ERP Software: Own, Lease, or Rent – Part II

August 6, 2012
By guest blogger - Mike Silver

In the second of this two-part series discussing On-Premises, Hosting, and SaaS software, Guest Blogger Mike Silver casts some light on which of the three strategies makes the most sense.

In the previous article, ERP Software: Own, Lease, or Rent, we compared on-premise software to owning, hosted software to leasing, and SaaS to renting. So which model is best? Is there a “best”? Which one is the least costly? And which one will allow the greatest flexibility as my business changes?

In many cases, there is no one best answer on whether or not to move your business application to the “cloud”. Your business circumstances, management reporting requirements, and operational needs all impact your own-lease-rent decision – just like deciding on office or factory space. What we have learned in recent years is that changing business management systems is costly, time consuming, disruptive and not without risk. Having the ability to off-load much of the overhead and maintenance of on-premise computing provides businesses with more stable and reliable systems.

However, there are two considerations that might help bring some clarity.
1) Do you have internal IT resources to devote to the task?
2) How long do you intend to use your ERP solution?

Use SaaS when Lacking Internal Resources

Businesses benefit from SaaS when they do not have IT resources to dedicate to installing and managing applications. Even in the hosted scenario, some level of IT expertise is required to install application upgrades.

To gain financial insights, we refer to the cloud ERP cost comparison model featured in a previous blog post.

We copied a graph from that post that shows if your only concern is out-of-pocket expenses, the option to purchase a $50,000 license + hosting + maintenance is roughly equivalent to a $20,000/year SaaS license.


ERP Time Horizon

Another consideration is the length of time your organization plans to use the system. Based on queries with vendors in the ERP space, we have found that for a very small deployment scenario, the cost of licensing the software is about $18,000 and the cost of one year of SaaS is $12,000. The resulting chart shows that a SaaS deployment can provide lower costs in year one, but after 2-3 years of service, the hosted model can be less expensive in terms of total out-of-pocket money.

By looking at the graph, you would conclude that you should never purchase a software license and try to build your own infrastructure. However, in some scenarios (for example you are running a point-of-sale terminal that needs to connect to your server) an on-premise deployment makes sense because you may not want to rely on an external Internet connection.

For more analysis of the cost model, please visit the ERP Cloud News post describing the cloud ERP cost comparison model.

Going for flexibility

The best bet is to go for an option that lets you switch between the three models given today’s constantly changing business needs.

SaaS-only ERP providers have only one model and do not offer the ability to change environments should your business need to do so. Acumatica is an example of a solution that can run on-site, hosted or in a SaaS environment because the application runs in all of these environments and your database is transportable as well.

Before you become overly concerned with the way your software runs and is deployed, make sure it has the features and capabilities that your business needs. This includes easy integration with best-of-breed applications that you use today like CRM, Fixed Assets, Human Resources, and others.

ERP Strategies: Parting Thoughts

The term cloud is used in many different ways today. When investigating a “cloud ERP” software solution, make sure you know the costs and deployment option that is right for you. Many of these costs and requirements are driven by the type of cloud being offered.

Our analogy to purchasing, leasing, and renting a building illustrates the different purchase models available for what vendors term Cloud ERP. By describing some of the different organizational and financial implications of the different models, we have tried to help you make an informed decision regarding a cloud ERP software purchase.

A final word of advice – make sure you understand your costs, responsibilities, limitations, and future obligations of the different models. If you are not sure of your future requirements, then select a solution that is flexible enough to run in the different environments.

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