Changing Deployment Methods:

Hosted (SaaS) vs. On-Premises

A whitepaper comparing and contrasting Hosted (SaaS) and On-Premises software deployment methods

By David Silva

Blue Link Associates Ltd.

Executive Summary

After years of being merely a buzz term, SaaS (Software as a Service), has long since become a viable option as a software solution. As with most cutting edge technologies, SaaS threatens to change the competitive landscape of software systems. It is important for business owners to keep up to speed with changes in these systems that they rely on for their continued operations.

As globalization increases, so too does the need for remotely accessible systems and the ability to accomplish tasks on-the-go. SaaS stands as an enabling technology in a world where businesses continue to decentralize their systems and become more transactional in nature. These pressures combined have created a sudden push for systems that are quick to deploy, low-maintenance and easily accessible.

This whitepaper stands to examine SaaS as a viable alternative to on-premises deployment methods and provide managers with a summary of each method in order to serve as a starting point for making decisions. In this whitepaper the SaaS model will be compared and contrasted with the on-premises method of deployment and typical pricing models explored.

SaaS is a great option for many businesses; however, just like everything else, it has its limitations and drawbacks as well as its advantages.

Executive Summary
What is a Hosted (SaaS) solution?
Pricing Models
Advantages & Disadvantages
How to choose: An Informational Chart
Conclusion
Appendix

What is a Hosted (SaaS) solution?

Cloud computing and SaaS and “hosted” have come to be used interchangeably over time. For the duration of this whitepaper, SaaS will be used to refer to the concept of both software-as-a-service and cloud computing that provided by a host organization (hosted). It will be used to describe a system whereby a client accesses the system off-premises via the internet and pays an on-going subscription (or rental) fee (see Appendix I for full description of differences).

Traditionally business software has been hosted in the client’s business – typically referred to as "in-house" or "on-premises" – on a client-owned server. The software is then integrated with the client’s current software and various systems to allow for the flow of information from one system to another. SaaS, however, is different.

SaaS is an acronym for Software-as-a-Service and is used to describe a relatively new means of accessing software applications. The name is derived from the nature of the deployment method in which a host organization allows clients access to its software as a service. Despite being around for more than 10 years, SaaS is seen as a relatively new technology in the business environment which has exploded in popularity in recent years.

With SaaS, the software is no longer installed locally; it is instead hosted by the service organization/software provider. This means that the client organization need not install or run a server. Instead, information is sent through an interface to the host organization where it is processed by host-run software and sent back.

SaaS was originally used primarily as a deployment method for sales force automation and Customer Relationship Management but is now deployed for a variety of business functions including:

Accounting
Email access
Enterprise Resource Planning
Document management
Service desk management

SaaS may be deployed via the web, or via the internet through a thin client. The primary characteristic of SaaS is that the software does not reside on the client’s premises meaning, inherently, that the software is accessed remotely and therefore can be accessed easily from anywhere. On-premises installations, however, can also allow for remote access.

Pricing Models

On-premises system implementations typically require a substantial up-front investment in terms of licensing fees as well as hardware and installation services (data migration, employee training etc.) and on-going maintenance fees. Many of these costs must be incurred with SaaS implementations as well; however, generally on-premises solutions require a more significant initial commitment. SaaS typically employs a number of different pricing models in order to lessen the immediate financial burden – although it is important to note that SaaS systems typically cost more in the long run.

Licensing

Licensing is the traditional approach for buying business software. This revenue model requires clients to pay a one-time fee to purchase licenses for the software. Licenses are usually purchased in bunches (e.g. 1-5 users, 5-10 users). Typically maintenance fees are charged on a yearly-basis in order to provide funding for software updates and software support. Purchasing licenses may be costly but clients benefit from long-term savings.
Pay for Use

Many software systems utilize a pay-for-use pricing model whereby clients are charged based on the amount they actually use the system. This can be measured based on the number of users accessing the system in a given period, the duration with which they use the service or even per transaction, event or other action performed within the system.
Hosting/Subscription Fees

The most common pricing model for SaaS for business applications is a recurring hosting/subscription fee. These fees are typically charged on a monthly basis, although some clients may opt to pay yearly, quarterly or according to some other defined interval. These fees include a maintenance fee component similar to that of licensing.

