4 Minute Read
I know what you're thinking: "I didn't think that's what SaaS stood for." You're right - I used a literary device called "effect through substitution" by exchanging the word, "SAVINGS" for "Service" (not true, I made up that literary device). Rule number one in writing authoritative content for a blog: establish credibility.
Let's start with the basics. "What is 'SaaS', again?", you ask. "SaaS" actually stands for "Software as a Service". If you use LastPass, Netflix, or actually pay for Pandora, you are a SaaS customer. Heck, even if you don't pay for Pandora, you're still a SaaS customer. "What are the key differences between SaaS and on-premises software?" Well, let me break it down in a single sentence: on-premises software is either on the computer on/under your desk, or down the hall in a server you own. SaaS is owned, operated, and maintained remotely by a service provider and accessible by you through a subscription.
That was quick and dirty, but that's basically it. It's not mysterious.
"Isn't it better to have the software in my office", you ask? It depends. If you are visiting this blog post from 1995, then yes. If you live here in 2018 with me, then NO. Let us count the ways in a Top 5 List:
1. Cost of Entry
A new software implementation, whether on-premises or SaaS, will typically come with an implementation or activation cost. That covers training and setup and is ubiquitous, although SaaS costs tend to be much lower because they usually don't require on-site configurations (it's expensive to ship out a vendor's employee and house/feed them for a few days, plus pay their markup). For on-premises, you must now add hardware costs and database licensing.
2. Cost of Ownership
Now we're talking monthly fees and expected expenditures. With SaaS, there is only a consistent monthly fee that covers everything: support, access, security, licensing, compliance audits, etc. With on-premises, the costs become fuzzier and less forecastable, and potentially more devastating to budgets. Servers need to be replaced, on average, every three to four years, but it could be sooner that yours goes to the server farm in the sky, which can be many thousands of dollars in unexpected expenses. Software upgrades are random and tend to be encouraged to keep support terms. Audit requirements keep expanding to greater scopes and any failures in those analyses require expensive skilled labor to address - of course, you could just roll the dice and hope you never get hacked, because that's never turned out badly for anyone.
Are you accustomed to paying big bucks for software updates/upgrades annually, or even less frequently? Forrester, a research and advisory firm, noted in their report: "SaaS solutions typically offer seamless, automatic, frequent upgrades as part of the ongoing subscription charge. Because these upgrades happen more frequently and therefore incrementally than on-premises solutions, they typically have significantly reduced testing and end user acceptance and training costs.”
3. Cash Flow, Forecasting, Accounting, Taxes
To be clear, I am not a CPA and you should check with your tax advisor (disclaimer), but did you know that while on-site software goes against your CapEx and only a portion of the costs of that hardware can be depreciated/amortized annually, 100% of a SaaS subscription can be deducted and treated as OpEx? I'm not that smart, but that sounds like a pretty solid tax advantage. Really, this could be a big deal to you, you should run the numbers with your tax advisor.
Doesn't it also sound great to have a consistent, forecastable expense for your operating budget? No surprises. I like my business expenses like I like my surgery, boring and predictable.
4. Scalability, Flexibility, Accessibility
SaaS models are built to scale with use, expanding and contracting to accommodate your business's activities. Usually, the usage is tiered, so monthly packages will be set to meet your needs within a range of use. The benefit is, again, consistency, but also the ability to accommodate huge usage peaks or rapid growth without bogging your system down or completely overloading it, forcing you to make panicked and expensive changes/additions.
Add to these the ability to securely access your SaaS platform from any location and device with a browser, and the advantages just keep piling on, don't they? Work from home today because your dog is sick, check office performance from Hawaii while your spouse isn't looking. Too cool.
5. Security and Compliance
This is no joke today. Your clients are getting more demanding about where and how their data is secured, and what you are doing to validate your security. Audits are expensive, time consuming, and disruptive, so why would you want to do that yourself? With a SaaS model, you "inherit" all the infrastructure security and compliance measures, and SaaS providers can spread those costs across their entire user base to achieve much higher levels of compliance with drastically lower costs.
Meeting your more finicky client requirements for the geolocation of data (primary, redundancies, and backups) is also a simple matter with SaaS - especially if using a backbone like Amazon's AWS platform.
If you are heavily invested in an on-premises software platform, your pride in it is probably tied more to the inconceivability of abandoning it and the work you have into it. Go through the thought experiment! How much would your business benefit from a modern software platform capable of moving and growing with you? And how much better would you sleep at night if you knew a team of dedicated professionals were responsible for keeping that platform up and running for you? Are you just throwing good money after bad at this point?
Life is too short and you should concentrate on your business and your employees. Leave the IT work to people whose business is IT work, make your costs predictable and consistent, take advantage of the tax benefits, and explore the many benefits of a modern software platform like process automation and data analysis.