Why go for a SaaS solution vs. On-premise?

SaaS should be a Win-Win

Today, increasingly people and organizations are relying on Software-as-a-Service (SaaS) arrangements to support their software needs. 

In most situations, compared to on-premise solutions, SaaS arrangements are a win-win for both the purchaser and provider; however, often the reasons to embrace moving to a SaaS arrangement are not fully understood. 

The most important benefits and challenges that must be considered by both the purchaser and provider to ensure a win-win situation prevails are typically as follows:
 
SaaS Client Benefits

  1. Upfront set up and configuration costs are typically considerably lower than on-premise solutions
  2. Technology infrastructure investment and maintenance is not required 
  3. Regular (and sometimes free) software upgrades are usually delivered
  4. Internal IT resources are usually not required to support set up and ongoing user services

SaaS Provider Benefits

  1. Ability to leverage one infrastructure platform for all clients should drive economies of scale
  2. Ease of rolling out of upgrades should result in higher client satisfaction and retention than on-premise solutions
  3. Repeatability and scalability of set up and support services should deliver operational efficiencies
  4. Stability of revenue streams as typically fees are structured as monthly, quarterly or annual recurring service fees for the services performed over the related period should improve financial planning and strengthen investor relations and company valuation

SaaS Client Challenges

  1. Need to be online to use software
  2. Need to ensure the vendor can be a trusted business partner
  3. Need to ensure vendor has robust controls in place over data security, business continuity and colleague compliance training
  4. Need to review and test software upgrades

SaaS Provider Challenges

  1. Need to have sufficient funding and shareholder commitment to manage product and infrastructure investment cycles
  2. Need to accept revenue recognition rules create misalignment between business performance and financial results
  3. Need to incur high upfront costs associated with acquiring clients and make pricing decisions based on customer life time value
  4. Need to implement robust internal controls and governance to manage business risks

Chris Oddy

Chief Financial Officer (CFO) at 
CS STARS