On-Prem vs. Hosted vs. SaaS: What is the Best Option for Your Software

June 14, 2022
08 mins 58 seconds

Author: Haziqa Sajid

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Deciding between an on-premises solution vs. hosted vs. SaaS is what people from wide-ranging backgrounds must consider. The decision is especially critical if you’re from an enterprise background. You have to choose the optimal solution from the three, say for a CRM deployment or software implementation.

Whatever the case may be, the decision mostly boils down to similar factors. These factors represent the pros and cons of an on-premises solution, hosted solution, and a SaaS solution. Each business must look at all three options carefully and choose the best solution based on internal requirements.

Here, we’ll do a detailed analysis to help you choose between the three. But first, let’s clear up what On-Premises, Hosted, and SaaS solutions are.

Understanding the Definitions: Differences between On-Premises vs. Hosted vs. SaaS

On-Premises

As the name suggests, an on-premises solution hosts your data on your premise. The implication, as a result, is that you are using your local servers to keep the software up and running. But more broadly, on-premises refers to the software user taking full responsibility for hosting it.

You use your physical location and IT team to manage everything. Since hosting is required to keep the software up and running, it’s also responsible for all hosting costs using your servers.
Today, users of on-premises solutions are generally businesses using their servers to create a self-hosted private cloud.

Hosted Solution

In a cloud-hosted solution, the user outsources the handling of the servers required to run their software to a third-party service. The external service takes responsibility for managing the servers off-premises.

You can get the hosting for the software for a monthly or annual fee. It includes service charges for providing hosting solutions for the software. Here, it’s important to remember that the user is still responsible for crucial resources such as the software, operating system, and data.

Software-as-a-Service (SaaS) Solution

A third-party takes up the entire hosting infrastructure, along with the responsibility of the software. The service manages the software, and operating system, along with taking responsibility for data protection as well.

For the user, the only requirement is to have a stable internet connection. In addition, the user accounts and settings can still be maintained in-house by the team. Here, it’s essential to keep in mind that a simple hosting solution and a SaaS solution compare in many ways in terms of functionality. But, the primary difference is the amount of outsourcing done to a third-party service.

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On-Premises Solutions: Outweighing Pros and Cons

Pros

  • Control over Your Data
    Control over your sensitive data is one primary reason many businesses opt for an on-premises solution. Cloud-based solutions today do have robust security measures in place. But, there’s still some inherent risk attached.
    If an unwanted party gains access to your business data due to a security breach, it could be a make-or-break situation for your business. For this reason, some do not take the risk.
  • More customizability
    Outsourcing limits your options in terms of customizability. You have more room to play around when you have your own IT team and IT infrastructure.
    The performance outcome is in your hands. Your in-house IT infrastructure allows you to reach your performance target without depending on a third-party service.
  • Costs Less in the Long Run
    While there’s a high upfront cost attached to an on-premises solution, the investment does not go in vain. In the long run, buying your server for your software costs less.
    Especially when compared with the monthly subscription fee of third-party services, on-premises solutions let you reach breakeven after a couple of months. But with third-party services, you’ll be stuck paying those costs forever.

Cons

  • Meeting Hardware Requirements for Your Software
    One natural consequence of an on-premises solution is responsible for the hardware. As your business scales and there’s greater use for your software, you’ll need to scale your local servers.
    This can become a burden for the business, as you’ll face additional costs to meet demands. There’s no way around purchasing the hardware as you need to keep the software running smoothly These additional costs can pile up resulting in you going over budget.
  • Requires a Skilled IT Team to Manage
    When you use a third-party service, you naturally outsource the hosting to be handled by their team. But in the case of an on-premises solution, you’ll have to hire in-house IT staff to maintain the infrastructure.
    The added costs and effort required to manage the added staff are significant cons. You also bear additional responsibility for any issues that may arise. Which means also becoming dependent on the in-house team to solve the issue. If the IT staff is not skilled enough to resolve the problem, you may have to bring in outside help.
  • No Uptime Guarantees
    Usually, there’s an uptime guarantee when you use a third-party service. But, being responsible for your infrastructure means zero uptime guarantees.
    The only guarantee is one that your internal team can give you. Also, in case an issue arises, you’ll be dependent on your team to use company resources and resolve the issue.
  • Data Backup Responsibility/Maintenance
    Data backups help avoid worst-case scenarios. With an on-premises solution, the responsibility for timely data backups falls entirely on you.
  • Security
    Security naturally ties into how you maintain the data for your software. But it carries additional components such as identifying vulnerabilities and protecting against data breaches.
    With third-party SaaS software, there’s another company taking responsibility for the security. But with an on-premises solution, you’d have to take complete responsibility for all security concerns.
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Hosted Solution: Outweighing Pros and Cons

