Understanding the Difference between On-Premise and On-Demand Software

December 19, 2006 Appirio

It’s difficult to touch, feel or smell enterprise software. It in a package, but definitely not one that has a bar code and a price on it. When we ask “what does it do,” we’re asked in return “what do we need it to do?” Sometimes, the same question applies when one asks “how much does it cost.” This sales approach, combined with zero marginal cost for the provider, results in the software industry being fraught with idiosyncrasies. In such an industry, one of the tools all of us use to understand the ethereal notion of enterprise software is the analogy. While analogies can never prove a point, they help frame our view and make software more concrete in our minds.

Analogies can expand or restrict our view of a situation. In this image, do you see the people or the goblet?

Below we have taken a look at some of our favorite (hopefully humorous) analogies for On-Demand and On-Premise software. Yet there is a more serious point – your approach to solving business problems with technology is often about how you frame the question.

The past several years on-demand software has empowered line of business owners to sucessfully deploy siloed applications. Yet for CIOs, today the question is not how you wrestle back control, but how to embrace on-demand, allow lines of business to pursue their efforts, and manage the overall adoption of the technology in the business.

With that, we hope you enjoy some of our favorite entertaining analogies that frame the difference between on-demand and on-premise. In addition, we welcome you to add to our list.

Enterprises choosing on-premise software are like teenagers getting married. It’s not what you thought it was going to be, there are all sorts of unexpected costs and divorce (think “upgrades” or “migrations”) are both painful and inevitable. That’s why teenagers should focus on dating (on-demand)?

People try to compare on-Premise and on-demand to buying vs. leasing a car – as if either preference were equally valid. This analogy would be true if, when buying a car, you needed to take a special class that cost twice the price of the car, and every 3-4 years the car’s engine would require rebuilding while in motion; while when leasing a car, gas and insurance were included.

But isn’t it true that at some scale, its just more cost effective to buy software and manage it yourself? Sure, I think that was right under the headline of Wal-mart buying old nuclear reactors to provide power to their stores.

Long term contracts, uncertain performance and costly upgrades? Hmmmm, you’re talking about either on-premise software, or the New York Knicks.

Security, quality control, our large size, the need to customize things for our unique needs and the cost of buying things each month… those are the top reasons for using on-premise software… or deciding to buy seeds and grow all our own food.

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