Hosted computing, Cloud computing, Software as a Service (SaaS), you’ve heard all these terms, but perhaps you wonder what is the difference between them. Do they all refer to the same thing or to something completely different.?
When even professionals use the terms interchangeably, it’s no wonder some are a bit confused. If your business is in the market for ERP software, it can benefit you to be familiar with the similarities as well as the differences between the three.
Let’s try to make their meaning a bit clearer. I’ll discuss the topic as it relates to ERP software.
Hosted Computing
Traditionally, ERP software solutions such as Microsoft Dynamics, were sold to businesses who owned their own hardware and housed it on their own premises. This worked well for many organizations and it still does work well for organizations who can make the substantial capital investment up front and who employ a competent IT staff to maintain and troubleshoot the system.
However, not every business (particularly small and mid-size businesses) has those assets. In the past they might have been held back from realizing the benefits of using a leading ERP software solution.
In the 1990s, the idea of Hosting began to offer an alternative to on premise solutions. Hosting, as the word implies, means that you would pay for and own the software solution, but rather than running it on your own premises, it would be “hosted” or installed at a data center where either physical or virtualized servers that you own/lease/finance are set up and maintained by your host. You then would implement the solution very much like it would be implemented on premise at your offices.
The financials of implementing a hosted solution would require a large upfront payment for the software itself, costs paid to a VAR (value added reseller) to install or implement the system and perhaps provide training in its use, some up-front fees paid to the hosting center and ongoing monthly fees for the use of the hosting center’s equipment, technical resources and bandwidth. Your long term costs would include the monthly hosting fee, maintenance fees for technical support, troubleshooting, and updating, and any additional charges for user support and modification to maintain your particular business processes.
The advantages of Hosted computing are that you own the software; you pay only once up front and then a small percentage for maintenance each year. Your data is housed in a secure data center that specializes in protecting it. Backups are made consistently and you can access your information from your own computers.
The disadvantages of Hosted computing are that it is possible for the ongoing monthly costs to eventually exceed the cost of on premise ownership. In the event of your internet connection crashing, you will not have access to your data. You may have trouble integrating other solutions with your ERP system. You need a fair amount of bandwidth and this requirement can vary depending on your business processes.
Cloud Computing
Cloud computing has some similarities to Hosted computing, but instead of you owning servers at a certain location, cloud computing providers may spread applications over various servers as business demands require. With cloud computing, you rent service, technology, and data storage and you are charged by the amount of usage.
The advantages of cloud computing are that it allows business to enter the ERP arena with much lower capital expenditure and affordable ongoing costs. Data security is held to strict standards. Up time and backups are guaranteed by your provider. With the increased use of smartphones and tablets, your data can be accessed from anywhere with an internet connection.
The disadvantages of cloud computing are that long term costs could exceed that of an on premise solution. It’s possible that some of your applications may need modification in order to work well in the cloud and to coordinate with other applications. Data usage fees could add up if you run many applications.
SaaS or Software as a Service
While Cloud and Hosted solutions can be traditional applications accessed via technology such as Terminal Services or an application that is HTML browser based, SaaS is almost always a pure Web/HTML based solution and is almost always sold on a rental model, typically. X dollars per month, per user. The biggest difference with SaaS applications is that they are usually 'multi-tenant.' This means that one database shares multiple end user customers and they are 'partitioned' from each other via a security model in the application, not via separate virtual servers.
The advantages of SaaS solutions are that they can be financially attractive. There are no capital investment costs, only the monthly rental fees. They can be up and running in very little time. Multi-tenant applications tend to cost less to maintain and run and can have a lower monthly cost to customers due to the common database. Costs for maintenance and automatic upgrades are included in the monthly fee which can be very affordable for small to mid-size companies or startups. Because SaaS is a relatively new concept, applications are likely to have been recently developed and thus have a fresh, modern look and feel. Integration between applications such as between ERP and CRM can be done by the service provider.
The disadvantages of SaaS might be that long term costs could exceed those of an on premise solution. Looking at potential costs over a ten-year period might be helpful. Potentially a SaaS vendor could eventually raise the monthly fees to an unacceptable level after you have invested time and money in implementing the system. With SaaS, if you don't pay, you lose access to your system. With on premise, if you stop paying maintenance, your software continues to operate at the current version level. The HTML/Web only interface may be slower and lack some features of the traditional Windows application. With SaaS you may find yourself dependent on a provider whose own business may or may not succeed. If they go out of business, even if they give you a chance to get your data, it could take months to re-implement a new system. Can your business survive that interruption? With on premise systems, if the publisher goes out of business, you can move to a new solution at your own pace.
By ERP Cloud Software Blog Editors
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