Last month, Rental Management Magazine published an article written by the staff of Wynne Systems. It discussed the pros and cons of Stand Alone vs. Software as a Service (SaaS) software options.
To install or not to install
Software customers now have a deployment choice
BY Michael Stilwagner
This method can offer several advantages and the trend within many industries is to replace traditional in-house hosting of software on computers or servers with SaaS because it makes collaborating with others easier in addition to adding more flexibility and scalability to many business applications.
Perhaps more importantly, SaaS allows companies to use a particular business application without the need to add infrastructure, implement the program, maintain it or upgrade it, which means it would require fewer information technology (IT) staff members.
The challenge for software providers and customers is in determining which model is best suited to a business to match user needs with the capabilities and features of each specific application and the delivery model — stand-alone software or SaaS.
While SaaS can be attractive, it is only one alternative and perhaps not the best solution for every company. Due in part to security, integration and control considerations, many businesses opt for stand-alone implementation with the application residing on the company’s in-house server and managed by the company’s IT staff.
Some of the issues to consider before deciding on SaaS or stand-alone deployment include the size of a company’s IT department, the degree to which the solution must integrate with other solutions and the core competency of the company’s IT staff members as well as data security, access and portability.
Based on those considerations, a company might “fit” what one would consider the profile of a SaaS customer, but the company may opt instead for stand-alone deployment for one of several reasons. For example, the company may want to further restrict data accessibility or feel more comfortable owning the software because of the applications, tasks and data involved.
Likewise, an enterprise large enough to have an IT department dedicated to maintaining its current computer hardware, data and networks may want to outsource as much of its IT as possible, choosing to access their applications on a monthly subscription basis. This could help increase the speed of application development, lower the upfront costs of new software and potentially help the company better control its long-term IT costs.
Generally, SaaS costs are structured as a one-time implementation fee and a base monthly charge — which includes maintenance and support. Businesses with multiple facilities also may be subject to an additional per-location charge. Typical direct costs for a stand-alone solution are the application license, implementation and support agreement, as well as any cost associated with required hardware and infrastructure. Stand-alone solutions also incur other indirect costs, such as training and support.
Analyses of the total cost of owning software over a 10-year period have shown that larger companies — those with 500 or more employees and more than 250 software users — tend to see significant advantages in the stand-alone approach. Analyses for small and mid-size companies have shown that the actual cost for either deployment model tends to equalize over the mid-to-long term. However, cost is just one of several important considerations.
For example, businesses opting for SaaS deployments place significant value on the relative freedom they enjoy as the responsibility for support and upgrades to the application, hardware infrastructure and operating systems shifts to their application provider. Conversely, stand-alone customers trade that freedom for the peace of mind that comes with owning their software, and controlling it and their data on-premises.
Most application providers, however, say SaaS represents a profound and permanent technology shift, changing the business landscape for application providers of straightforward solutions, like accounting, human resources and customer relationship management. However, there is a question about the SaaS model’s future with providers of complex cross-enterprise, highly customized and integrated applications, like enterprise resource planning (ERP), which is a customized system that runs and serves all aspects of a business.
SaaS also represents a dramatic shift from a financial perspective since financial models must change from those that collect upfront license revenue to those that manage a smaller revenue stream generated by a pay-as-you-go subscription program. ERP providers also must examine how to provide customizations for every customer in an SaaS environment and still make a profit.
SaaS and stand-alone deployments will co-exist as large enterprises and small and mid-size businesses weigh the costs and merits of each approach, and as application providers grapple with the technical and bottom-line implications of reinventing their core products and business models to conform with SaaS.
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