Cloud-Based SaaS vs. Hosted On-Premise SaaS

When it comes to SaaS applications, enterprises can select whether they want to use subscription model (hosted online) or bring the SaaS application and host it on their own infrastructure. The following post explores the main differences, advantages, and disadvantages of both hosting approaches.

What is Cloud-based SaaS?

Cloud-based Software as a Services (SaaS) model is a way to deliver a cloud application to an end client; either via the internet or web browser. Typically, a company using cloud bases SaaS has to enter into a subscription based license agreement, which usually comes associated with a monthly or annual fee that depends on a level of selected service as well as a total number of users that will actively use the cloud SaaS application.

Cloud-based SaaS, very much like any other cloud service, is one of the most cost-effective ways for an enterprise to gain the instantaneous access to many of the available SaaS services. According to Forbes (Figure 1), among other cloud service models such as IaaS and Paas, the SaaS is the most highly deployed global cloud service model. “By 2018, 59% of the total cloud workloads will be Software-as-a-Service (SaaS) workloads, up from 41% in 2013.” (Forbes, 2017).

Figure 1 – Roundup of Cloud Computing Forecasts and Market Estimates, 2015 – (Forbes, 2017).

Benefits of Cloud-based SaaS

A company subscribed to cloud-bases SaaS application only needs to fulfill a single requirement, and that is, that all their users (computer or mobile) need to be connected to the Internet. Everything else is taken care of and controlled by the SaaS cloud provider, who fully oversees the application itself, data, runtime, middleware, O/S, virtualization, servers, storage as well as networking, application scaling, performance, security, and maintenance. Other benefits of cloud-based SaaS are the fact that the end user does not need to install anything, because the application runs in the cloud and also doesn’t have to worry about maintaining the application, simply because it always runs on the latest version (to an end user, all updates are automatic). The end clients of cloud-based SaaS also does not need to worry about any internal application development, deployments, or anything to manage on-premise and thus can fully focus their energy on the core business related tasks.

According to Multichannel Insights (, an enterprise that signs up for SaaS application hosted in the cloud, “does not need to install and maintain the software and neither has to worry about infrastructure maintenance or application scaling. Whether they have 10 or 10 thousand users, all of them will be able to use the same software”. (Knox, 2016).

What is Hosted SaaS?

The distinction between cloud-based and hosted SaaS remains a source of confusion, especially when it comes to SaaS application options associated with a hosted option. According to Jody Vandergriff, Startup Advisor and Cofounder of WebDAMin, “While some similarities exist, those are far outweighed by the distinct differences between the two, and it is important to distinguish what these are before you select an application provider.” (Vandergriff, 2010).

Hosted SaaS application is essentially the same as the one that can be acquired in the cloud, but it is packaged in a way, that allows the business to host it in their own on-premise environment.

Benefits of Self-Hosted SaaS model

The on-premise SaaS comes with some advantages, which are often the main reason why the business is going for this option. One of them is the option to have multiple instances of the software running on a different version and the ability to control which version will be deployed to production, which often comes with training related cost savings. Another benefit is that once the on-premise large upfront license cost is paid for, the other maintenance and upgrade fees are far cheaper. However, most companies that settle for this option are usually concerned with data privacy, data residency and other security requirements that may exist in their enterprise and usually want to offload such tasks to their own security departments. One of the overlooked reasons for the deployment on premise is also due to host factors because many big companies already heavily invested into building their own data centers and for various other reasons may want to continue to utilize the private on-premise infrastructure.

Differences between Cloud-based and On-premise Hosted SaaS

As we can see, the primary difference is in the licensing mode, where instead of a monthly or annual cloud-based subscription plan, a company hosting the on-premise SaaS application must pay a hefty upfront fee to get the full software license.

Cloud-based SaaS has no other than licensing requirements, whereas hosted SaaS requires a company to own their own data center or look for a location that can support the scaling and other future application demands.

An enterprise that wants to host the SaaS application must have their own IT services, that will be continually responsible for the application itself, data, runtime, middleware, O/S, virtualization, servers, storage as well as networking, application scaling, performance, security as well as application maintenance.

That said, on-premise SaaS is traditionally not the best option for small and midsize companies, simply due to a cost associated with running the application on premise, which is often much higher than a cloud-based subscription licensing fee.

Example of Cloud-based (subscription) and Hosted (on-premise) SaaS application

According to Atlassian, the Jira software “is a proprietary issue tracking product, developed by Atlassian. It provides bug tracking, issue tracking, and project management functions. The #1 software development tool used by agile teams.” (Atlassian, 2017). The difference between Cloud-based and on-premise hosted solutions can be viewed below in Figure 2 and Figure 3, which evidently illustrates the differences between these two options. We can see that there is a major difference in cost for subscription cloud-based model and highly expensive data center deployment. One thing to note, that in the case of Atlassian Jira, they do offer a data center edition of Jira that is optimized for AWS, which could be a preferred option for companies that already host their entire cloud environment in Amazon.


Jira Cloud-based (subscription)

Figure 2 – Jira Cloud License (Atlassian, 2017).


Jira On-Premise Self-Hosted (subscription)

Figure 3 – Jira On-Premise License (Atlassian, 2017).


Knox, J. (2016). Cloud Vs SaaS: What’s the Difference?. [online] Available at: [Accessed 2 Jul. 2017].

Forbes (2017). Forbes Welcome. [online] Available at: [Accessed 2 Jul. 2017].

Vandergriff J. (2010). SaaS vs Hosted, Part 1: The Differences are in the Design. [online] Available at: [Accessed 3 Jul. 2017].

Atlassian. (2017). JIRA Software – Issue & Project Tracking for Software Teams | Atlassian. [online] Available at: [Accessed 3 Jul. 2017].