Unlike On-premises implementations, SaaS pricing models tend to include maintenance and upgrade costs in the SaaS fees which can aid in budgeting for clients as they need only worry about their periodic fee payments. These are not the only costs to consider, however. Other costs that are shared with both approaches include:

Implementation costs
Data migration
Employee training
Other consulting

There is no right answer when it comes to determining which deployment method is superior or cost-effective. Each method has its benefits as well as its detractors. Below is a table that attempts to summarize the differences between SaaS and On-premises.

Advantages & Disadvantages

Software as a Service

Advantages	Disadvantages
No large upfront cash outlay Infrastructure costs pushed to provider No more worrying about backups Painless upgrades Increases access to expert support (in lieu of an IT department) Remotely accessible Improved security and reliability Possibly increased uptime Immediate or quick access to a broad range of applications	Reduced control of systems Data stored outside the organization Reduced customizability Increased on-going costs Internet connection required at all times Slower performance (WAN vs. LAN) May be difficult to integrate with 3rd party applications Client does not own the software - leasing

On-Premises

Advantages	Disadvantages
Data is stored inside the organization Increased customization and control of systems No monthly subscription fees No internet connection required Hardware can be shared between other internal systems Quicker performance (LAN vs. WAN) Easier to integrate with 3rd party applications and other systems Client owns the software	Large initial investment Hardware upgrades and maintenance required In-house IT management required Physical space required Software upgrades must be handled on the client end

Given the number of advantages and disadvantages for both deployment methods, it is clear to see that there is no obviously superior method. Determining which is best for a particular situation requires evaluating a number of factors including the level of unique business needs, the desire for flexibility and acceptance of risk. For example, a business with limited in-house IT may opt for the hands-off approach of SaaS as SaaS offers a piece of mind by pushing full responsibility of system maintenance to the host organization. Another factor to be taken into consideration is available cash flow. It is important to determine whether or not it suits one’s business to make a significant investment for long-term savings or if it is beneficial to reduce the initial investment at the cost of a larger spend long-term.

Many software vendors only offer one method of deployment whereas others offer both. These vendors can offer assistance in determining the most befitting method to suit your unique business needs. Managers should ensure that they educate themselves in order to make an appropriate decision themselves instead of being pressured into one method or the other from those vendors that only offer one method. Below is a chart that can, at a glance, aid managers in determining an appropriate solution for their business.

How to Choose: An Informational Chart

	SaaS	On-Premise
Business Processes	Simple or traditional business processes	Complex or unique business processes
Employees	Relatively new employees	Employees have been around for a while
Business model	Stable	Changing
Company size	Small-medium	Medium-large (international)
IT skills	Basic or none	Advanced
IT Infrastructure	Basic or none	Well-established
Integration with other systems	Little need for integration with other systems	Need for integration with other systems
Control	Do not desire control	Desire control

Conclusion

Selecting and implementing a software system to run your organization is not an easy process and neither is the process of selecting a vendor or deployment method. Hopefully this whitepaper has helped identify the many factors that must be considered to help make this process easier. One can be sure that one thing was made clear in this whitepaper: there is no simple answer to which deployment method is best. With SaaS now on the scene, managers are empowered with a choice in how they would like software help improve their business operations.

Appendix

SaaS vs. Cloud Computing

In order to understand the difference between SaaS and cloud computing – each with their own set of principles – they must be reduced to their simplest forms. In doing this it is possible to understand the difference as follows:

Software-as-a-service refers primarily to the payment method of accessing software whereby a client pays a vendor an on-going monthly or yearly fee for access.
Cloud computing instead, refers primarily to the physical location of the software system. With cloud computing the system is physically located off-premises and accessed via the "cloud" (internet).

These terms have, over time, come to be used interchangeably. SaaS, in the context of this whitepaper, is used to refer to the concept of both software-as-a-service and cloud computing. It will be used to describe a system whereby a client accesses the system off-premises via the internet and pays an on-going subscription (or rental) fee.

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