HRBoss Blog

Software-as-a-Service (SaaS) or On-premise? 5 Key Differences Explained.

Our sales team are always being asked by potential customers: ‘What is SaaS’, ‘What is ASP?’ and 'what are the key differences between these two software models'? Before committing to any particular software solution, it’s crucial for you to understand and equip yourself with basic knowledge about software delivery systems. There are many ASP models out there masquerading as SaaS applications, like a wolf in sheep’s clothing, so what this post seeks to do is to help you sniff out the wolf amongst the sheep.

Watch the video below to see CEO and Founder of HRBoss, Bernie Schiemer, explaining the differences between SaaS and On-premise softwares.

To start with, Software-as-a-Service simply refers to the model where all customers essentially share many servers, with everyone integrated into a single code base, commonly referred to as a multi-tenant model. In contrast, ASP (Application Service Provider)  is where each customer has their own code base on a separate server. The only real difference between the ASP model and an On-premise model is that the ASP servers are located in the service providers data centers, rather than On the clients premises. Therefore, to be more precise, the ASP model is much more aligned to the On-premise model.

So to help you cut through the complexity, here are 5 telling differences between On-premise and Software-as-a-Service (SaaS) that you need to know:

1. Speed of Deployment

SaaS means that customers need not maintain servers or the software. Instead, all customers are updated at the same time,  and customers can have access to software immediately, thereafter they are able to immediately focus on training. By contrast, ASP customers need to individually be updated (Each customer has their own server) this takes additional time and expense. This is similar to On-premise software. However should the On premise software be customized, then any updates will require further testing to check the new code against the customizations incurring further costs, etc.

2. Updates

With one integrated computing architecture, SaaS software is always up-to-date, as updates and maintenance are run concurrently by the software provider. SaaS Software enhancements are frequent, seamless and, most importantly, automatic. Unlike SaaS, On-premise software is updated individually, one client at a time. Keeping software up-to-date becomes a hassle as you find yourself wasting a lot of time and incurring extra costs.

As Bernie Schiemer, CEO and Founder of HRBoss describes, “Think of your SaaS solution like a Facebook or LinkedIn: our clients receive updates very often, 10 ~15 times a year.  The updates are small, incremental and you (should be able to) turn them on or off. Hence, they don’t really affect your business but they do gradually help you to do your business better.” 

3. Risk

On the On-premise model, all data is hosted uniquely on the customer’s own server. Though this feels more secure, it is actually the customer that holds all the risk. They are responsible for hardware, support, upgrades, security and all of the headache and costs associated with this. In contrast, on the SaaS model, the customer can be assured that all infrastructure including servers (including load balancing for busier periods), upgrades, support and security are managed by the vendor – which means the vendor holds all the risks. This is where the ASP model looks similar to SaaS – The vendor manages the server, security and access, however, as the application is housed on one server, if the load on that server increases, the customer is generally responsible for purchasing more processing power, often at high rates. SaaS already incorporates this feature, so the customer does not have these concerns.

Speaking about On-premise software, Schiemer added, “Regarding the On-premise model, customers are responsible for all customization and all upgrades. Every time you want a customization or upgrade, you pay for it. Although it looks like an attractive solution, if there’s a newer, cooler feature that is released…you have to pay for it. If you do not want it sometimes you have no choice. The On-premise model looks attractive because you think you own the product, but as soon as you buy it, the software is obsolete and you own all the problems. As a vendor, regardless of Service Level Agreements (SLA), the software owns you, not the other way around. Oracle and SAP have been killing it for years, as have software sales people / developer etc. SaaS keeps us all honest, as if you do not like it, you can move without the issue of “What do I do with all this hardware / staff / legacy costs”?
4. Cost 

ASP providers operate on high cost structures because they are providing for one unique client at a time, each with their own server, and in a lot of cases their own customizations. On the other hand, SaaS solutions are cost-efficient as they are developed for multiple users and so this translates to lower cost for customers.  Added benefit for the Saas Model– customer A asks for Feature X.  HRBoss build features X and ALL CUSTOMERS get access to these features.

5. Customer-Vendor Relationship & Customer Satisfaction

For SaaS, the entire support team is dedicated to focusing on improving one single ‘code’, including bug fixes and other innovation. The customer leaves the hassle for the smooth running of the software and support to the vendor . However, because each customer has their own server, ASP software requires extra teams to support EACH customer, ranging from an separate team for each customer to upgrade, maintain through to product enhancement, testing and implementation. This is far more expensive in the long run which is why a lot of ASP vendors go out of business or have to increase prices to cover their expense. For On-premise vendors, once they sell the license, the rest depends on you. Extra support, updates and fixes all come with an additional cost, as you are unlikely to commercialse your product (You will use internally) you do not keep the code clean, which means customizations take longer and are more expensive at the software code base expands.

View the comparison graphics on Slideshare below.

SaaS versus ASP

Software Delivery On-premise or ASP Software-as-a-Service
Model Single Tenant Multi-Tenant
Code Base Two types: Single Code Base:
All customers share one code base i.e. same database, server and applications
Single Shared code base
Client only code base: Unique to each customer
Support Additional Cost Additional Cost 24/7 support by one core team forever
Updates/Upgrades Additional Cost No updates Ever Frequent and automatic, seamless
Cost 50% more expensive 3 times more expensive Cheaper, more affordable
Implementation Slow & time-consuming Immediate
Risks Client holds all risks Vendor holds all risks:
All  infrastructure including servers, routers and load balancing managed by vendor