On-premises software (also referred to, incorrectly, as on-premise, and alternatively abbreviated on-prem)is installed and runs on computers on the premises of the person or organization using the software, rather than at a remote facility such as a server farm or cloud. On-premises software is sometimes referred to as "shrinkwrap" software, and off-premises software is commonly called "software as a service" ("SaaS") or "cloud computing".
The Software consists of database and modules that are combined to particularly serve the unique needs of the large organizations regarding the automation of corporate-wide business system and its functions.
On-Premises Software is established within the organisation’s internal system along with the hardware and other infrastructure necessary for the software to function.
Cloud-based software is usually served via internet and it can be accessed by users online regardless of the time and their location.Unlike On-Premises Software, cloud-based software users only need an installation of an application or a web browser in order to access its services.
For On-Premises Software, there are several costs expected to incur until the software and its services would be fully available for use. First of all, the construction of On-Premises Software within the organisation requires high initial costs including costs incurred for the purchase of hardwares and other infrastructures as well as costs required for software installation and examination.In addition to this, the entity is entitled to the purchase of the license particular to the software which involves costs and time for the preparation and required procedures. Furthermore, in order to maintain the software functionality, sustainable maintenance and operations are required and the entity will be subjected to the costs incurred for these as well.
On the other hand, in general, the initial costs required for the use of software services are considered relatively low for cloud-based software and thus suitable to small enterprises without a large amount of capital.Moreover, cloud-based software users are not subjected to license fees as well as maintenance and operation costs since these are on hands of software vendors. Furthermore, costs incurred for infrastructures are expected to be smaller compared to On-Premises Software as users only need their electronic devices to be able to get access to the services.
Although initial costs for the access to services are usually low for cloud-based software, total costs required for the use of software over a specific time period are unsure as cloud-based software requires routine payment (i.e. monthly subscription fee) for the use of services whereas on-premises software does not.
The entity using On-Premises Software are fully responsible for the daily operation and maintenance of the system by itself. This results in more time and costs required for the system operation as well as IT personnel who have specialization in managing the system.
On the other hand, for cloud-based software, it is a software provider who is responsible for the system operations and maintenance. Thus, no IT professionals need to be hired within the entity specifically for the purpose of operating the software.
As for the maintenance and operations, the entity using On-Premises Software is also responsible for back-up and storage of software data. This implies the ability of the entity to have a full control over its data and its security.
For cloud-based software, the entity has no requirement of data back-up by itself, as this is also a responsibility of the software provider and data back-up is perquisite for the provider in offering their services. On the other hand, the control of data by software providers suggests that users have no control over the data and software system performance.This may result in some security issues, especially for those who are subject to high level of regulation standards against data security, such as financial institutions.
As discussed, users are responsible of data management for On-Premises Software while for cloud-based software, the responsibility is on the software provider.
However, the difference in the level of safety over data security between On-Premises and cloud-based software is arguable.Some experts claim that cloud-based software is likely to be more secure as they have more amount of capital and other resources to invest in data security system than normal business entities. Whilst others argue that this is questionable as software vendors are usually more exposed to being targeted by cyberattacker as they hold vast amount of data within the system.
On-Premises Software was invented first mainly for the purpose of corporate-wide process automation of large entities, in advance to the evolvement of cloud-based software, SaaS.
SaaS emerged in the early 2000s, and some of businesses published SaaS products have experienced a failure, as customers wanted SaaS particularly for the purpose of the automation of single specific corporate functions rather than corporate-wide system.
However, the idea of on-demand service delivery of the software was not revolutionary at the time of 2000s, as some vendors already had attempted this delivery style of software service in 1900s.The reason of the business model for not being widely known at that time was the lack of broadband penetration and that there was no sufficient internet accessibility to effectively make all the on-demand software service to work.
As SaaS market evolves in 2000s, as opposed to On-Premises Software, the cloud-based software gets adopted into the market demand which is to serve many types of businesses, including small and large corporations, to automate specific business processes within the entities.
In addition, SaaS allowed customers to make selection among many functions depending on each customer needs and economic conditions.
Although On-Premises Software previously had a huge advantage of being capable of customization and tailoring software services to each business needs, SaaS has also been evolved as platforms where customizable services are available to some extent as cloud-based software market develops.
On-Premises Software was prevailing in 2013 in Software Market, however, more and more customers and thus software vendors shift towards cloud-based software since then.
Key corporate players who have been contributed to this software model change as well as associated ERP system are:
For instance, SAP was originally an on-premises software vendor. In accordance with the change in technologies and customer preferences in software market, the company has turned itself into cloud-based ERP provider that are available both in public cloud and in private cloud depending on the customer needs.
Microsoft previously provided on-premises ERP such as SharePoint2010 for automation of corporate-wide business system of large corporations. Recent years the company has been published many cloud-based software such as Azure and Microsoft Dynamics LCS that provide customers internet services that offer automated and standardized business functions for specific area of the businesses.
Salesforce has brought revolution to business’ CRM process through its cloud-based software service, including Sales Cloud that offers best suitable standardized business processes regarding the customer relation to the businesses.
