AuthorsIT Best Practices

How to Know If SaaS or On-Premise Is Better for Your Business

The software as a service (SaaS) concept in layman’s terms functions like a software rental. It enables companies and individuals to skip standard software installation that sometimes includes costly and complicated procedures. Today, there are many software developers that offer cloud-based software to both companies and individuals, who can subscribe to it for a certain period of time.

In this article we will try to determine in which cases companies should choose SaaS over software on-premise and what are the main considerations that should influence this hard decision.

Things to Consider


For most companies this is the most important parameter when choosing between SaaS and on-premise software. Company management first needs to understand the total cost of software ownership, which includes purchase, infrastructure, support, and maintenance. Purchasing on-premise software that’s frequently used and in some way essential for the company’s business in most cases represents a very good investment, except when it comes to really expensive solutions. All other less important software packs can be used as services, and they will offer the same performance, for much lower price.

Data Sensitivity

This is one of the most important factors when choosing between these two concepts. Many different countries have strict rules concerning sensitive data that ban companies from exporting their customers’ information to third-party companies, which in some cases might include cloud-based software providers. Since cyber-attacks happen more frequently in a cloud environment, a potential data breach can jeopardize a company’s reputation. For this and many other reasons, all software that stores or handles personal, credit card, healthcare, or other sensitive data should be used exclusively on-premise.

Infrastructure and Integration

On-premise software requires developed IT infrastructure. This can cause problems for tech startups in early stages of their development. If they don’t have infrastructure that’s powerful enough to withstand complicated software, they should definitely choose cloud-based solutions. Companies that are in business for a longer time and already have on-premise software solutions should only consider moving simple applications with standard interfaces to clouds. That’s because moving complex systems with many integrated applications and long lists of connections to the cloud can be both costly and time-consuming.

Pros and Cons

SaaS Pros

Cloud technology is slowly taking over many different areas of computing, and there are also thousands of entrepreneurs who are starting their own SaaS businesses. Some of the cloud-based software benefits are:

  • It saves installation time: Most SaaS software is already installed and ready for use.
  • It saves money: In most cases cloud-based software is much less expensive than on-premise ones, especially if we take into consideration integration and maintenance cost of software hosted on a company’s servers.
  • It is easy to upgrade: Most cloud-based software providers offer free upgrades.

SaaS Cons

On the other hand cloud-based software solutions also have more than a few disadvantages that need to be taken into consideration:

  • They are less secure: Companies can invest more time and money in protecting on-premise software, while cloud-based software only comes with security offered by its provider.
  • Not suitable for certain programs and apps: There are programs that can’t be hosted on clouds.
  • Immature software: Businesses should only use well-developed software, and since the SaaS concept is relatively new, most programs offered this way lack maturity.

On-Premise Software Pros

Since most companies already use on-premise software, they are not able to realize all the benefits of this concept before they try the SaaS solution. This list will help them to do that:

  • Better control: With on-premise software the company’s IT staff has total control of all data and processes the program deals with.
  • Pays off in the long run: Although on-premise software requires higher initial investment, it definitely pays off after some time.
  • Better security: Data that is stored and handled internally is always more secure.

On-Premise Software Cons

On-premise software also comes with a long list of cons, which is why so many companies think about moving to cloud-based software in the first place. On-premise software is:

  • Dependent: On-premise software is highly dependent on a company’s IT staff.
  • Expensive to upgrade: Unlike SaaS software, on-premise solutions don’t include upgrades, and these sometimes cost as much as the new software packs.
  • High-maintenance: This type of software requires constant maintenance and support.

Bottom Line

Specific circumstances that vary from one company to the other determine the best solution. Companies that have developed the business based on on-premise solutions shouldn’t move their software to the cloud, at least before it becomes outdated. Recently founded startups and other small businesses are almost always better off with SaaS software, because they should invest their money in developing their business, rather than in high-priced software purchases.

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