Pros

  • Reduced Cost (Especially Upfront Costs)
    With a third-party cloud-hosted service, you have to pay a monthly or annual subscription fee. By avoiding upfront installation costs, you can start using your software without the weight of a significant initial investment.
    Compared to calculating the time and resources spent on getting an on-premises solution started, a hosted solution is hassle-free.
  • Easier to Scale
    The business can scale more effectively because a hosted solution does not require any physical hardware setup. There’s no time and resources needed to upscale when demand for your software grows.
  • Less In-House IT Team/Maintenance Required
    Hiring an in-house IT team goes away with a third-party cloud-hosted solution. The third-party service also takes care of all maintenance required. This is especially helpful as it helps you focus on your core product/service offering.
  • Removes Local Hardware Requirements
    Because all of the infrastructure required to keep your software running is on the cloud, there’s no need for physical hardware setups. You also remove the hassle of adding more hardware as your requirements grow.
  • Better Uptime
    With an on-premises solution, you’re the one responsible for avoiding downtime. When you opt for a third-party cloud-hosted solution, it becomes the responsibility of the service to maintain high uptime. Usually, such services also have a better record of high uptime as it’s a crucial component of what they’re selling.
  • High Accessibility
    With cloud-hosted platforms, all components of your software, including the data that comes with it, are now on the cloud. This provides a greater level of accessibility that you might not get with an on-premises solution. Multiple users can remotely work on the same process no matter where they are located. The data automatically backs up, giving users the ability to access it from any location remotely.

Cons

  • Less control/More Dependency
    One significant advantage of an on-premises solution is having control of your IT infrastructure. But with a third-party cloud-hosted solution, you become naturally dependent on another company.
    Limitations also arise over what you can and can’t accomplish. An example of this is accepting data storage on the cloud, which is vulnerable to attacks. Recent breaches of cloud server databases by hackers suggest that this scenario can’t be ruled out.
  • Security
    As stated above, a data breach on a cloud server database is a realistic scenario. Cloud services usually have dedicated teams and resources that work on security. But as time has proven, there’s still an inherent risk attached.
  • Dependency on the Internet
    Cloud-hosted solutions create a reliance on the internet for businesses. This can become an issue regarding accessibility for the software, as any outage can halt all operations tied to that software.
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Software-as-a-Service (SaaS): Outweighing Pros and Cons

Cloud-hosted solutions and Software-as-a-Service (SaaS) have many intersecting pros and cons. This is by design, as all SaaS solutions are cloud-hosted. Although, all cloud-hosted solutions are not SaaS products.

Due to this fact, all the pros and cons of cloud-hosted solutions are also the pros and cons of SaaS products. But, you get some additional benefits with a Software-as-a-Service product. These are listed as follows:

Pros

  • Complete Responsibility of Third-Party Service
    With a regular cloud-hosted platform, the user still bears a certain level of responsibility. The biggest fault is the software itself. But a SaaS product is specifically designed to take responsibility for the software and data backup/security measures.
  • Analytics
    A regular cloud-hosted platform has specific company resources linked to the cloud. But, a SaaS product shifts the entire infrastructure to the cloud. As a result, users gain the ability to take advantage of auto-generated analytical reports based on software usage.
  • High Security
    Typically, SaaS products come with a high level of security compared to regular cloud-hosted solutions. This is the case as the third-party service being used is spending more money and resources to keep security high. However, it’s still important to note that the inherent risk of cloud-based platforms still exists.

Cons

  • Complete control rests with third-party service
    With SaaS products, you naturally surrender all software operations/maintenance to another company.. This means you’re dependent on another company to keep your data safe and ensure the software runs smoothly.
  • Lower speed
    SaaS products naturally have more latency than on-premises solutions. The lower speed due to data communication over the internet vs. local servers is one major con.
On-Premises Cloud Hosted SaaS
Costs Initially High, costs less in the long run Initially Low, can add up to be high in the long run Initially Low, can add up to be high in the long run
Customizability High Limited Limited
Performance High Relatively low Relatively low
Data Security Your responsibility, can be high or low depending on how you manage it High (but with inherent risks involved) High (but with inherent risks involved)
In-house Maintenance High maintenance required Relatively lower maintenance required None required
Uptime Relatively low High High
Hardware Requirements High Limited None
Control High Limited Limited

Still Confused? How V2 Cloud Can Help

Even after reviewing all three options, it’s understandable that you still have questions getting in the way of a final decision. Questions such as “What would be suitable given my specific size of business?” or “What costs would I face specifically for my business given its size and operations?”.

We get it. You need a professional to specifically look at your requirements and give you accurate cost estimates and feedback. Visit V2 Cloud and book a free meeting with our team so we can help analyze your business requirements and give you the answer.

Written By: Haziqa Sajid

Freelance tech writer and content marketer for tech, SaaS, and AI companies | Helped 50+ tech businesses with engagement-driven content.