Whether it’s a point of sale system, an e-Commerce enablement system or a parcel shipping solution, many retailers wonder whether they should choose a cloud-based or on-premise software solution.
The answer, briefly, is: It depends.
It depends on your business needs, IT sophistication, budget, margin sensitivity and numerous other factors. In this post we’ll discuss the pros and cons of these two different software business models and propose a strategy to help you make the right choice for your business.
It’s challenging to make an apples-to-apples comparison of cloud vs. on-premise software due to the differences in their pricing models and the different areas of investment that the two models require. Comparing total cost of ownership allows you to make a close comparison of the two models to determine which makes better financial sense for your business.
The IT analyst Gartner defines TCO as “a comprehensive assessment of information technology (IT) or other costs across enterprise boundaries over time.”
When comparing on-premise and cloud for a parcel shipping software solution, you would compare the cost of purchasing hardware, software, IT management and support, bandwidth and communications, power, user expenses, cost of downtime, employee training and lost productivity.
In the beginning, the costs associated with on-premise parcel shipping software seem much higher. But as a general rule, the longer you use the solution, the higher the costs of the cloud will be. According to Software Advice’s Derek Singleton, somewhere between the two and three year mark (depending on how much up-front investment is required), the total cost of ownership for a cloud application usually exceeds that of a similar on-premise system. Between the three and five year mark, after which your on-premise solution will probably require significant upgrades and reinvestment, on-premise is significantly less costly.
Sometimes there’s more to a decision than simply looking at cost. Another area to consider when comparing cloud vs. an on-premise solution is to consider your business need for flexibility. Are you growing rapidly? Is your business model in flux? If your business needs are changing, or even if you need to reduce risk around your decision, then a cloud solution might be a better option. You’ll pay more over time, but you’re looking at a shorter term investment that will deliver greater flexibility.
On the other hand, if your business model is mature, if you’ve already made investments in IT infrastructure and you’re more focused on cutting costs and increasing your margin, making a long term investment in an on-premise solution makes sense.
In addition to long-term cost savings, on-premise software offers other significant advantages. For starters, you’re more able to customize the solution to meet your specific business needs. You essentially own the data, the software and the hardware on which it runs so if you need to make changes, you have that option. With a cloud-based solution, you are “renting” the software and the infrastructure on which it runs, and it becomes more difficult to make changes or customize the solution to your business.
But there are some disadvantages, too: on-premise software does require more up-front investment in software, hardware and other infrastructure. It also has a larger IT footprint for your business—although today’s on-premise solutions don’t require the maintenance and resources that they once did, there will still be some investment required in this area. And it’s less flexible: Once you’ve invested in the software, infrastructure and resources needed to support an on-premise solution, changing directions is much more costly.
If you’re a small business or a startup and you need technology up and running quickly without a lot of upfront investment, then cloud is a great option. It offers the ability to roll out an application almost instantly. In an industry like retail, where you may have multiple locations that need to use an application, a cloud application makes it fast and easy to access the technology you need.
Cloud applications also offer flexibility: Many cloud providers offer different service plans depending on the number of locations or functionality you need. But for retailers with a close eye on margins over the long term, cloud may not be the right choice.
There’s a lot to consider when deciding between a cloud or an on-premise application. For most retailers, there are aspects of both models that are appealing. Naturally, you’d like to lower your margin and reduce cost over time, but if your business is changing quickly, then being able to respond quickly while reducing risk and minimizing the complexity of your IT infrastructure may also be appealing.
At Precision Software, we understand that both the cloud and on-premise models have benefits for retail businesses and that the solution you choose should be based not just on cost but on all the needs of your business. That’s why, unlike many of our “cloud only” competitors, we offer both cloud-based and on-premise parcel shipping software. Our cloud-based solutions meet the needs of retail businesses that require rapid deployment, flexibility and scalability with minimal IT infrastructure.
Precision is also fairly unique in the industry as we offer a single tenant cloud solution as opposed to a multi-tenant solution. This means each Precision customer has their own independent instance of our software and database. With this option, there’s no sharing of resources or danger of exposure of your data to another customer. For businesses that are more focused on margins and can manage their own IT infrastructure, our on-premise solution suits their needs.
Best of all, unlike other providers that offer different solutions based on cloud or on-premise deployment, Precision Software can be deployed in either environment, and it is 100% the same solution no matter how you decide to deploy. This allows you to reduce the risk associated with either choice. With Precision Software, you’ll have the flexibility to adapt as your business needs change.