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SAAS vs. On-Premises: 8 Factors to Consider

Jan 31, 2023

Back in the day, there was this thing called timesharing. You rented space on a machine owned by someone else, and in return you were able to run software on that piece of machine while other people took care of it. As time went on, it became more popular to own your own hardware and software and be responsible for maintaining it. Now the pendulum is swinging again.

Instead of timesharing, though, this methodology is more likely to be called Software as a Service (SaaS). The analyst firm Gartner defines SaaS as software that is owned, delivered and managed remotely by one or more providers. The provider delivers software based on one set of common code and data definitions that is consumed in a one-to-many model by all contracted customers at any time on a pay-for-use basis or as a subscription based on use metrics.

That’s fine, but for the question of SaaS vs. on-premises, which is better for your organization? Here are some factors to consider when making your decision.


Typically, SaaS ends up costing less than an on-premises solution, at least in terms of upfront costs. SaaS usually is billed at a certain amount per month, while on-premises hardware and software usually involves paying all the money up front. On the other hand, depending on how long you keep a particular solution around could mean that eventually paying every month could add up to more than just buying the software and hardware outright.


Buying something like hardware or some software often is considered a capital expense, because it is considered an asset that is subject to depreciation. Buying something for a fixed cost every month often is considered an operational expense and isn’t subject to depreciation. Also, depending on the organization, it might be more or less challenging to be allocated capital or operational funding during the budget cycle.


If the software or hardware are on-premises, typically that is going to mean that the staffers to support it are employees, or at least contractors, and the company is required to hire them, directly or indirectly. If the software or hardware is SaaS, typically the hosting company is going to hire the staff, including paying staff salaries, hiring and firing, and managing. On the other hand, the advantage of hiring your own staff is that you then have control over them, and they aren’t splitting their time among multiple clients.


Opinion varies as to whether SaaS or on-premises is more secure. Certainly, to a certain extent, it depends on your organization, the hosting organization, and how much of an issue security typically is in your region. In any event, with SaaS, the hosting organization will typically be responsible for providing security, while on-premises your company will. Only you can tell in your particular situation which is going to be more secure.


Software that is set up on the cloud for access by other people is typically going to be easier for staff to run from anywhere, whether they’re traveling, working in a sales office, or working from home. The difficulties of trying to connect to an on-premises solution remotely (navigating through VPNs, firewalls, intranets, etc.) disappear when working in a cloud environment; an Internet connection and browser are typically all that’s needed to connect to the application, writes Tony DiPoalo in InsideCounsel. Such convenience lends itself to increased efficiency. As mobile workforces and telecommuting increase in popularity, using SaaS solutions is a straightforward tactic to keep mobile workers connected and productive.

Upgrades and Maintenance

Usually, in a SaaS situation, the hosting company is responsible for upgrading and maintaining the hardware or software. In an on-premises situation, usually you will be responsible for upgrades. On the other hand, an on-premises situation may give you more freedom as to when or even whether you upgrade to a new version of hardware or software. SaaS is also typically more scalable because additional resources can more easily be added when needed, DiPoalo adds.


While SaaS can work well for a fairly standard installation, it may be more difficult to set up if you have a particularly unusual use case. While some SaaS systems allow for some personalization, controlling true customization in terms of rewriting code can be much more limited, especially in multi-tenant systems, writes Adam Boyce in TechTarget. Minimizing customization certainly saves time and money, but it can also make your system less usable, he writes. Out-of-the-box functionality is fundamental to SaaS as a way to control and minimize cost, DiPoalo agrees. An on-premises solution is probably a better option for organizations looking to build in specific functionality or integrations with other software.


Depending on the geographic area and the industry, different organizations have different compliance regulations. Is data required to reside in a particular country? To what degree do vendors need to make customer data available to the government or protect it from the government? How much control does the company need to maintain over the data in general? Businesses should take heed of other legal, regulatory, or reputational risks that may exist, warn write Justice Opara-Martins, Reza Sahandi, and Feng Tian in the Journal of Cloud Computing.. This is vitally important if the data involved is not just for testing, but constitutes real corporate data, perhaps even confidential or personal data.

Ultimately, keep in mind that SaaS vs. on-premises is not an all-or-nothing affair. It’s certainly possible to migrate some more standard applications, such as email and messaging, to SaaS while keeping more customized apps on-premises.

This article was originally published on the Laserfiche Blog. Laserfiche is a leading SaaS provider of intelligent content management and business process automation. 

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