single and multi-tenant SaaS solutions can be implemented in less time than in-house solutions due to the hardware a company needs to procure to host software on-premise. Also, with in-house software, the applications can’t be accessed outside of company premises.
Costs
One of the most significant advantages of SaaS is the reasonably low entry cost. As the company rents subscription-based software, there is no need to spend a considerable amount up-front. Moreover, the SaaS solutions have flexible pricing plans to meet different business needs. Subscription fees vary according to the license type, available features, and the number of seats.
With on-premise solutions, ongoing maintenance costs can be low. However, companies must purchase the appropriate hardware and pay for its setup and implementation while having IT support and human resources available to run the applications with routine upgrades and maintenance smoothly.
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Scalability
Cloud-based SaaS solutions can easily be scaled depending on your business needs without much waste of time and resources. Most cloud vendors allow users to upscale and add additional licenses, storage, servers, or bandwidth during an ongoing subscription term. You can also downscale if needed, but you will probably have to wait for the next renewal window, which is usually around a year after the contract’s start.
On-premise solutions are much more challenging to scale. It is usually achieved through long-term planning and requires additional costs and human resources. Upscaling can slow down your business operations for an unforeseen period, so an on-premise solution isn’t the best choice if you have a growing business that needs flexibility.
Customization
On-premise solutions will be the better choice in terms of customization, as most SaaS products don't offer many customization features, especially if it’s a multi-tenant SaaS solution. On-premise software provides users with more customization options and offers more control over the apps’ implementation and how the data is processed and stored.
Functionality
With SaaS-based applications, you can add or subtract features according to your business needs. There is no need to hire development teams to create the functionalities you need, as they are already fully developed and ready to use. Another helpful feature is SaaS reports, which make it easier to analyze data and usage and help you understand what features your business needs most at a given moment.
With on-premise solutions, functionality is often limited, and most software packages are difficult to modify. Usually, making changes to one element means the entire network must be redesigned to integrate new processes into the system. Reprogramming existing legacy systems or whole networks is also costly.
Maintenance and support
In the case of SaaS service solutions, a third-party vendor takes full responsibility for the application maintenance and support, offering clients ready-to-use products. The service provider is also responsible for disaster recovery if something happens.
With on-premise solutions, the company is responsible for software maintenance, support, and upgrades. Moreover, skilled IT staff is needed to fix bugs and other issues affecting product security or availability and for disaster recovery. On-premise solutions entail more responsibility but provide better control over the data than SaaS.
Regulatory compliance
For the moment, leading SaaS vendors take responsibility for their products' security and regulatory compliance, offering their clients necessary data protection and security compliance services. As for the in-house IT team, they are responsible for the validation and enforcement of the regulatory requirements.
Upgrades
Upgrades in the SaaS environment are easy and involve less time and involvement of internal resources. Most SaaS vendors offer tiered license types and additional features available for an upcharge.
With on-premise solutions, upgrades require much more planning and higher upfront investment.
Security
The question of SaaS security remains controversial, although storing your data in the cloud is no riskier than storing it locally, as in both cases, the app data can become a victim of hackers. Most leading SaaS vendors offer high-level security and take care of the supervision of networks and servers, protecting both their customers' data and their reputation.
As for on-premise software, it requires additional time and resources for top-notch security. With on-premise solutions, a company is responsible for installing firewalls and antivirus software, setting appropriate user access policies, guarding against cyberattacks, and installing security patches promptly. You need a team of experts to properly secure the systems and deploy the newest security measures to protect your product.
Backup and recovery
When you choose a SaaS solution for your business, all your data is automatically backed up so you can quickly restore it in the case of a technical disaster. However, you should ensure that the backup and recovery services are included in your subscription. Also, note that adding these features may incur additional charges.
With on-premise software, the most cost-effective way to back up data is to create duplicate data storage that can be accessed when the CPUs stop working. You should also note that some on-premise backups can take hours and even weeks to recover the data depending on the type of storage and its location.
How to choose between SaaS and On-premise?
| Parameters | SaaS | On-premise |
|---|---|---|
| Popularity | By 2025, 85% of all business apps are expected to be SaaS-based, while 50% of the world’s data will be stored in the cloud. | The on-premise software market is expected to grow slower than the SaaS market due to the increasing adoption of cloud computing and SaaS applications |
| Billing | Subscription-based billing. “Pay-as-you-go” or “pay-per-user” models | Licensing, maintenance, and ongoing support fees. |
| Maintenance | Maintaining infrastructure on the vendor’s side | Maintaining infrastructure on the client’s side |
| Infrastructure | Bandwidth and browser-capable devices | Bandwidth and browser-capable devices, application servers, data center servers |
| Security | The service vendor manages security and is responsible for any breaches | You maintain security and are responsible for any breaches |
| Implementation | Fast implementation | Usually longer implementation |
| Customization | Little customization options | Unlimited customization options |
| Scalability | You can upscale or downscale easily depending on the company’s needs | Software is difficult to scale and requires long-term planning, additional costs, and human resources |
| Control | Partial loss of control over the system | Great control over the system |
| Disaster recovery | If disaster recovery is included in the subscription, the data is automatically backed up and can be quickly restored. | You need to create duplicate data storage to save the data in case of a technical disaster |
What companies benefit from SaaS?
SaaS has become popular because it offers several advantages over traditional software models, such as lower upfront costs, greater flexibility, and automatic updates. Companies of different types and sizes can benefit from SaaS, especially those that need access to software applications but don't want to invest much in the infrastructure required to run them on-premises. Below, we’ve collected a few examples of companies that can benefit from SaaS solutions:
- Small and medium-sized businesses. SaaS can benefit small and medium-sized companies that don’t have the resources to build and maintain their own IT infrastructure. SaaS allows these businesses to access software applications on a subscription basis, paying only for what they use.
- Startups. Startups often need to move quickly to develop and launch products, and SaaS can help them do that by providing access to software tools and applications without the need for a significant upfront investment.
- Remote teams. SaaS can be an effective way for teams working remotely to ensure everyone has access to the software applications they need, regardless of location.
- Large enterprises. Even large enterprises can benefit from SaaS, particularly if they need to scale up or down their software usage quickly. SaaS can also benefit companies that have a geographically dispersed workforce or that need to collaborate with partners and customers.
Overall, any company that needs access to software applications can benefit from SaaS, particularly if they want to save on upfront costs, increase flexibility, and stay up-to-date with the latest software updates and features.
What companies benefit from on-premise?
While SaaS has become increasingly popular, many cases still exist when on-premises software makes more sense for a company’s needs. Here are a few examples of companies that can benefit from on-premise software:
- Large enterprises. Large enterprises often have complex IT infrastructures with specific security and compliance requirements. In these cases, on-premise software may be necessary to ensure that the company can control its software environment and data completely.
- Government agencies. Government agencies are often required to maintain strict security and compliance standards, which can make it difficult to use cloud-based software solutions. On-premise software can give these agencies better control over their data and compliance requirements.
- Companies with limited internet connectivity. When internet connectivity is limited or unreliable, on-premise software can ensure that companies can continue to access critical software applications even when their internet connection is down.
- Companies with highly customized software needs. Some companies have specific software requirements that cloud solutions like SaaS can’t meet. In these cases, on-premise software can be customized to meet the company’s needs.
On-premise software can be helpful for any company that needs complete control over its software environment, has specific security and compliance requirements, has limited internet connectivity, or requires highly customized software solutions. However, you should remember that in-house software can come with higher upfront costs and more significant maintenance requirements than cloud-based solutions.