I was recently asked how a company decides whether an on-premise or a Software as a Service (SaaS) solution is right for them. Clearly, being a NetSuite employee I’m a big fan of the cloud – but prior to NetSuite I spent fifteen years working with businesses mainly installing traditional on-premise systems.

To answer the question, it’s been interesting speaking with NetSuite customers over the past year about what led them to unplug their existing finance or CRM software and move to the cloud. It’s often the same reasons that come up again and again, and I’ll get to those in a moment.

SaaS in and of itself isn’t magic bullet. Deploying a whole bunch of SaaS solutions without a strategy can lead to the same systems hairball and pain that businesses evolved into with their current systems – albeit now with SaaS it’ll be on a modern service oriented architecture. So, it’s important that businesses don’t repeat the same pitfalls from the past with on-premise, and it’s important that IT’s involved in the planning process and applications roadmap.

For example, if you’re selecting any CRM/SFA solution, whether SaaS or on-premise, you need to think through the integration with other business systems and processes it’s going to touch. You’ll need tight integration with order management and accounting systems to ensure a smooth automated order to cash process, even through to compensating the sales person. Without it, you can easily end up with manual processes, double entry, and fragmented customer and transactional data across multiple systems which eventually become hard to report on and prone to error. These are the same problems you faced with your last system!

The same goes for your accounting system - you can easily end up maintaining and trying to synchronize multiple versions of your customer data across multiple SaaS and on-premise solutions if you don’t think it through from the beginning.

Once you’ve made the decision to go to SaaS, another area to think about is whether the application is a web native SaaS app, or whether it’s just hosted on-premise software. Some vendors will tell you it doesn’t matter that it’s all the same – but it does matter. SaaS apps are multi-tenanted –which enables them to be provisioned faster and upgraded more easily than hosted apps. They’re typically much more cost effective for the vendor to run than hosted – which means the vendor can spend more on R&D innovating the application, and less on running it. And because SaaS apps were designed for the web, they’re usually 100% web browser based – making them much easier to access from anywhere.

Let’s get to the common reasons I’ve heard from businesses that opted for a SaaS model rather than on-premise:

  1. It’s lower risk to the business. Many IT or LOB professionals have had their fingers burnt with (or heard stories of) expensive to run and hard to upgrade on-premise ERP or CRM applications. They often find the SaaS model attractive because it’s pay as you go and they know the SaaS vendor is extremely motivated to ensure ongoing customer success – because if the project isn’t successful they can simply stop paying!
  2. Capex is scarce but the business still needs new software. In the current recession for many businesses, capex intensive projects are almost impossible to fund because businesses are focused on preserving cash and are adverse to spending cash on up front licenses, expensive infrastructure and hardware, and then hiring additional IT resources to run them. SaaS provides a highly attractive option for businesses that want to get modern applications but don’t want a high upfront price tag.
  3. No ongoing maintenance and automated upgrades. Many businesses deploying on-premise solutions have found it simply too costly to upgrade, manage and expend IT resources on backups and availability. SaaS enables employees to focus on supporting the needs of the business, and training business users on new functionality rather than wrestling with availability, backups, security. etc.
  4. Speed of deployment. Businesses that need new CRM or ERP apps in a hurry will find that SaaS apps deploy much more quickly than on-premise apps. Because with SaaS, businesses don’t need to size and procure hardware and infrastructure. Production and sandbox instances are typically provisioned quickly, enabling the implementation team to get started on the business requirements.
  5. Extensibility and customization. When I used to install on-premise apps the most nerve racking projects were those that involved an upgrade, or even worse an upgrade to an app that had been heavily customized. Most businesses at some stage need to customize or extend their investment. SaaS applications typically make this process much easier. For example if you’ve customized your application and you’re using a SaaS application like NetSuite, you’ll get upgraded automatically without having to lift a finger - even if you’ve made a bunch of customizations. And if you want to add new business functionality, you can often go to a SaaS marketplace like SuiteApp.com and choose and deploy complementary cloud apps that run on the platform.
  6. Easy to access from anywhere. Some businesses realize this benefit up front, others after they’ve deployed – but it can be a game changing benefit. SaaS apps are 100% web based and are as easy to access as Amazon or Google. Employees can view reports, or approve sales orders from anywhere. And SaaS apps typically have more frictionless support for mobile devices. There’s no need to open a port on your on-premise firewall, or install additional server software, etc. For example with NetSuite for iPhone you just download the app from the Apple AppStore, type in your account info, and that’s it.

Well, those are the reasons I’ve heard most frequently in favor of SaaS. What reasons have you heard for businesses choosing either SaaS or on-premise?