How much does it truly cost to own and operate an on-premises ERP solution versus cloud ERP software?
With so many factors to consider, making an apples-to-apples comparison of the total cost of ownership (TCO) is difficult, to say the least.
For any updated
Fortunately, the Yankee Group published findings from a survey that evaluated the TCO of on-premises versus cloud solutions over three to five years. The survey proved on-premises solutions require significantly higher investments in IT infrastructure, deployment and support.
The survey also shows that the TCO of on-demand applications is significantly better for SMBs and mid-market enterprises. To illustrate, the survey compared the TCO of a cloud vendor’s solution and the TCO of an on-premises solution for 20 users and for 100 users. After five years, the cloud vendor solution’s costs were half as much as those of the on-premises solution — about $300,000 vs. $600,000. Those costs included software, maintenance, IT infrastructure, application and support resources. While the TCO difference wasn’t quite as dramatic for a 100-user system — $700,000 for the cloud solution vs. $900,000 for the on-premises solution — the results still demonstrated that the cloud was cheaper.
“Care and feeding costs are where [cloud] solutions have gained a significant total cost of ownership advantage over traditional on-premises licensed software,” explains Larry Kennedy of New England-based Intente, a web design consulting business. “By reducing implementation, hardware, data center and people-related costs, [cloud] solutions offer a lower TCO than licensed software solutions. Further, integrated solutions that cover both front- and back-office application areas are much easier to use and efficient compared to several applications that have to be integrated.”
In other words, by eliminating the expensive support costs, midmarket enterprises benefit from a lower TCO with a cloud solution. In addition, the overall value provided by cloud solutions is significantly higher when you include the IT and service infrastructures that are behind the cloud. SMBs and midmarket users can’t replicate this value — even with a significantly higher investment.
With this in mind, here are six specific advantages of cloud ERP software, as outlined by the survey.
-
Faster implementation: Cloud solutions have a much faster implementation and ramp-up time. Reaching the point when the company has a productive use of the applications happens faster, which saves money.
-
Lower cost: Cloud software has much lower upfront and ongoing costs.
-
No IT support: Cloud software doesn’t require additional IT infrastructure for servers, networks, and storage and IT resources to support these. Cloud solutions also don’t require additional IT application support staff.
-
Better service: Cloud vendors have guaranteed service-level agreements.
-
Pain-free upgrades: Cloud vendors provide an enterprise-class infrastructure with appropriate servers, networking and storage systems, and are responsible for regular and more frequent application upgrades.
-
Top notch security and compliance: Cloud vendors perform regular customer data backups and required restores and are required to adhere to security and compliance requirements.
To determine the TCO of cloud and on-premises solutions, companies need to consider growth projections, the number of users, and, of course, the vendor. However, when it comes to this survey, the winner is clear — cloud ERP software costs less than on-premises systems.