Software & SaaS: On-Premises Versus the Cloud | Greetly

A review of the benefits and disadvantages of using cloud-based software versus the traditional on-premise model.

Executive Summary

  • While software licenses used to be "owned", software is moving to subscriptions in the cloud. This is often referred to as Software-as-a-Service, or SaaS.
  • The benefits of SaaS include low startup costs and flexibility without having to maintain software licenses and data centers.
  • Owned software can be less expensive in the long run and can, in some cases, be customized for your organization's needs.

Software used to be something a company bought, installed on its own computers and servers, and handled all the networking and storage needs in order to use the software. Organizations purchased new versions of software regularly for updates and started the process over again. Then a new model started popping up, something people called Software as a Service, or (SaaS). Now, more and more companies are moving everything to what has become known as “the cloud,” with software and storage being outsourced to companies like Google, Apple, and Amazon Web Services, to be accessed through the internet.

What has caused this change? Why are we seeing this shift toward cloud computing? And what are the pros and cons?

First, a Brief History

Early model personal computer with screen and keyboardIn the early days of computing – it was necessary for all software to be physically installed on a computer for it to function. From the first computers being fed punch cards, computers had to be properly configured to ensure they had the right system requirements, including the right hardware to read those punch cards. As computers progressed, requirements began to include things like adequate processing power, enough storage space to hold the program files, and any necessary peripheral hardware and software required for the program to run. (For instance, some programs require an installation of Java to run properly.)

Disconnect: The necessity of on-premises installation was pretty simple: computers simply weren’t connected to each other on a large scale, if at all. Everything needed to run a program needed to be on the computer itself. In fact, early computer programs sometimes required users to type in all the program code themselves since program delivery wasn’t easy until the invention of relatively inexpensive floppy disks.

Availability: While the first computer networks were developed in 1969-1971, it wasn’t until the early- to mid-1990s that the internet became available and accessible to those outside of the tech world. Prior to this time, computer networks were still largely limited to the computers and servers owned by a particular organization or to collaborative networks between specific institutions.

Speed: Once the internet came into more widespread use, there were still a number of limitations. Slow internet speeds made transferring large packets of information prohibitive. It was both much quicker and more secure to retrieve information stored on an organization’s own servers and internal networks than to upload and download to and from off-site locations. However, some cloud services began popping up, such as the first web-based email platform in 1996 and the first software delivered via internet download in 1999.

Faster connectivity quickly changed the pace and face of cloud computing. It soon became clear that companies could provide large amounts of computing power, data, and storage capacity to external clients. With the launch of Amazon Web Services, Google Docs, and streaming Netflix in the mid-2000s, computing was changed forever. More and more, people are opting to pay for access rather than ownership. Corporate software isn’t much different, with the rise of models like Microsoft Office365 where organizations pay for access to programs housed on Microsoft’s own servers rather than purchasing them and installing them on-site.

The Benefits of Cloud-Based Software

Cloud-based software like VOIP phone and visitor management free up staff

The shift toward cloud computing can be attributed to the several benefits it offers users.


Cloud services decrease technology-related costs in a number of ways.

  • Hardware: Organizations can avoid purchasing servers and other technology required for large data centers if such services are outsourced. This means saving money on the hardware itself and also reducing the real estate needs of the organization. Large banks of servers take up precious space that could be used instead for offices, laboratories or other productive organizational space. They also can break down, thus needing to be repaired or replaced. Also, accessing software over the internet rather than having it installed on individual computers means that the computers themselves can be less elaborate, and less expensive.
  • Software: Using SaaS solutions puts a lot of power into an organization’s hands for cutting costs. Since many SaaS products are subscription-based, it is possible to try out a software program for a month or two, and simply cancel the subscription if it isn’t meeting the needs of the organization. This makes it easy to pay for only the software and services needed instead of purchasing more than necessary.
  • Staffing: Off-site solutions require less hands-on time and expertise from on-site IT personnel. There is no need to maintain servers, conduct updates, visit every terminal for installation, and handle other maintenance. This frees up IT staff time to accomplish other integral tasks and may even allow for a smaller overall IT staff.

Outsources non-primary skills

Unless an organization is in the technology sector itself, chances are IT is not the core focus or competency of the business. And even if the technology is the core competency, it is highly unlikely any organization writes and maintains all the technology that makes its business run. (Example: Facebook probably doesn’t bother to write its own visitor management system to track who visits headquarters.)

It just makes sense for any business to put most of its focus on its primary objectives rather than spend precious time on support processes. Small businesses and new businesses just getting started especially benefit from outsourcing. Cloud computing can make it so an accounting firm doesn’t have to hire IT personnel at all. Their skills lie in knowing tax law and good accounting practices, not in trouble-shooting servers, keeping abreast of IT security, or handling software updates.

Immediate updates

Speaking of updates, a major benefit of using cloud software is the immediate nature of updates. When organizations purchase on-premises software, each computer or each internal network requires its own individual installation. When a new version of that same software is released, the IT staff must physically handle the upgrade. This is also necessary for any security patches or mini-updates that occur between release versions.