Over the last decade of Software Market, an increasing trend towards Cloud-Based Software from traditional On-Premises Software has been appeared with an acceleration to its speed.
At the time of 2016, despite this trend, most of corporations maintained their traditional information management system through On-Premises Software.This suggested that the trend shift in software market is occurring with a slow pace as the businesses are gradually shifting their software system from the traditional On-Premises to Cloud-Based.
In 2020, approximately 70% of business customers are planning new or further transitions from On-Premises Software to Cloud-Based Software.
In accordance to this consumer movement towards Cloud-Based solutions in software market, more and more vendors, including industry leading software corporations such as Microsoft, Oracle and SAP, shift their business model and transfer their products to cloud-based solutions.
Faster shift from On-Premises to Cloud-based is expected in B2C market than B2B market.
This is because businesses usually require much more complex structure and system of information management in contrast to private users. In addition, businesses are more prudent to the shift of its software system because they have significant concern over the data security as its failure could potentially result in the loss of enormous amount of data as well as the business’ reputation.
Primary customers for relatively new software, SaaS, was the non-users of On-Premises Software as it was easier for them to make the purchase, installation and implementation of its service due to the factors previously discussed such as the lower installation cost and the lower system management cost.
As the convenience of these features associated with Cloud-Based Software becomes widely known, more customers (mainly businesses) start shifting their software system towards Cloud-Based as they have been realizing that SaaS brings more efficiency to their information and system management.Especially for those whose business processes are highly standardized and shared within their industry.
Another factor resulted in the difference of the pace of market adaptation towards Cloud-Based Software was the degree of concern and legislation regarding data security.In fact, developing economies where subjected to less restrictions regarding data security and legacy management, showed a relatively quicker response to the software market trend shift.
Some vendors, particularly for those who have originally been offering On-Premises Software, are not willing to shift their software service to Cloud-Based as they will need to change their business model entirely and this requires a large amount of cost, time and efforts.Besides the demand-side (or customer-side) factors above, this vendor reaction could be another reason for the slow migration towards Cloud-Based services in software market.
The movement towards cloud-based software not only implies the change in business’ information management system but also result in potential change in their value creation processes.
Cloud-Based Platform incorporates the functionality of facilitating the interactions and communications among customers and producers due to its feature of being accessible from various stakeholders at the same time, while On-Premises Software usually limits the access to its platform owner in exclusion to other group of individuals.
Cloud-Based Software provides the software services in relatively more flexible way and with more variations. The reason of this exists in the architecture of cloud-based software platform that consists of a number of different platforms with different specialty and functions. The most representative example of such platform is Microsoft Azure. The software consists of a number of distinct business platforms.
As discussed above, On-Premises solution and Cloud-Based solution have both positive and negative sides respectively. Thus, the ‘better’ choice among 2 software depends on many factors, for instance, customer’s business model, financial status and business strategy. However, neither choice would provide customers the perfect solutions as both software do not offer full functionalities to its users.
In transition to Cloud-Based solution for the information management, customers’ concern involves the security of data, privacy, and many more that may be better provided by the traditional On-Premises solution.In order to deal with this problem, the software market came up with new solution to combine On-Premises and Cloud-Based solution and its best features. As such, the software will be provided on-demand with customization simultaneously.
Software has begun evolving from the beginning of 1990s and there was a big movement in business market trend towards the use of software at the beginning of 2000s.Although, during these periods, IT industry as a whole was in the middle of market boom and experienced a rapid growth in its market size, software market accounted for nearly 25% of all the spending in IT industry products.
According to Hietala’s research, US has been always the biggest country player in the software business and has been presenting a dominant market position in the market.In 2006, software products of US companies occupied around 60% of the whole world software product turnover.
There are mainly 3 types of software product from the function point of view and from a commercial perspective:
Pure Software is mainly sold or purchased on its own as one independent product and not being incorporated into other products.Although these software are traded as main product, sometimes vendors get more revenue stream from services that are combined with or offered on the software platform.
Unlike Pure Software Product, Embedded Software Products are not traded on its own but rather considered as a part being incorporated in other products. The examples are the software embedded into the mobile phone, computer and other electronic devices. In general, completely different ways of architecture and system construction needed for this type of software compared to that of traditional software products.
Customer-Tailored Software are the software of which the system and the service can be tailored to individual needs of customers. This customization can be achieved through a variety of different combination of software modules and platforms.The core purpose of this software product is to solve a specific business issues of individual customers and provide a unique solution to that through technology. While standard cloud-based software usually offer standardized solution and service to a broad range of customers within an industry and/or market area.
Customer relationship management (CRM) is a process in which a business or other organization administers its interactions with customers, typically using data analysis to study large amounts of information.
Enterprise resource planning (ERP) is the integrated management of main business processes, often in real time and mediated by software and technology.
SAP SE is a German multinational software corporation based in Walldorf, Baden-Württemberg, that develops enterprise software to manage business operations and customer relations. The company is especially known for its ERP software. SAP is the largest non-American software company by revenue as well as the world's third-largest publicly-traded software company by revenue.
