Let’s start off with a little quiz. SaaS is: A) a discount airline offering direct flights to Finland, B) a turbo charged automobile well suited for the German Autobahn, C) Software as a Service, D) not as good as the hype would have you believe. If you answered “C”, you get points for accuracy. If you answered “D”, you have passed the quiz with honors! (Don’t feel bad if you answered A or B)

Simply put, Software as a Service (SaaS) is a delivery method for software in which the applications are hosted by a third party, rather than reside on your servers. To access the software, you pay monthly subscriptions fees based on the number of users. Many midmarket businesses are opting for SaaS for their Enterprise Resource Planning (ERP) software, seeing it as a very attractive alternative to purchasing and installing ERP software. It’s easy to see why this model is popular - no upfront software costs, fast implementation, no new hardware to purchase and maintain. But there are many critical factors to take into account if you are considering SaaS ERP solution for your business.

Someone else will own YOUR financial data!

There is no getting around this fact – if a third party is hosting your ERP software, then your General Ledger, your receivables, your confidential data is residing on a server owned by another company. Who truly owns the data? What happens to your data if that company goes bankrupt? These are risks you need to consider. Also, data will be traveling back and forth between your users and the hosting provider. What happens if your client list gets hacked?

There are costs down the road

Sure, $60 a month per user sounds great when compared to $2,250 per user to purchase ERP software, but make sure you are calculating the true cost. SaaS typically is on a named user basis; on premise ERP software is purchased on a concurrent user basis. Over three years, subscription based pricing probably will be more. Plus, with numerous low cost leasing options available in this market, purchasing ERP software does not necessarily mean you have to pay a lot upfront.

You still will have hardware to maintain

Many companies believe that SaaS will allow them to retire existing hardware. But a recent Forrester Research report found that most companies deploying a SaaS environment still need to maintain some on premise software to fill in gaps that the hosted solution doesn’t address. And with the cost of hardware going down, are the hardware savings really that great?

Conclusion

If you considering a SaaS solution, you need to do your homework, and consider the risks. Find out what comfort level the stakeholders in your organization have with regards to the above points. Check with your IT staff to make sure they are okay with the arrangement. Check with businesses you respect, and see if they have gone to a SaaS solution. If yes, what has their experience been? If no, then why not?

In the end, you may find that an on premise installation of a ERP solution is less expensive, more reliable, and better suited for your business.