With SaaS models, there is no waiting for an update. Micro-updates are often pushed to all users regularly as a matter of course. Full-version updates may still occur if there are major changes to the software, but all updates occur automatically, without intervention by IT staff. There is also no worry about multiple versions within the same organization that could cause compatibility issues.

Advantages for small business

The ability of small and startup organizations to outsource solutions is worth exploring further, as small businesses may reap benefits in greater proportion than large organizations. In fact, in 2014, small companies were 20 percent more likely to adopt cloud solutions than large companies. Larger companies often have greater resources to put their IT needs into practice on-site, while smaller companies simply do not. Thus, cloud computing offers small businesses the ability to raise their competitive game without having the same resources.

  • Computing power: Small businesses can take advantage of the huge computing capacity that large companies like Amazon Web Services have to offer. There is no need to make huge financial outlays for servers and software upfront. Yet, it puts small businesses on the same technological playing field as big companies.
  • Don’t have to hire IT staff: Along with outsourcing computing power, outsourcing IT staffing is also a great cost savings that small businesses can take advantage of. As mentioned previously, companies often need to spend their time and money focused on the core of their business, especially in the beginning. Since staffing accounts for as much as 70 percent of business costs, being able to only bring in contract professionals when needed is more cost-effective for smaller businesses with limited revenue.
  • Can scale up – or back – quickly: Small businesses and startups in particular sometimes find themselves in periods of very fast growth. Since many SaaS solutions are subscription-based on the number of users, organizations can add more licenses to their subscription any time they need. On the other hand, if business lags and layoffs happen, it is also easy to reduce the number of users in the next billing cycle if needed. Unlike on-premises solutions, the software isn’t purchased outright, so upfront outlays are less.


Flexibility in cloud computing comes in several different areas.

  • Scale: The first, already mentioned, is the ability to add or remove user licenses on a subscription basis as needed. While particularly helpful for growing organizations, this can be a boon to organizations of any size going through staffing changes.
  • Mobility: Flexibility also comes in the form of increased mobility. Cloud-based solutions quite simply offer access anytime, anywhere from any device. This ability is essential for remote workers or those in modern offices, employees who travel frequently but still need access. And since the software is online, it is naturally built to work across operating systems, so there is less trouble with compatibility issues.
  • Integration: SaaS solutions typically have an Application Programming Interface (API) code built right into the technology. This code governs the “enter” and “exit” doors for the program, allowing multiple applications to communicate with one another to exchange and update information. For instance, a company that has both a visitor registration app and a Contact Relationship Management (CRM) system may want the two systems to exchange information. When a visitor changes their contact information via their registration, the information is transferred to the CRM and the information is updated in both locations. Cloud-based systems will often have the API available to make those sorts of exchanges easy.

The Advantages of on-Premise Computing

Server room technician moving wires

In spite of the many advantages of cloud computing, many organizations – and large organizations with over 500 employees in particular – still prefer on-premise (often referred to as 'on-prem', or onsite) computing. And there definitely are some legitimate reasons for choosing on-premises solutions.

  • Security: Security is one of the top reasons organizations choose to keep all their data, computing, and servers on-site. Enterprise data, the top-secret data that keeps your business running, can be a top target for criminals. Keeping data locked down tight might require making sure it doesn’t touch the internet at all. This does, however, require having extremely knowledgeable IT security personnel on staff who follow security and data backup best practices.
    For many small businesses, the cloud may actually be more secure, because large service providers make it a priority to keep information out of the hands of hackers, backup data on multiple servers, and hire experts to make all that happen. That being said, large providers also tend to be primary targets, so there is always the possibility an organization’s data could be collateral damage if a breach occurs.
  • Control: Placing data on the cloud means that an organization no longer has control of certain processes, and may not have granular control of their data. Servers need to be updated now and again, and an organization relying on an outside vendor doesn’t always have a say on when downtime will occur. The same goes for software updates. While some updates might be seamless, others may require a learning curve, and an organization may not want that update to occur during a busy season.
    Some data may simply be too sensitive to allow it to leave the site. However, any organization with offices in multiple locations will have data moving between locations in some way.
  • Cost: While cloud computing offers a number of cost advantages, subscriptions can end up costing more in the long run than making a one-time software purchase. Businesses need to weigh the pros and cons of the total costs of a solution. A one-time purchase might make sense in some cases, but it is important to consider the level of ongoing support, the cost of IT staff for maintenance, and other factors that have an impact on the “true” cost.

Summary - Is the Cloud or on-Premise Right for You?

Whether to use cloud computing, on-premises computing, or a hybrid model, each business or organization will have to make the appropriate decision for themselves. Decisions may also need to be made on a case-by-case basis for individual software needs rather than as an overall company policy. There are some terrific online charts that outline all the pros and cons and can help determine which solution is right for a particular situation. 

With cloud-based solutions being adopted at a rapid pace, organizations would be well-served to consider all the benefits of this rising trend and what it means for them.

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