An application service provider (ASP) is a business providing computer-based services to customers over a network; such as access to a particular software application using a standard protocol.
QAD Inc. is a software company that provides enterprise resource planning (ERP) software and related enterprise software to manufacturing companies. The company has customers in over 100 countries around the world.
Software as a service is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. It is sometimes referred to as "on-demand software", and was formerly referred to as "software plus services" by Microsoft. SaaS applications are also known as on-demand software and Web-based/Web-hosted software.
Workforce management (WFM) is an institutional process that maximizes performance levels and competency for an organization. The process includes all the activities needed to maintain a productive workforce, such as field service management, human resource management, performance and training management, data collection, recruiting, budgeting, forecasting, scheduling and analytics.
Mobile device management (MDM) is the administration of mobile devices, such as smartphones, tablet computers and laptops. MDM is usually implemented with the use of a third-party product that has management features for particular vendors of mobile devices. Though closely related to Enterprise Mobility Management and Unified Endpoint Management, MDM differs slightly from both: unlike MDM, EMM includes mobile information management, BYOD, mobile application management and mobile content management, whereas UEM provides device management for endpoints like desktops, printers, IoT devices, and wearables as well.
Openbravo is a Spanish cloud-based software provider specialized in retail and restaurant solutions, known in the past as a horizontal open source ERP software vendor for different industries.The head office of Openbravo is located in Pamplona, Spain. Openbravo also has offices in Barcelona, Lille, Paris, Mexico DF, Kolkata and Dubai. The company's main product is Openbravo Commerce Cloud, a cloud-based omnichannel platform.
Cloud computing is the on-demand availability of computer system resources, especially data storage and computing power, without direct active management by the user. The term is generally used to describe data centers available to many users over the Internet. Large clouds, predominant today, often have functions distributed over multiple locations from central servers. If the connection to the user is relatively close, it may be designated an edge server.
There are three types of Hybrid SaaSmodel; the traditional Hybris SaaS model, The HomeBrew Hybrid SaaS model and the Next Generation of Hybrid SaaS solutions.
Acumatica, founded in 2008, is a technology provider that develops cloud- and browser-based enterprise resource planning (ERP) software for small and medium-sized businesses (SMBs). The company is headquartered in Bellevue, WA.
Plex Systems, Inc. is a software company based in Troy, Michigan. The company develops and markets the Plex Manufacturing Cloud, a software as a service (SaaS) or cloud computing ERP for manufacturing.
FinancialForce is a cloud-based applications company headquartered in San Francisco, California, that provides a cloud ERP solution for Force.com, a cloud computing platform from salesforce.com. FinancialForce supplies Accounting, Billing, Professional Services Automation (PSA), Revenue recognition, Human Capital Management (HCM), and Supply Chain Management (SCM) applications.
IBM cloud computing is a set of cloud computing services for business offered by the information technology company IBM. IBM Cloud includes infrastructure as a service (IaaS), software as a service (SaaS) and platform as a service (PaaS) offered through public, private and hybrid cloud delivery models, in addition to the components that make up those clouds.
Zenprise provides Mobile Device Management (MDM) solutions to enterprises. The company's solutions are available in both on-premises and cloud-based (SaaS) versions. Zenprise MobileManager and Zencloud allow companies and government agencies to manage and secure mobile devices, including iOS, Android, BlackBerry, Windows Mobile, and Symbian.
HP Cloud was a set of cloud computing services available from Hewlett-Packard (HP) that offered public cloud, private cloud, hybrid cloud, managed private cloud, and other cloud services. It was the combination of the previous HP Converged Cloud business unit and HP Cloud Services, which is the OpenStack technology-based public cloud. It is used by enterprise organizations so they can combine public cloud services with their own internal IT resources to create hybrid clouds, or a mix of different cloud computing environments made up of private and public clouds.
Software monetization is a strategy employed by software companies and device vendors to maximize the profitability of their software. The software licensing component of this strategy enables software companies and device vendors to simultaneously protect their applications and embedded software from unauthorized copying, distribution, and use, and capture new revenue streams through creative pricing and packaging models. Whether a software application is hosted in the cloud, embedded in hardware, or installed on premises, software monetization solutions can help businesses extract the most value from their software. Another way to achieve software monetization is through paid advertising and the various compensation methods available to software publishers. Pay-per-install (PPI), for example, generates revenue by bundling third-party applications, also known as adware, with either freeware or shareware applications.
IBM Application Performance Management is an offering that enables IT operations and DevOps and personnel to detect, isolate and diagnose problems in their hybrid cloud development and production environments. The solution is part of the IBM IT Service Management portfolio, which is a key component of IBM Cloud solutions. The offering provides capabilities such as End User Management (EUM), Application Discovery, Application Diagnostics, Transaction profiling and IT Operations Analytics. IBM Application Performance Management solutions are available in both SaaS (software-as-a-service), hybrid and on-premises delivery models. IBM Application Performance Management was a part of IBM Tivoli brand until 2013.