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Should SaaS Vendors Offer On-Premise Options?

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Phil Wainewright: Many SaaS vendors refuse on principle to offer on-premise versions of their applications, but others are perfectly happy to let enterprise customers install the software on their own in-house servers. Who's right?

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  • This is really two questions in one. First, if you are offering your software on-premise, then you are by definition NOT SaaS...at least not in this instance.

    That said, the underlying question is when is an application best offered as SaaS vs. on-premise software. This answer lies in the customer need/application itself, not the vendor. (See for example: The SaaS Hybrid Question - Demystifying Business Models )

    SaaS has a competitive advantage over on-premise software when either a) the customer needs are similar and the vendor can achieve economies of scale through a single on-demand infrastructure (e.g., salesforce.com) or b) when the solution leverages the Internet is some dramatic way (e.g., Omniture or Taleo). Applications that are highly custom and internally focused are better off delivered on premise (i.e., big ERP, banking systems, etc.).

    Whether a vendor should attempt to support these two business models is the bigger question, because they tend to come with very different cost structures and cultures. In fact, it is so difficult that if you are a SaaS vendor that is willing to offer your application on-premise, then chances are that you are simply paying lip-service to ride the SaaS hype...and are really an enterprise software or managed services business in disguise. To thine own self be true, and you will achieve better focus and make higher profits whichever path you choose.

    by Joel York

    at Chaotic Flow

  • If the SaaS vendor has the capacity to deliver a tightly wrapped on-premise version of its on-demand/on-line solution, they should definitely offer this option. There is a segment of IT/business decision-makers who continue to be reluctant to take advantage of SaaS solutions because they are uncomfortable with relying on web-based services due to reliability, security and performance concerns. SaaS vendors can alleviate many of these concerns by offering an on-premise option. The key to success is making sure that this version of their solution is based on the same code-base as the web-based version, and the on-premise version cannot be modified by the customer beyond the generally accepted reconfiguration parameters. There are already many SaaS vendors who are experiencing success offering this option to their customers.

  • The answer to the question as posted, in my opinion, is "Why not?" It's like asking "Should Ford's Model T have been made available in colors other than black?" I think the real question here is "Can the SaaS Vendor Offer On-Premise Options?" The answer to this question is much more involved as it depends on the vendor's business model and long-term vision/strategy, what exactly the SaaS vendor is offering, the variability and configurability of the offering, and so forth. But even if the SaaS vendor could somehow package up an "on site" version of its offering, could the client "afford" it with the required initial capital investment, ongoing support expenses, and appropriately skilled resources?

  • I see 2 versions of the question:
    1. Offer the same application but On-premise. Simply install it in on your servers. This is very different business and support model. That will actually require a separate organization from the vendor. It may be suitable for some vendors but most will prefer to stay SaaS.
    2. Offer contingency in case of unavailability of the SaaS application. It could come in many forms. You read more in my post.

    See you,
    Noam

  • I think that there is a large consensus that SaaS delivery requires a different mindset, operational and business model than traditional on-premise delivery. But I do not think that SaaS is mutually exclusive with on-premise – I rather think that SaaS can be delivered on-premise as a subset of the entire SaaS offering. I think that the current controversy that considers SaaS as mutually exclusive with On Premise is more related to the current state of technology, than to business or functional issues.
    Clearly, if On Demand applications have to be developed and deployed on entirely different platforms and technologies (RIA and multi-tenant) than On Premise applications (Windows and JEE or .NET), then it is difficult, cumbersome and costly to support both. I have related to this in my post about the coming out of the hybrid SaaS model.

    The market votes regardless of the theory, and the trend is evidenced by the recent availability of Longjump (which was exclusively a PaaS) for on-premise installs, and the increasing interest of enterprises in Cloud enables architectures such as Magic Software’s uniPaaS (“Private Cloud? and RIA gain momentum alongside SaaS). There’s even persistent speculation that Force.com would follow suite.

    Clearly, on-demand business requires a different business approach than on-premise – but I view it rather as a super-set than a mutually exclusive path. And as we see in the SaaS integration business, many vendors offer a SaaS pricing models to on-premise installs – and doing so for applications should not be much different (assuming customers provide a compliant infrastructure and operate it).

    How can this work? Consider the proposition in which the same application platform (and consequently application) supports various deployment modes (single and multi tenancy, Fat, Browser or RIA client). The Client appliance aspect becomes immaterial. A software vendor using such a platform can unify its development and support cycles and have a single cycle of updates and upgrades. The SaaS hosting center (and not necessarily only one) becomes yet another “on premise? customer, hopefully with many more users than a “regular? on premise customer. With a RIA deployment model and Cloud Enabled platform (with its multi-tenant hypervisor), update and upgrade cycles can be done in the “SaaS? way – having all customers on the same level - rather than in the individual “On-Premise? manner, enabling the economies of scale and homogeneity of SaaS applications also for hybrid deployments.

    • Rather than debate the merits of a particular technology or infrastructure, why not refocus this discussion on what is best for the customer?

      While many customers are open to the multi-tenant architecture of traditional SaaS, many are wary of the forced upgrade schedules and potential disruptions to business processes that accompany new releases. Others don’t want sensitive data located outside their firewalls. But they still want the flexibility and freedom that come with not having to maintain application infrastructure.

      Cloud computing environments provide a middle ground between traditional SaaS and on-premise deployments, sans the investment in huge, built-out data center and multi-tenant architecture. Vendors can take advantage of an existing cloud, such as Amazon EC2, and deploy individual instances of the application for each customer.

      Customers receive the low-overhead benefits of an on-demand, subscription-based SaaS application, with few of the disadvantages.

      The virtual appliance cloud-based application approach often supports easy deployment of an application on premise with architecture still intact and a single, manageable code-base. The approach often also provides originally on-premise vendors with a quick, inexpensive route to a SaaS offering.

      On-premise vendors who sell their product via subscription (which many modern vendors do, having been somewhat led by the commercial open source movement) may find their business models and go to market intact and the move to offer both deployment form factors relatively unchallenging.

      Both the technology and business model alignment allows focus on delivering customer value. Vendors offering both off-premise and on-premise versions of an application are making it possible for customers to choose products that solve their business problems regardless of where the application is running.

  • VirtuWorks offers SaaS licensing for a wide range of Microsoft Applications to both our Velum and Hosted Virtual Server customers. Visit our SaaS page for more info. http://www.virtuworks.com/Services/Velum/Software-as-a-Service-SaaS-Overview.aspx

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