Buy or lease? That’s a dilemma commonly confronted by anyone looking at new cars. With the continued emergence of Software-as-a-Service (SaaS), organizations are beginning to ask the same question about their essential business applications.
With SaaS, customers access applications and data via the cloud and essentially rent the application from the SaaS provider on a per-user or per-month basis. The SaaS provider is responsible for delivering, securing, managing and updating the application, data and underlying infrastructure.
It’s an increasingly popular option. Gartner Group expects worldwide SaaS revenue to reach $22 billion by 2015, a 52 percent increase from 2012. A recent Gartner survey found strong interest in SaaS and public cloud offerings, with more than 60 percent of organizations planning to increase their budgets for these services over the next two years.
SaaS is appealing because it enables organizations to lighten the load on their balance sheets by deferring capital outlays and infrastructure costs. With traditional on-premises software, there are significant costs on top of the purchase price — license fees and upgrades, servers, networking and storage, and maintenance and support. In addition, many organizations need to engage an IT service provider for installation and troubleshooting due to resource constraints and skills gaps.
Still, that doesn’t mean SaaS is a slam-dunk decision. CFOs and CIOs should do their homework to determine if the total cost of ownership (TCO) and ROI metrics make SaaS a good fit for their particular organizations.
First, it’s important to evaluate the pricing model for a given SaaS solution. Here are three of the most popular and some key considerations:
- Pay-per-user — subscription costs are incurred for each registered user. In this model, it’s important to ensure that you’re not paying subscriptions for users who have left the company or no longer need the software.
- Pay-per-use — pricing depends upon the resources used, such as data storage volumes or software features. With this model you don’t have to pay for resources you don’t use but it can be difficult to predict ongoing costs.
- Pricing plans that incorporate some combination of the two, often in a tiered structure. It’s important to consider the features bundled into each tier and the effect on your budget if you shift to another tier.
Next comes the task of comparing SaaS to on-premises software, which involves weighing numerous tradeoffs. While on-premises deployments have greater upfront costs, SaaS often comes with hidden costs — including fees for industry-specific functionality, extra storage and premium support. While SaaS tools can reduce IT staffing requirements and offer quicker upgrades and deployments, on-premises software provides stronger customization and greater integration with other applications.
To make the right decision, organizations must consider not only costs and benefits but also any unique organizational characteristics and business requirements. At Atlantic-IT.net, we’ve seen customers enjoy great success using proven cloud services for noncore applications. At the same time, we’ve found that on-premises software is a better choice in certain cases:
- Core business applications that require onsite computing
- Legacy and custom applications you don’t want to update
- Industry-specific applications that require a specialized infrastructure
- Applications that need to remain on your capital vs. operations budget
In the end, choosing between SaaS and on-premises software is just as much a personal decision as deciding whether to buy or lease a car. Would you rather have lower monthly payments and fewer maintenance risks, or are long-term savings and eventual ownership more important? Are you satisfied with the item “as is,” or do you need to customize it to meet specific requirements? As your outsourced IT department, Atlantic-IT.net is here to help you make these evaluations and select the right software products for your business needs.