Today, there are a variety of financial applications that businesses can choose from beyond traditional on-premises solutions, like single-tenant hosted solutions, cloud-based products, and many others in between. In addition to their unique application architectures, these products possess a wide variety of functions and features, each at a different cost point.
With all of this choice, there exists a fair degree of market confusion about the relative costs and benefits that different software deployment models bring to financial accounting customers. In addition to comparing functions and features, prospective customers need to evaluate the underlying economics of different deployment options and choose the solutions that deliver the best value over time.
Vital Analysis, the publishing, research and analytical arm of TechVentive, reviewed the different software deployment options and the economic factors impacting the vendors that offer them, and concluded that multi-tenant SaaS solutions often have substantial advantages. These advantages include:
- Greater research and development (R&D) spend efficiency
- More frequent functional improvements to the product
- Lower support costs for the vendor and the customer
- Lower cost testing and debugging environment for the vendor and customer
So, how did Vital Solutions come to this decision? Below we break down the various deployment methods, their cost structures, and ultimately the key reasons why multi-tenant solutions yield significant ROI and lower costs versus competitors over time.
Different Deployment Methods Financial platforms have undergone a revolution in recent years and software buyers now have multiple deployment methods available to them. What comes with these different deployment choices are distinctions in up-front costs, maintenance costs and more.
On-premises software: As the long-standing deployment method, on-premises offerings require businesses to install a vendor’s software on their computer hardware. In addition to the significant upfront costs to purchase the software, licenses, and any other hardware or software to make it work, the business is also responsible for maintaining the software and future upgrades.
Hosted solutions: Hosted solutions are almost always “single-tenant.” Single-tenancy means that each customer has his own version of the software and his own databases. While single-tenancy provides some measure of “user control” over the software installation and upgrade timing, the costs associated with these upgrades are often as steep as traditional on-premises solutions.
Private cloud: Another deployment option is the “private cloud.” Generally, a private cloud is an on-premises solution that is configured to run as if it is on a cloud technology platform. The customer owns the computing hardware and licenses appropriate systems software, but applications are accessed via an Internet browser. The cost structure for private cloud solutions is akin to that of on-premises solutions since the customer owns and maintains virtually the same solution in either environment.
Multi-tenant SaaS solution: “Multi-tenant” SaaS solutions are software products that have been built from the ground-up as a cloud-based solution. These solutions usually include only one copy of the software that all customers are sharing simultaneously which can help reduce client-side costs.
The Cost Advantage of Multi-tenancy When you follow the money, it’s easier to see why multi-tenant SaaS accounting solutions can be the most cost efficient--in addition to other benefits--than their competitor deployment methods.
Unlike on-premises vendors that collect hefty upfront license and set-up fees, most multi-tenant vendors use subscription-based models and do not require the customer to make any initial capital expenditures or acquire expensive IT infrastructure.
Additionally, because the software is running on the vendor’s (or a third-party’s) cloud systems, the upgrade environment is a very efficient one. Since the vendor has only one code stack/computing environment and one version of the product, the maintenance and customer support costs are also considerably less than on-premises options.
With this deployment structure, the software vendors are actually the ones on the hook to update and upgrade the system, instead of the customer or another third party. This is a significant point because the labor cost to maintain application software is often the single largest cost component of on-premises solutions.
In a study completed by TechVentive involving users of multi-tenant cloud software, customers reported saving between 40-60% by using multi-tenant solutions instead of on-premises applications.
Conclusion The application software space is undergoing significant changes and customers are less willing to pay large upfront sums to license software and buy expensive computer hardware to run it. As customers’ expectations change, vendors are following suit.
The result is a whole new breed of on-demand applications: SaaS. But not all SaaS solutions are the same, and the economic differences for both the vendor and customer can be considerable. Multi-tenant SaaS solutions can be more advantageous than other deployment methods -- especially considering the fast deployment time and inexpensive ownership costs for customers.
The better understand the economics behind the different deployment models available today, check out the full Vital Analysis research report provided by Intacct.