Software-as-a-service (SaaS) spares companies from having to fork out money to pay additional fees such as maintenance and upgrades typical of the on-premise package, but companies must realize even SaaS does not necessarily always prevent onerous expenses if they get lured by discount deals and end up subscribing for software they don't actually use.
SaaS brings substantial costs savings and benefits, since the provider takes on most of the responsibilities formerly shouldered by the customer, said Ray Wang, CEO and principal analyst of Constellation Research.
On the other hand, with on-premise software, a company gets tied down having to note several things, from training and upgrade processes to testing and capital depreciation of infrastructure like servers,
"These all require a labor force with experts in each of those areas, which means staffing expenditure. And realistically speaking, upgrades in the on-premise world never fall into precise timings as companies would hope, thus impacting business," he said.
For on-premise software, Wang pointed out a hardware change could be delayed for a software change and all these delays result in a slower pace of innovation--something one would not need to worry about in the SaaS world.
Another benefit of SaaS is the major savings with regard to "shelfware", Wang said. The term is industry slang for software a company buys but ends up never using.
For example, if a company spent a million dollars for on-premise software and 25 percent of which ends up as shelfware, it is "wasting" around US$250,000 in maintenance for the software license, the analyst explained.
By contrast, the pay-as-you-go model of SaaS means the company only pays for what it uses, Wang said.
SaaS not immune to wastage
Bhavish Sood, research director at Gartner, agreed maintenance of license fees were a crucial difference distinguishing on-premise software from SaaS. However, SaaS adoptees are not completely immune to the shelfware issue, he pointed out.
Many providers offer attractive economies of scale, increasing the number of discounts as a customer's volume commitments grow. Buyers can get lured into oversubscribing for services in a two-to-three year contract term right from the start, because the discount looks appealing, the research director said.
"In many cases, we see this leading to shelfware-as-a-service, where customers pay subscriptions for software that they have not used for months, sometimes even years," Sood explained.
Appeal of hybrid model
Industry analysts ZDNet Asia spoke with were unanimous the overall costs and complexity of running on-premise software inevitably drives companies to take up SaaS.
SaaS offerings are usually based on per-user and per-month subscription models analogous to a conventional telephone and utility billing, so adapting to this kind of billing cycle is easy for companies. It is also transparent, and customers won't find themselves getting billed for things such as software upgrades, patches or other maintenance processes, said Charles King, principal analyst at Pund-IT.
There might be the few rare circumstances where extra billing kicks in, King said, although he has not observed any occurrence yet. Hosting services, for example, allow customers greater latitude in choosing specific systems to host only their applications and data for a greater sense of security, so it might be possible that maintenance and upgrade costs of those specified systems are passed on to the customer, he said.
Companies want to escape the onerous IT equipment and support costs, but there are also certain applications and data the large enterprises especially are unlikely to ever let out of their sight and perimeters, said King. That is why the hybrid model works pretty well for many companies at this point in time.
There will be times where owning and managing their own applications and data is simply the preferable course for companies, even as SaaS becomes an increasingly bigger part of any organization's IT strategy, King noted.
It boils down to whether companies need specific customizations for the software in question, Wang added. There may be instances where the organization wants its data to be located in a specific geography or want to modify the code for a certain application, which is when on-premises software will be appropriate.