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The Pros and Cons of SaaS

Updated on May 21, 2014

The pros and cons of Software as a Service (SaaS) depend on the organization’s culture and business needs. Characteristics of SaaS that would be a benefit to one company are a negative quality for others. Let’s explore some of the specifics when considering the pros and cons of SaaS:

SaaS may be less expensive for some businesses because the pricing model is typically a subscription service based on the number of transactions (some have additional per-transaction fees), instead of an upfront licensing fee. Consequently, it is attractive to many SMBs with limited cash on hand. However, businesses of any size that have frequently-shifting priorities can struggle to fulfill long contracts; SaaS could be more expensive if the company changes vendors but continues to be responsible for payments to the original provider. Contract terms should be reviewed carefully during due diligence.

SaaS is also often touted as cheaper because the cost of purchasing and managing the underlying hardware and hiring the necessary IT staff is mitigated or eliminated, and this is often true for SMBs. But larger companies who already have the hardware and in-house IT personnel may not be able to streamline as a result of adopting SaaS due to other business concerns, and therefore will not realize this cost benefit.

Another consideration in regards to the value of SaaS depends on the type and amount of data that must be transferred in order to utilize it. If the company has to pay the service provider according to the amount of data transferred, costs could quickly get out of control. And although the organization saves money by not having to maintain the data, lost revenue from downtime could equal or exceed that expense, so it’s important to be able to trust the vendor with regard to downtime rates and how quickly they address service issues. Scalability may also come into play here: How many thousands of users will the application support, and where is the tipping point?

A benefit of SaaS businesses with entrepreneurial cultures is the ability to take advantage of innovative and evolving technologies for internal purposes, and/or to quickly launch new products for their customers. A variety of specialized software solutions with flexible contracts often works well for companies with rapidly changing business needs and/or a customer base that expects the latest and greatest. Deployment is fast and consumes fewer internal resources. However, organizations in which change is not particularly welcome may not find this feature as attractive. The agility of SaaS means that customization options are limited, which is a particular problem for businesses that are dependent on other software that may be stable but less robust than newer applications.

Companies that use SaaS can probably expect frequent upgrades, which often means better software. However, some organizations may dislike the lack of control they have over when and to what degree software updates occur. Backups and security are also handled by the vendor, and again, while some companies will appreciate this because they don’t have the resources to manage this themselves, others will fear the potential consequences should the vendor mishandle this responsibility, or simply have concerns about allowing a third party to access their data. Support for potential privacy and security issues that come up in the normal course of business is critical. For example, laws about data transfer and storage may change; mobile access to company data can be a privacy issue when personnel leave the organization. Regardless of their internal position on this feature, any organization conducting due diligence on SaaS should thoroughly review the vendor’s policies and procedures on backups and security and periodically check on these items throughout the life of the contract.

One potential problem of SaaS for any business is fear that vendors could discontinue services or even close down without warning. Companies evaluating SaaS solutions should be sure of contract terms that specify how hosted data is transferred back to the customer and decide which other vendors are appropriate alternatives in the event of either of these scenarios, as well as how best to protect the company should they decide to terminate the relationship with the vendor.

The pros and cons of SaaS depend on the needs of the business and the company mindset. Evaluating SaaS on its own merits in conjunction with the due diligence process of evaluating potential vendors helps project owners make the best decisions for their organizations.


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