SaaS vs On-Premise

This is precisely the question that many companies ask themselves when they are faced with the decision of choosing new software for their product information.

But what does SaaS actually mean, and is on-premise still relevant today?

SaaS

SaaS stands for Software as a Service and means that both the software and the infrastructure are operated by the respective service provider. The user usually accesses the service via a browser and does not have to worry about anything else. All that is required is a monthly fee, an (ideally fast) internet connection, and a laptop. A good example from the everyday lives of many readers is Netflix. You pay a monthly fee and can then use the service on your laptop, TV, or smartphone.

On-premise

On-premise, or to use the same jargon, software as a product, is the “old” way of using and developing software. Specific release versions are purchased via download, on CD, or on a USB stick and are then available for free use. In addition, maintenance fees of ~20-25% of the initial costs are often incurred. The software is then installed independently in the company's own IT infrastructure and must also be maintained there. This often means that the company's own employees or developers are needed to maintain the software. A good example is Microsoft Office before Microsoft switched to a subscription model with Office 365. After purchasing the CD with the product key, users could use Office indefinitely with the purchased range of functions.

Advantages of SaaS solutions

The differences between SaaS and on-premise are easy to understand. But is one form of software delivery better than the other, or are they both equally good?

We took a look at the key advantages of SaaS solutions.

Administration

As a user of a SaaS solution, you do not need your own IT administration. All you need to do is ensure that your device of choice is connected to the internet and has an up-to-date browser.

If you install and host the software yourself, you need to administer not only the functionality of the software but also the underlying infrastructure. If the infrastructure fails, all software instances are automatically affected.

IT infrastructure

As a user of a SaaS solution, you also don't have to worry about operating and maintaining your own IT infrastructure. In addition to the costs of hardware maintenance and the software administration costs mentioned above, the energy costs alone should not be underestimated, as they are currently at an all-time high. Professional SaaS providers can leverage significant economies of scale here and use every kWh efficiently.

IT security

More and more companies are falling victim to cyber attacks, often in the form of ransomware attacks. In such attacks, local computers are usually infected via email attachments, for example. These then infect the connected infrastructure, which can lead to considerable damage and loss of time.

As a user of a SaaS solution, a) the provider takes care of the maintenance of its infrastructure and ensures that all systems are optimally protected against cyber attacks, and b) local computers are not directly connected to the provider's infrastructure and therefore cannot infect it. If a company falls victim to a cyber attack, the laptops can simply be replaced and work can continue uninterrupted in the SaaS solutions.

Implementation speed

Time is often an important factor when evaluating different software solutions. Many readers are familiar with the complex implementation projects for ERP software, for example, which can take months to complete. Even though customizing a SaaS solution is just as complex as an on-premise solution, the initial setup and associated costs are simply eliminated. SaaS solutions are usually ready to use within minutes or hours and, compared to on-premise solutions, have minimal costs for onboarding, for example.

Updates

Another significant factor is updates and new features. Quite a few companies were initially very happy with their on-premise solution—it had all the features they needed—but then quickly realized that time moves very quickly, especially in the field of software. This often leads to costly updates in order to benefit from new features or, in the worst case, to outdated software that no longer offers many of the hoped-for features to set it apart from the competition.

In particular, the fact that SaaS solutions enable the continuous provision of updates and new features leads to a time and security advantage that release-dependent on-premise solutions cannot match.

Total cost of ownership

The advantages of SaaS solutions are also easy to understand. But what about costs? After all, these are one of the main drivers in the decision-making process for software projects. Can SaaS solutions keep up here, or are on-premise solutions vastly superior in terms of cost?

Setup costs

Setup costs are not usually incurred for SaaS solutions, at least when it comes to genuine multi-tenant SaaS solutions. Here, a new company is simply created in the system, including access data. There is no need for complex installation, as is the case with on-premise solutions, or hosting, e.g., with AWS or Azure for single-tenant SaaS solutions.

Running costs

With SaaS, running costs are also limited to minor IT activities such as configuring the firewall. There are no other ongoing and opaque costs such as IT infrastructure maintenance or energy costs.

System usage costs

When it comes to system usage costs, on-premise solutions usually involve maintenance costs, while SaaS solutions involve subscription fees. Since subscription fees are usually higher than pure maintenance costs (they also include electricity, maintenance, infrastructure, updates, administration, etc.), many decision-makers fall into the trap of equating maintenance costs with subscription fees.

Support costs

Support costs are generally balanced, but in some cases they are slightly higher for SaaS solutions because local IT cannot help out.

Update costs

There are no update costs for SaaS solutions; users always benefit from the latest version without having to pay for a new release and without the hassle of changing releases. Updates for on-premise solutions cost a one-time fee of 30-50% of the initial investment. In addition, the costs and risks of installation must be borne by the user.

Scaling

For on-premise solutions, a certain price is estimated for a fixed range of functions. It couldn't be any other way, because once deployed, users can make full use of the system. The clear advantage of a SaaS solution, on the other hand, is that the systems are usually scalable. Subscription fees are based on the number of users, data records, or computing power. This makes it possible for companies to start small and scale according to their actual needs.

Costs over 5 years

SaaS solutions offer clear advantages not only in terms of static cost blocks, but also when considering the total cost of ownership over a longer period.

Conclusion

The model ultimately chosen always depends on individual requirements. In short, however, there are only a few requirements (e.g., full control) that still make an on-premises solution more attractive than a SaaS solution today.