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The problem with most on-demand versus on-premise SPM solution analysis is that they tend to be biased. The reason for that is that many the sources of those comparisons are the software vendors. A vendor with a SaaS solution will try to convince customers that SaaS is better than on-premise, and vice-versa.
So which model is most appropriate? The reality is that it varies on a case by case basis. A quick search for this comparison, at least in the CRM space, will display thousands of results which can be useful to make up y our mind.
On-Demand Pros
Convenience: The application can be accessed from anywhere… You can administer it from home, while on the road, etc. Your reps can also access their dashboards and performance from anywhere in the world. It also means that the implementation team should be able to work remotely more easily, which will reduce the implementation expenses.
Worry-Free: No need to worry about the technical support of the application, applying patches, etc.
Focus on core business: No IT infrastructure to maintain in-house… you get to focus on what you do and not on keeping a system up and running. You also don’t need to invest in expensive hardware.
Pricing Model: Avoiding a large up-front cost will allow to try an application without spending too much up-front. After a certain period of time it may be more expensive than purchasing a license, but looking at the total cost of ownership it may still be a viable option.
On-Demand Cons
Security: Valuable and usually very confidential business data resides with a third party company. SPM companies are making a big effort to keep this information “safe”, and that’s why most vendors are SAS 70 certified… but it’s still a valid concern for many companies.
Uptime: As discussed yesterday, uptime of SaaS solutions is usually pretty good, but one never knows when there can be a problem… It’s happened to me more than once to work on an on-demand project where I was counting on a Friday night to finish up important implementation activities only to hit a maintenance window where the system was not available for a few hours.
Monthly cost: After a few years, the monthly cost of a SaaS solution may end up higher than it would have been by having purchased a license.
Flexibility: Can an on-demand really handle your compensation plans? Some will, some may not… but this is often a “gotcha”, particularly for companies with complex data integration requirements.
On-Premise Pros
Flexibility: On-premise solutions typically have an open databases, the technology stack is usually more flexible, and the configuration itself is usually also more flexible.
Hands-on control: Control over the maintenance windows, issue resolution, security, data, when patches are applied, etc.
Frequent upgrades: Application updates are frequent and automatic.
Disaster recovery: SaaS companies will have a process in place to keep your data safe and redundant systems may allow the system to keep running even if the primary service crashes.
On-Premise Cons
Upfront Cost: The upfront cost is high, but the total cost of ownership might be a different story, depending on current technological capacity and existing infrastructure.
Implementation time: It usually takes longer to implement an on-premise solution; not necessarily because they are on-premise, but mostly because many customers choosing the on-premise model have very complex requirements
IT expertise: On-premise systems require to have IT experts in-house.
Patches and upgrades: I mentioned automatic upgrades as a key benefit of an on-demand solution, so it should not be a surprise to find this here. However, what should be added is that most on-premise SPM vendors will only support their current and previous release. With major releases usually coming out every year, be ready to upgrade to a new version every 2 year!
Hosted:
On-demand is technically hosted, but many companies offer the option to buy a license as you would with an on-premise solution, but will host it for you. This is really identical to the on-demand model, except that the cost structure is different (upfront cost instead of an on-going monthly cost). Not every vendor offer this option, but if they do, it could be worth considering if you are looking for the pros of an on-demand solution with the pricing model of an on-premise solution.
What are others doing?
Many people are using both types of solutions and as I mentioned, it’s a decision that must be made on a case by case basis. It looks like there is a trend towards adopting on-demand solutions. It should be no surprise that many vendors try to push their on-demand offerings since that in the long-term, it usually means more money for them.
Before making a decision about which of the SaaS or on-demand model is the right decision, THE big question is, can the on-demand solution handle your compensation plans, transaction volume and data integration requirements? If it can, the decision is really up to your cost break-even analysis and how you evaluate the other pros and cons of each model.
JLD I would imagine in practicality everything else is subordinate to asset cost and maintenance costs. That is, firms would opt for on premise 100% time if it wasn’t cost prohibitive.
Accepting my contention, are there any published reports or empirical client analyses that address the following:
1. The single biggest item making on premise prohibitive?
2. Cost comparisons that assume a decrease in asset price?
3. Tipping point where clients lean back towards on-premise?
I ask b/c the looming depression will significantly affect purchase prices of everything from shampoo to servers to the downside (good for purchasers), and I’m wondering if firms promoting SaaS have conidered any of this in their analysis. There is a point where OnDemand loses it’s cost savings mojo, most would assume it’s below 1:1 but since OnPremise is still the baseline I would surmise it’s well above that but below it’s current point.
kt
Hey KT,
This may be the case in some instances, but in most situations I run into, the cost is not the main driver.
Let me agree with you for the sake of the argument that cost could be the driver. I’ve run into many “reports”, but like I said, most of these reports are sponsored by either on-premise or on-demand companies, so it’s hard to take them as facts. I’m not sure if any academic research was done on the topic. I also have not seen any downward pressure on hardware costs, but maybe we will see some of that happening to license costs. This being said, I again doubt that even a substantial decrease in the license and implementation cost would make the balance tip in one direction or the other… for this reason, I doubt that SaaS vendors would have to adjust their cost to make their solution more attractive to people considering an on-premise solution.
The decision often comes down to how the company is most comfortable to pay for the solution, if they have the in-house capabilities and desire to maintain it, how concerned they are about data security (I’m not saying that SaaS is at higher risk), and what has been their past experiences with such a solution… And that’s assuming that the on-demand solution could meet their needs.