SaaS (Software as a Service) and on-premises are two main models for software distribution, each offering distinct approaches to how software is delivered, accessed, and managed within an organization. While SaaS solutions allow for scalability, cost-efficiency, and flexibility, on-premises software provides better customization and control. So, how to determine which approach best suits your business? In this article, we will dive into the main distinctions between SaaS vs on-premises models to help you make an informed decision.
On-premises software vs SaaS: Short overview
SaaS solutions are cloud-based applications hosted and managed by third-party providers. Users access the software online, typically through a subscription model. SaaS offers faster time to market, easy scalability, and lower upfront costs, with the vendor handling updates, maintenance, and security. This model is ideal for organizations looking for quick deployment, remote accessibility, and minimal in-house IT management. Thus, Gartner forecasts that global end-user spending on SaaS will grow by 20%, reaching $247.2B in 2024, and is expected to approach $300B in 2025.
On-premises solutions, on the other hand, are installed and hosted locally on a company's own servers. This approach provides organizations with full control over their data and systems but requires a larger initial investment in software, hardware, and IT infrastructure. On-premises solutions are well-suited for businesses with strict data control, customization needs, or regulatory compliance requirements. However, they typically involve longer deployment times and ongoing maintenance by internal IT staff.
Comparing SaaS vs on-premises: 7 key differences
We highlight the main distinctions between SaaS vs on-premises to help you choose the most suitable one for your business.
Implementation and access
A SaaS solution implementation is quite straightforward. With the service accessible over the internet, users can get started immediately, no matter their location. Basic configuration typically involves setting up user accounts, defining roles and permissions, customizing settings, and integrating the service with existing systems. However, if ownership of the SaaS solution isn't clearly defined early on, companies risk facing security challenges or encountering shadow IT. Shadow IT involves using unauthorized or unmanaged technologies, software, or services within an organization, often bypassing the control of the IT department.
In contrast, on-premises implementations are generally more complex and require additional time for both planning and execution. A dedicated team should constantly oversee hardware procurement and manage the software's internal hosting. While this setup gives enterprises more control, it limits flexibility-applications are typically only accessible on company premises.
Read more: Understanding SaaS in cloud computing and its business impact
Costs
A significant advantage of SaaS solutions in the on-premises vs SaaS debate is their relatively low entry cost. Since companies subscribe to these services rather than purchasing them outright, no large initial investment is required. Subscription fees-paid monthly or annually-are based on factors like available features, user count, or license type. Although this model helps manage expenses, partnering with an experienced cloud vendor ensures a tailored approach that minimizes the risk of unused licenses or redundant apps, which can increase cloud expenses.
On-premises solutions generally incur higher upfront costs, as enterprises must purchase the necessary hardware and cover setup and implementation expenses. Although ongoing maintenance costs can be lower, on-premises solutions require dedicated IT infrastructure and staff for upkeep and troubleshooting.
Maintenance
As SaaS solutions are provided as ready-to-use services by third-party vendors, the client is not responsible for app maintenance or support. The vendor handles availability and disaster recovery, ensuring service continuity. However, businesses should evaluate critical areas like data security, integration capabilities, and vendor reliability rather than relying entirely on the provider's assurances.
In an on-premises setup, the company is responsible for software maintenance, support, and upgrades. This requires skilled internal IT staff to handle disaster recovery, resolve bugs, and manage issues affecting availability or security. Although this setup demands more responsibility, it also provides greater data control than SaaS applications.
Read more: SaaS migration: Strategies, best practices, and readiness assessment
Scalability
Comparing the SaaS model vs on-premises in terms of scalability, the first one presents more opportunities to match changing business needs. Most vendors allow you to increase resources-such as licenses, servers, storage, or bandwidth-within an active subscription period. A trusted vendor can help you manage these scaling processes and advise on the timing of contract renewals to reduce costs associated with downscaling.
On-premises solutions are generally more challenging to scale than SaaS. Expanding capacity requires extensive planning and can introduce delays that disrupt business operations. This makes on-premises solutions less ideal for fast-growing businesses that need flexibility.
Customization and upgrades
SaaS applications are typically built with standardized features to serve a broad audience. Although customization is available, it is often more limited than on-premise solutions. However, upgrades are more straightforward with SaaS solutions, as most vendors offer tiered licenses and additional features for an extra fee.
Upgrading on-premises solutions requires more detailed planning and a larger upfront investment. Skilled IT staff are essential for managing the planning, deployment, and monitoring stages. However, on-premises solutions provide more flexibility for customizations or implementing new features.
