Many people use the terms on-demand, SaaS or hosted interchangeably. But they are not. Let’s take a look at their definitions.

Hosting means someone else is managing your application remotely.

Software as a Service (SaaS) is a software distribution model where hosted applications are made available to a customer over a network, typically the internet.

On-demand describes applications that are available via a SaaS or hosted model.

On premise is where the application resides at your site. It is on your machines and managed by you.

Multi-tenancy is where multiple companies are using a single, remotely hosted database. Each company’s data is stored in the same database but kept separately. Many people believe SaaS or on-demand is always multi-tenant. That is not the case. You can also have on-premise applications that are multi-tenant.

Single-tenancy is where each customer is provided their own dedicated database and application instance.

Hybrid is a deployment strategy that is a combination of on-premise and on-demand. It is seen in companies that have a lot of small offices using a hosted version while headquarters uses on-premise.

On-premise option
This has been the traditional way to buy software. You purchase bulk licenses with maintenance and support costs from year to year and have a staff of IT folk’s onsite to maintain it. For companies where sensitive data is an issue, this model offers the most secure option. For larger companies that need to integrate CRM with other legacy or third party systems, on-premise offers the easiest way to do it. Cost is always a driving factor. On-premise software is typically front loaded, so you pay your costs upfront. Remember that when evaluating costs, licenses only account for about 9-14% of the total cost of ownership. So you need to factor in all the other costs associated with maintaining the application.

SaaS Option
Over the last 10 years SaaS based CRM has really come into its own. It has addressed many of the support issues that plagued it early on such as system down time and security. When having to integrate with other systems, SaaS CRM is more complex and usually more costly. In fact if you need to make substantial code changes to the software SaaS is probably not your best choice.

Hybrid Option
This model offers a combination of the two. Some vendors like Microsoft say you can start with one and move to the other with no loss of data. Or you can have your remote offices using on-demand and headquarters using on-premise. But this option has its challenges. Switching models could entail more work like switching domains and carrying over customization.

So which model is best for you?
For smaller organizations, SaaS CRM could offer cost savings. Forrester Research defines 100-249 employees with 50 users as a good fit for choosing SaaS CRM. It provides a better Total Economic Impact (TEI) through a 10 ownership as well as lower cumulative costs.

For business with 500-999 and 250 users, on-premise shows TEI advantages in year six and total cumulative costs advantages in year seven.

The idea that SaaS is always less expensive than on-premise software is not true. According to Gartner it’s only true over a two year period but may not hold up over five years because of the capital asset depreciation. Gartner also challenges the notion that SaaS is priced like a utility, charging only for what you use. Most companies are forced to commit to a pre-determined contract that is independent of their actual use.

With on-premise, you have to pay up-front costs for licenses, hardware, maintenance, upgrades and support. For SaaS you often have to pay for extra features like mobile and offline access, vertical functionality, extra storage and premium support. And you pay for as long as you use the software.

Summary
In summary the benefits for SaaS are independence from IT, quicker upgrades and deployments and improved usability. On-premise provides greater integration, stronger customization and tailored configuration capacity. While results will vary for different companies, do your cost benefit analysis over a 10 year period. Make sure you factor in the total number of users and take a close look at hybrid models that could work for you.

Tags: crm, CRM Basics