By James E. McGowan, president and CEO of Everest Software, Inc.
An investment in the right technology is a critical step towards building a more successful and profitable business in today's competitive market. By choosing the most appropriate integrated business management software solution, a business can dramatically improve its bottom line. Cost, productivity improvement potential and IT issues are all factors in the decision-making process. The ability to select the right business management solution can help growing companies address the challenges of competing with their larger counterparts.
In order to offset some of these challenges, growing companies deserve "Freedom of Choice" - the option to select an integrated business management software solution that works best for their growing business at different stages, whether the software is deployed in a hosted environment (i.e. "on-demand") or on the company's own systems (i.e. "on-premise").
Decisions on any technology closely tied to the financial health of a business should always be made carefully, and the associated decision whether to select an on-demand or an on-premise solution is no exception. Traditionally, business management software has been sold on a perpetual license basis and requires a sophisticated IT infrastructure for ongoing maintenance and upgrades. However, with broadband proliferation, more affordable IT equipment, improved security and more advanced Web application tools, on-demand software has escalated in popularity in recent years.
The idea of on-demand business applications hosted outside the four walls of the organization can seem quite attractive, especially to a small business; however, the on-premise model also has many desirable attributes. In fact, there are a number of pros and cons associated with each delivery model. Growing businesses must make their business management software delivery model decision very carefully as any technology purchase decision can significantly affect the health of a small business and the productivity of its often times limited staff.
This article will discuss some of the merits and challenges of the two software delivery models and offer tips to assist small businesses in selecting the right model to meet their needs.
The Merits and Challenges of "On-Demand" Software
On-demand software offers a number of benefits for small businesses. It is considered a relatively low-risk investment because it has a lower cost of entry, there are no IT readiness issues, the time to productivity is shorter and this delivery model provides users with access from the workplace or from a remote location. These are just a few reasons many small businesses have embraced on-demand software. All of these benefits result in initial cost savings and an eased burden on understaffed IT departments or non-technical office manager who must serve as the de facto IT department.
Lower Cost of Entry:
Many businesses prefer the "pay-as-you-go" aspect of on-demand software because there's no escaping the economic reality that on-premise software deployment requires a larger up-front investment due to the software licenses, hardware, and ongoing services that are required to operate and maintain the solution. For a small or early stage business, this investment may be considered too risky. The on-demand model eliminates most of the major up-front costs associated with deploying a multi-user business software solution on a company's premises. On-demand software providers typically charge on a subscription basis and do not require an investment in IT infrastructure. The software is also is managed at the vendor's data center on the vendor's hardware on behalf of the customer, reducing the ongoing hassles of IT maintenance.
No Readiness Issues:
Generally speaking, the smaller the business, the less likely it possesses the time, money, or expertise to purchase, manage, and maintain an IT infrastructure. An on-demand application can eliminate many of these IT issues by outsourcing the setup and administration of the hardware and software to the software vendor that has already built and staffed a data center. While on-demand software never completely obviates the need for on-site technical skill, it dramatically reduces the technical burden associated with the ongoing IT management of business software, enabling businesses to devote more of their time to higher-value activities.
To gain a competitive advantage, smaller businesses must use their size and agility to respond to opportunities faster than large businesses. Lengthier deployment cycles - measured in months - associated with some on-premise software implementations can be challenging for a smaller company. By contrast, an on-demand solution can be up and running at an SMB in significantly less time than a on-premise solution. This is due to the fact that on-demand software implementations are typically pre-configured and pre-installed by the vendor's knowledgeable IT staff.
Support for Mobile Users:
Whether employees are in the office, at home, or in a hotel room in another time zone, access to an on-demand application is identical. This means that there are no inherent compromises in functionality or difficulties in interacting with the application. A sales manager can update customer relationship management (CRM) information from a new customer's office or a business owner can view sales dashboard reports from home after hours.
The Merits and Challenges of "On-Premise" Software
Having outlined the advantages of the on-demand model, it would be a mistake to assume that it is the right solution for every small business. On-premise solutions offer several advantages that can be very compelling, depending on the size and other characteristics of the business.
The on-premise software option also has a number of benefits for small businesses: it is considered a more cost effective alternative over a three- to five-year period of time, and it gives the user more local control, a deeper functionality set, faster speed and better ability to scale.
Data Accessibility and Ownership:
The biggest advantage of on-premise software is that businesses have complete control over their critical business data. This data is physically located on a business' premises and does not require the transmission and storage of data off-site. Owning the hardware and supporting systems provides a business with maximum control.
The architecture of on-demand software is not always designed to support high volumes of transactions, particularly in shared environments where users are at the mercy of Internet bandwidth and shared processing resources. Depending on time of day and seasonality factors, performance of shared server on-demand software can fluctuate significantly. Therefore, the on-demand model may not be suitable for companies that process more than 50-100 transactions each day. As mentioned above, on-premise solutions can support much higher transaction volumes and are an appropriate choice for a larger or more transaction-intensive business.
On-demand software vendors often provide service-level agreements (SLAs) that set standards for the level of availability of the business application running on its servers at its data center. However, there is one aspect that the vendor can't guarantee: the communications link between the user and the vendor's data center. An on-premise solution does not have any remote-connectivity issues to contend with which can be a critical consideration for a growing business.
More Seamless Hardware/Software Integration:
Typically, on-demand software applications do not support external hardware systems that may be critical to a company's business model. One example of this type of limitation would be the failure of an on-demand application to offer Point-of-Sale hardware integration. In contrast, an on-premise solution enables a business to retain complete control over its entire hardware and software environment which also provides the flexibility to select the peripherals and third-party applications that best complement and support the business' processes.
Lower Ongoing Costs:
The benefits of a lower up-front investment associated with the on-demand model erodes over time because there is an obligation to pay ongoing subscription fees and typically, there are no volume discounts or declining marginal costs for additional users. While an on-premise implementation requires a larger up-front investment, such an investment delivers a greater return on investment over a sufficient time horizon.
Which model is right for your business?
For many reasons, both software delivery options discussed above can be beneficial for growing businesses. The key is to understand what issues are most important and weigh the pros and cons of each. There will always be trade-offs between lower initial payments versus lower long term payments, convenience versus control, accessibility versus security, and so on. When selecting between on-demand and on-premise software, SMBs should consider the following:
Does your company have or have the ability to obtain (e.g. by leasing or through other financing options) the funds necessary to invest in on-premise software?
What level of "uptime" will the on-demand software provider guarantee and how quickly will it respond to a problem?
Control Issues and Data Security:
Are you comfortable with your business data being housed off-site or potentially residing on the same data center server as your competitors' business data?
Feature-Set and Customization Capabilities:
Do your company's changing business processes require more configuration and customization than an on-demand software provider can — or is willing to — handle? Or do you need (or plan) to integrate the capabilities of the software with in-house applications or other software to which you may subscribe?
How prepared are you to change your business management software as your company grows over time? Would you prefer to grow and replace your software, or let your software grow with your needs?
SMBs account for a large and growing percentage of U.S. businesses today. These businesses should have the option to choose a delivery model for their business management software that does not require them to endure the cost and burden of transitioning to a new software delivery model if they succeed and grow or if their needs change. Everest Software has distinguished itself as the first software company to offer SMBs with a choice in delivery options in business management software and the ability to scale and easily and cost-effectively convert from one delivery option to the other if necessary. Everest Software is committed to maintaining its leadership position in the small- to medium-sized business management software industry.
James E. McGowan is President and CEO of Everest Software, Inc. a provider of on-demand and on-premise business management software.