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SaaS vs onPremise: Pros, Cons and Cost Analysis

May 18, 2021

SaaS vs onPremise: Pros, Cons and Cost Analysis

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SaaS vs onPremise, do you use the cloud?

Do you use the cloud?

Be aware that we’re not saying that you are in cloud nine, but that you may most likely be using the cloud. That is, if you use Google mail, Microsoft Office 365 office suite or you take a photo with your cell phone and then it gets automatically uploaded to iCloud or something similar, you are using the cloud.

The cloud, as an abstract concept, encompasses a series of technical terminology such as SaaS, IaaS, PaaS, etc. The good thing about the concept of the cloud is that you can guess what it does thanks to the metaphor: we do not know where our data are, or how they get there, nor does it matter much for us, because it is far away and it does not affect us. The great success of the cloud of the 21st century has been to find an especially powerful metaphor that omits the complexity behind that technology and gives us peace of mind.

The concept of using third-party infrastructure for “our stuff” is the oldest thing in computing. In fact, back in the 60s of the last century, most computing worked like this. You connected to a large machine from a computer that was not as such, but a screen and a keyboard. Then the microcomputer craze turned around and every computer was self-sufficient. Now, almost a century later, we have rediscovered that it is more efficient to have everything centralized in one big system.

I have nothing against the cloud. Well, my life is not at stake, unless for example, I entrust the IT infrastructure of my business to the cloud. This is what happened to a number of companies in Asia, such as CITEX or BitMax that used the Amazon cloud (AWS) to host their Bitcoin exchange service (Exchangers), well, them and also the Asian sites from Adobe, Business Insider, Expedia, Expensify, FanDuel, FiftyThree, Flipboard, Lonely Planet, Mailchimp, Medium, Quora, Razer, Signal, Slack, Airbnb, Pinterest, SendGrid and a few hundred more. The cloud is not infallible, the cloud is comfortable.

Today many companies have relied so much on the cloud that it is impossible to take a step back, get out of the cloud, because they would literally have to remake the system with another technology. The cloud is easy but implies total dependence on the provider, especially in technologically optimized systems such as Amazon’s. It’s too good a candy to resist.

Realistically, if you’ve already risen to the sky and are floating with the clouds, and the technology that supports your business is floating above your head, it may not be easy or comfortable to go back, in fact, you may have probably already realized that the cloud is not cheap at all and the costs are increasing over time, and are difficult to predict.

Well, it’s already in, and it’s not going to change, so you should at least be able to keep an eye on what your provider is doing. Monitor the quality of service they offer you and make sure for yourself, because who is watching the watchdog? That’s right, do it yourself, trust no one, do it with your own systems, don’t use a cloud system to monitor another cloud system, put your feet on the ground and buy yourself an umbrella, just in case it rains.

The “lifetime” model: onPremise

On the contrary, we have the classic model of “buying the software” and using it however you want, wherever you want and, whenever you want you change programs without much thought. Oddly enough, this is really the new model, the pay-per-use model that SaaS has copied predates conventional software licenses. The onPremise model gives you the right to use the software on your own computers, in your own facilities and where the manufacturer or software owner does not have any access or rights. The only requirement is to pay for it and use it under the conditions approved by the license you acquired.

Cost analysis: onPremise vs SaaS

The onPremise model has some undeniable advantages, the main one being data security. As it is running on your systems, you own both the information and the processes that use that information. This has legal and business implications, since changing providers can be easier than when you use its SaaS equivalent.

Although it may seem a lie, in the long term the SaaS model is more expensive than the onPremise model, and above all, with the onPremise model it is much easier to estimate the Total Cost of Ownership (TCO) in the medium term. This can be easily demonstrated if we compare the costs in the subscription/pay-per-use model (SaaS) and the license ownership model (onPremise) for one, three and five years.

  • Suppose a SaaS license annual cost is €5,000/year. In this case it is pure OPEX (operating costs).
  • Let’s picture an onPremise license whose annual cost is €10,000 the first year, and whose annual maintenance cost is 20% (which is the standard in the market). That supposes a renewal cost of €2000/year. In this case, it is pure CAPEX (investment in assets, software).
SaaS onPremise
1 year5,000 €10,000 €
3 years15,000 €14,000 €
5 years25,000 €18,000 €

There are intangible factors, such as input barriers, higher in onPremise models, and output barriers, higher in SaaS models. It is also true that an onPremise installation involves additional costs: those of infrastructure, operation and training.

In certain types of applications with little added value such as office tools, the SaaS model is here to stay. Office 365 or Google Docs are a perfect example.

In other cases, such as Adobe Photoshop, the onPremise model has been combined with a pay-per-use -subscription- model (but without being SaaS) combined with the conventional onPremise licensing model.

Summary of arguments in favor of each model

SaaSonPremise
Security depends on the provider.Security depends on the customer.
The responsibility for the operation lies with the supplier. The data is owned by the customer.
Savings in infrastructure and operating costs.Lower long-term license costs.
Ease of financing (monthly or quarterly payment).Easier-to-plan long-term costs.
OpexCapex
Lower input barriers.Higher input barriers.
Higher output barriers.Lower output barriers.
Faster deployment times.It is easier to integrate with the rest of the business processes.


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