Security and compliance
Storing data in the cloud is not inherently riskier than on-premises storage. In both cases, data can be targeted by hackers. Most SaaS vendors use advanced security technologies to protect client data and safeguard their reputations. However, while providers constantly enhance their defenses, companies should ensure that all security and compliance requirements are met. Experienced SaaS consultants can help you check the compliance and security measures SaaS providers offer.
Without a dedicated IT team continually deploying the latest security measures, on-premises applications may be less secure than using a third-party provider. On-premises solutions require building and maintaining robust and costly security measures, staying current with compliance standards, and having the expertise to detect potential threats as they emerge.
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Backup and recovery
Cloud computing backs up data automatically, making it easy to recover information in case of a technical failure-lightening the load for in-house IT teams. A trusted SaaS consultant can clarify whether these services are included in the subscription or require an additional fee, ensuring companies have appropriate backup and recovery.
Implementing reliable recovery systems for on-premises solutions can be costly but provides full control over data storage. The best approach to backup data typically involves setting up duplicate storage that can be accessed if primary systems go offline. Without sufficient investment in backups, enterprises risk losing not only their data but also their reputation.
How to choose between SaaS vs on-premises?
When comparing SaaS vs on-premises solutions, it is crucial to choose the option that best aligns with your organization's unique needs and goals. To make the right decision, we recommend evaluating the following:
- Software requirements: Outline your organization's essential software needs, including functionality, security, scalability, and integration requirements. You should also prioritize them based on their impact on your business.
- User access: Identify how many users will need access to the software and consider if your user base is likely to grow substantially over time.
- Budget: Estimate both upfront and ongoing costs. Review how each pricing model fits within your financial plan, factoring in the total cost of ownership over time.
- Data sensitivity and compliance: Assess the sensitivity of your data and any regulatory requirements in your industry to determine if data security and control are critical factors.
- Customization: Consider the level of customization needed and your organization's growth projections to identify demands for scalability and tailored features.
Read more: How to overcome the challenges and benefit from on-premises to cloud migration?
Common use cases for SaaS and on-premises solutions
To help you choose the ideal solution, we prepared common use cases for on-premises and SaaS applications. On-premises solutions are ideal for:
- Highly secure environments: Industries handling sensitive data often choose on-premise systems for better control and compliance.
- Customized workflows: Organizations with complex processes prefer in-house solutions for tailored functionality.
- Legacy systems: Companies reliant on legacy infrastructure often use on-premise systems to avoid integration challenges.
- Limited Internet access: Locations with unreliable connectivity favor on-premise solutions for consistent operations.
In contrast, SaaS solutions are widely used across industries and functions:
- Collaboration: Platforms like Google Workspace, Microsoft 365, or Slack support real-time communication and teamwork.
- Customer relationship management (CRM): Solutions like Salesforce centralize customer interactions, sales, and marketing.
- HR management: SaaS HR tools streamline recruitment, onboarding, performance, and payroll.
- Enterprise resource planning (ERP): SaaS ERP systems unify processes like finance, inventory, and supply chain management.
- Project management: SaaS tools simplify planning and tracking projects.
If you need support evaluating your business needs and selecting the right option between SaaS vs on-premises, you can partner with an experienced software development provider to leverage its expertise. Software consultants can guide you through all the implementation stages and build a unique solution for your organization.
Build your business solution with N-iX
If you are looking for a trusted software vendor, N-iX is here to help you. Our software engineers have prominent experience developing legacy and cloud solutions tailored to business requirements:
- With over 2,200 tech experts on board, N-iX can help you build customized software, whether cloud or on-premises.
- Being 21 in the international market represents our expertise and continuous upgrade to keep in pace with global software development trends.
- Our team of 400 cloud experts delivered over 200 successful cloud projects during the last five years.
- N-iX partners with three leading cloud providers being an AWS Advanced Tier Services Partner, a Microsoft Solutions Partner, and a Google Cloud Platform Partner.
- We received recognition from several industry awards, including the CRN Solution Provider 500, the IAOP Global Outsourcing 100, ISG Provider Lens™, and acknowledgment as a Modern Application Development services provider by Forrester.
- N-iX complies with multiple security standards, like CyberGRX, ISO 9001:2008, ISO 27001, ISO/IEC 27701:2019, PCI DSS, and FSQS, to keep your software protected.
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