Should SMBs Choose On-Demand or On-Premise Customer Support Software?

Short answer? It depends….

Smaller businesses in particular need to closely budget financial resources while giving quality service. They need a customer service solution with a flexible and rich feature set yet be economical and simple to use.

Software as a Service (SaaS), on-demand, or web-based solutions have become a popular method of acquiring a customer service solution with low capital outlay. There is no need for an IT unit. There is no software to license and no special equipment to purchase.  Updates are done automatically.

So… costs are low, and ROI and deployment are quicker than an on-premise solution.  Adoption of SaaS had reached 15% of SMBs by 2007, an increase of 58% over the previous year.

But recently adoption has slowed due to concerns about security, customization, integration, and the true total cost of ownership (TCO) . An on-premise solution may seem too capital-intensive in the beginning but after three years may compete as well or better in TCO than on-demand.

Additionally, the pricing models of on-demand solutions may not be well understood, and there are issues with application performance, availability, and data protection .  SaaS solutions can be limited in feature offerings, be vulnerable to vendor closure, and lack migration paths if a business chooses to return to an on-premise solution.

Mitigating security, integration, customization, and data migration problems could mean considering a vendor that offers both on-premise and on-demand solutions.

Quick definition of terms:

On-premise: the solution is on the desk top, available at all times, and sometimes more easily integrated into existing systems. A rich feature set is available and no functionality is sacrificed. Software updates are easily obtained. There are no extra fees for third party activity. 

SaaS, web-based, or on-demand: the solution is kept “in the cloud” and accessed through a user portal. It offers speed of deployment and an up-front cost savings. Updates and maintenance are done generally done as part of the service. However, certain maintenance procedures may involve extra fees.

If the same vendor is offering both solutions it is less likely additional fees will result and a migration path is assured if the one model is adopted and future business requirements show a need to change to the other. Retraining is not needed because the application is the same.

SaaS solutions have become more flexible and come with more features than they used to, but it is still worth weighing the pros and cons of each delivery method prior to choosing.

Resources for this post:

SMB SaaS Adoption: Road Bumps Ahead in 2008: SaaS Marketers Will Face a Skeptical Early Majority. Michael Speyer, Eric G. Brown, Emily Van Metre: Forrester Research, February 7, 2008.

Top 8 reasons why companies still shun SaaS. Thomas Wailgum, CIO, Network World June 7, 2008.

How to Make SaaS CRM a Success. Stuart Lauchlan:, June 3, 2008.

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