The Pros and Cons of SaaS

March 23, 2009
Should you purchase on-premises software or subscribe to the software as a service?

If you haven’t already been faced with this decision, you will be: purchase on-premises software or subscribe to the software as a service (SaaS)? More and more software providers are offering the latter. “SaaS is a delivery method for software that provides access on a subscription basis via the Internet. This means that users pay a monthly usage fee and access an external website where the software runs and his/her data is stored,” explains Mark Friedman, CEO at Accruent Inc., the Toronto-based provider of FAMIS software.

While SaaS has its disadvantages, it’s not without merit. By comparison to on-premises software, the low initial cost and predictable monthly cost are attractive. Friedman warns, though, that “users should be vigilant for low initial fee rates that accelerate sharply over time.”

Because SaaS software is maintained and upgraded by the provider, much of the work and worry of installing updates is left to someone else. When comparing on-premises software with SaaS, Dave Johnson, president and CEO at Facility Wizard Software, Chicago, explains: “You get the same updates. In a software-as-a-service environment, the theory is that they get rolled out much quicker, so you don’t have to wait for the next release to come out.”

What about On-Premises Software?

SaaS isn’t for everyone; while it seems to be the latest trend, there are just as many companies using traditional, on-premises software with success. Consider the following:

  • Licensed software has larger upfront costs, but lower costs in later years, explains Mark Friedman, CEO at Accruent Inc., Toronto.
  • You – not the supplier – maintain the software and choose when to install upgrades.
  • Your data resides on your server instead of in the same tables or on the same server as a potential competitor’s.

If you’re looking for a highly customized software platform, SaaS might not be for you. Johnson encourages you to answer this question: “How willing am I to tweak or mold my processes to fit the software vs. having software that can be molded to my processes?” Because SaaS applications are used by more than one client, providers are hesitant to roll out changes for one company because all clients’ experiences would be affected. “Many SaaS providers have found ways to deal with that. [They] can configure screens that only you can see. It just depends on the architecture of the system that’s been developed, and whether or not they built in that kind of capability,” explains Johnson. If it’s important selection criteria, be sure to inquire about whether customization is possible.

Another hurdle with SaaS is integration with data from other systems. This is especially important to users who may want (or need) the software to integrate with other accounting, project-management, or work-order applications. “It’s a challenge to do that when those systems are internal, and this software is hosted on the Internet,” says Johnson. Ask before you subscribe.

Security concerns can be a deciding factor when weighing on-premises software vs. SaaS applications. “SaaS is really ‘multi-tenancy,’ where multiple people log in, and the software is secure enough to display just their data,” explains Johnson, “but it’s still the same database as the one that all the other people are logging into.” This can make some companies uncomfortable. “Many organizations are unwilling to place confidential information on systems that are beyond their internal control,” says Friedman. If you’re on the fence, ask about the measures being taken to prevent you from accidentally seeing someone else’s data or, even worse, to prevent someone else from accidentally seeing yours.

Weigh the capabilities, costs, and pros/cons carefully. According to Friedman, “There are applications and organizations for which SaaS is a great fit, and situations where organizations prefer to run their software in-house. In most cases, it comes down to the nature of the application and user population, the need for integration with other systems, and the IT policy of the organization with regard to systems and security.”

Jana J. Madsen is former editor at Buildings magazine.

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