Economics of Cloud Financial Software

Economics of Cloud Financial Software

by Feb 24, 2021Cloud Accounting

Accounting application software has undergone a revolution. Once restricted to on-premises solutions, now software is being deployed in the cloud. The difference between an on-premises solution verses a cloud solution is best defined by the differences in up-front costs, maintenance costs and more.

An on-premises solution requires the software to be installed on a computer or server. The additional costs is in the cost of hardware including licenses, maintenance, and security. Often leading to a larger upfront cost for deployment and overall additional cost for the life of the hardware.

On-premises solutions require regular maintenance, renewals of licenses, upgrades and patches to software. In addition, often this maintenance is required to take place in off or after hours. Which can lead to down time.

In our new post-pandemic environment, more organizations are looking to a cloud-based solution. The term “cloud” can be a little confusing with its nuances. Let’s explorer these variables.

First, a hosted solution is almost always “single-tenant”, meaning that each customer has his own version of the software and databases. They retain control over the installation, responsibility for upgrading and the cost associated maintaining the software. A single-tenant – hosted solution is often as costly as the traditional on-premises solution.

Next, we have “private cloud” which refers to an on-premises solution that is configured to run as if it is on a cloud technology platform. The customer owns the hardware, maintains all the licenses for the software and maintenance. The applications are accessed via an Internet browser, but to reach the data one still needs to be connected to the company’s network. The use of a VPN or other connecting platform is required.

Finally, there is the “multi-tenant” SaaS solution. These are newer products that are designed to be cloud-based from their inception. With a multi-tenant solution, there is usually one copy of the software that all customers share but the customer’s data is separated.

Unlike other software solutions, customers are not required to make large, upfront capital expenditures nor are they required to purchase expensive IT infrastructure because the software is running on the vendor’s cloud system.

In a study by TechVentive, customers who chose a multi-tenant solution over an on-premises application reported a savings between 40-60%. In another recent report by the consulting firm Booz & Co., noted that over a five-year period the costs of a cloud-based solution were 3.2x lower than on-premises solutions.

In summary, a cloud-based solution provides the following benefits:

  • Reduces the costs of hardware.
  • Reduces costs of IT infrastructure and staff or consulting services.
  • Provides increased security.
  • Eliminates costly upgrades and updates.
  • Ensures your system is always up to date.
  • The system is accessible from any device with an internet connection.

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