What is SaaS?
Software as a Service (SaaS) companies provide software on a recurring subscription service model. The subscriber can access the SaaS product from any location with an internet connection. The software instance and user data is stored on a remote server, also known as the “Cloud” which brings costs down for the SaaS company and the users.
What is a hosted solution?
A hosted solution means you rent space on a remote server that a company typically maintains. In contrast to SaaS solutions, you are putting your own software on the rented server instead of accessing a software service from a server controlled by the SaaS company.
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SaaS considerations
Pros
- Access: SaaS solutions allow for access to the software service nearly everywhere with an internet connection.
- Redundancy: SaaS solutions typically incorporate multiple servers in multiple geographic regions, which means your uptime is greater than what is offered by a hosted solution.
- Maintenance: SaaS solutions provide the benefits of the cloud, but without the maintenance expense. Under a hosted solution, maintaining a server and dedicating resources to a full-time position to keep your software available and updated is a large expense that most companies would gain little value out of.
- Cost: Cost of renting, maintaining, and hiring qualified personnel to maintain a hosted solution is high. SaaS solutions are cheaper because they build economies of scale by offering the service to many people and specialize in providing that solution utilizing cloud computing services. Their cost is lower and your cost is lower.
- Scalability: Hosted solutions often rack up significant restructuring costs as technical demands grow, under the SaaS model, additional licenses and increased functionality can be added easily, often with a click of a button.
Cons
- Legacy Integrations: transitioning to SaaS solutions will require integrations with current systems that may still be hosted and/or on premise. These integrations can delay SaaS implementation and cause unexpected bugs.
- Multiple Contracts: SaaS solutions offer specific solutions mapped to a job you need done for your company. For example, an inventory system needs an inventory SaaS solution. However, you may also need data visualization of your inventory that requires another SaaS company’s solution. Having multiple contracts to weave a workflow together can create more overhead costs than one hosted solution with custom software that, once purchased, does not require further contracting.
- Cost of Multiple Solutions: As mentioned previously, a business may need multiple SaaS solutions to complete a workflow. If a business is not careful, the combined cost of all the SaaS solutions could become more expensive than the cost savings from switching away from hosted solutions. This often occurs when some of the services raise their prices slightly each year, or if there is an increase in usage charges through metered billing, and a company does not keep close track of their SaaS budgets.
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Hosted considerations
Pros
- Control: Purchasing once and paying for ongoing maintenance is a typical model for a hosted solution. Your business can decide to stop paying for maintenance, but still use the solution for some time before a major update is needed. This allows for more control over software budgets.
- Long-Term Solutions: If a solution is intended to be used for more than a decade and there are no major upgrades needed, a hosted solution becomes a cheaper long-term solution. For example, if a water utility company needs software for controlling water pumps, it is likely they would benefit from a hosted solution due to the long-term need and likely lack of major innovation for pump controllers.
- Unique Customizations: A hosted solution provides greater customization, which could be beneficial for unique business models where they are too niche for SaaS solutions to exist.
Cons
- Lack of Redundancy: hosted solutions are hosted in a specific location. Should that location be compromised, there is no way to access the software services. This can lead to extended or more frequent downtime resulting in loss of revenue generating activities.
- Challenging Integrations: When additional services need to work with your existing hosted solution it could require expensive and lengthy work with the hosting provider to ensure the new software services will work.
- Increased Maintenance: Your business is responsible for ensuring the hosting environment is compatible with the software you intend to use for your business which could require additional full-time hires to fill that responsibility.
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Answering What Your Business Needs Most
Do you prefer control? Is your business model unique? A hosted solution may be better for your business. Are you anticipating scaling quickly?
Do you need customers and/or employees to have broad access to the software that powers your business? Then a SaaS solution may be best.
A critical look at your business model and strategy will help you answer these questions and choose the best solution for your business.