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SAAS became increasingly popular this last decade. It technically differs from the traditional on-premise software because the application is run by the software vendor. The pricing model is also different as the client purchases the right to use (or “rents”) the software for a given period of time (subscription). But beside these differences, the two models (on-premise vs SAAS) implies fundamental changes for the client and the software vendor. SAAS clearly have advantages (cost/revenue predictability) but may be more expensive or inappropriate for certain businesses.

For the client

Clients get access to the solution quickly and the total cost is more predictable.

However, some clients are be reluctant for security reasons as their business data will be processed and stored outside of their infrastructure. The annual price increases can also be a concern.

On-premise SAAS
Deployment
  • Risk of exceeding the initial timeline
  • Risk of exceeding the budgeted cost
  • Usually quicker deployment vs on-premise
  • Deployment cost usually limited compared to on-premise
Usage
  • Cost of support can be high
  • Cost of upgrades may not be included
  • Cost of infrastructure is not included
  • Risk of overpayment: under-utilization vs licenses purchased
  • Cost includes support but it can increase year over year
  • Upgrades are usually included
  • No infrastructure cost
  • Cost aligned to the needs (license compliance should still be monitored)
Type of cost
  • CAPEX: license
  • OPEX: support
  • OPEX: subscription

For the software vendor

Software vendors get more predictable revenue and they better understand their clients via customer analytics. The data collected is a competitive advantage and help sell services, benchmarks and contribute to increase the overall value of the solution.

On-premise SAAS
Sales
  • Need for “big deals”
  • Quarter-end sprint or marathon…
  • Culture of “sell and forget” (support will take over)
  • Usually quicker
  • In-quarter sales have little impact on current quarter revenue
  • Culture of owning the success of the customer
Support
  • More reactive to incidents
  • Get customer satisfaction via survey
  • More proactive to solve issues via the access to the environment
  • Access to user analytics
Finance
  • Upfront revenue recognition
  • Ratable revenue recognition
Product Management
  • 1 or 2 release(s) per year
  • Several releases per months
  • Develop new features based on customer analytics
Marketing
  • Customer interviews
  • Event based on versions/releases
  • Access to user analytics