Deciding on technology tools to automate a business is a hard task. Since cost is a crucial deciding factor, here’s how to make a smart choice between two low cost options to automate your business.

Ever gone shopping and got confused between two gorgeous outfits. Most of us would then look at the price and pick the one easier on the pocket. What if both the outfits happen to have an attractive price? It is added confusion; you might need a second or third opinion. Companies choosing between business applications often find themselves in just such a dilemma. While striking out the big software projects with tortuous installation and configuration cycles is not a difficult choice, deciding between two equally promising low-cost options – open source and software as-a-service (SaaS) – is a tough call.

SaaS or Software as a Service allows you to hire software applications or tools only as and when there is a requirement for them. Open source technology, on the other hand, is technology for which the source code or the main set of instructions of the software is available to the public, allowing anyone to modify it as per their needs. Besides, it is free of licence costs.

A comparative picture

So, how does one decide between two low-cost options? A comparison based on cost, flexibility, security and implementation ease could help one take a wise decision.

Cost: When you compare the costs associated with open source and SaaS, the ability to reduce or eliminate the costs linked to hardware, IT support or staffing, upgrades, software maintenance, deployment and scaling, are crucial factors that work for or against a particular purchase decision.

Capital investment: SaaS provides its users rapid deployment with no up-front capital investment. “Businesses can leverage the service without any upfront capital investment. They can essentially pay on a subscription basis and scale their usage pattern based on the demand they see internally or for external facing applications. As a result, the price points are pushed lower, besides being based on the ‘per-user’ model,” says Shreekanth Joshi, associate vice president, SaaS and Cloud Computing, Persistent Systems. “SaaS offers the customer accessibility. This is in terms of affordability and the low entry barrier. Besides this is ease of use, intuitive and pre-built industry ready solutions that help customers achieve quick time to market, and quick adoption of new technology with zero risk,” adds Prakash Kandaraj, head, Sales and Marketing, BIRetail India.

Open source solutions, on the other hand, allow companies with limited IT budgets to use the latest applications because of the absence of licensing costs. However, open source applications can require some additional legwork to make the solution fit an organisation’s needs. This could result in added costs associated with installation, configuration, customisation, back-up infrastructure, disaster recovery, etc.

Monthly costs: For a small deployment or short-term implementation, SaaS is cost effective with fees that can run as low as Rs 500 per user per month. Because SaaS is a service, there is nothing to install or maintain and hence there are little or no overhead costs. Also, support is generally included in the monthly fee. For open source solutions, however, there are the added costs of upgrades, enhancements, support and IT personnel, all to be borne by the user.

R Sukumar, general manager (sales), Ramco OnDemand ERP, rightly states: “The immediate availability and the swift templatebased implementation ensure SaaS has a huge advantage in terms of cost. SaaS almost has little or no overhead, thereby making the cost of switching very affordable. However, if we analyse open source, we would be compelled to consider the fully loaded costs involved in maintenance, dealing with problems, correcting failures, and support. Many people are drawn by the fact that open source comes for free, along with the options to upgrade to support editions, if required. However, they fail to realise the burden these free editions place on their IT infrastructure. SaaS support costs are usually minimal; in fact some models come with zero support costs.”

Suitability as per the number of users: For a company planning to use several applications or with a large user base, open source wins over SaaS hands down. In short, open source is cheaper in the long term. “Companies using open source solutions enjoy huge cost benefits if their number of users go higher. In the SaaS model, you need to pay a monthly or annual fee, which is a recurring cost. This can be a huge financial burden for growing companies. Let us make a simple comparison of Salesforce vs. SugarCRM. Both have similar functionalities. The Salesforce Group version for five users costs around Rs 1500 per month and, that too, with limited functionalities. If SugarCRM is implemented, the cost can be recovered in a matter of six to eight months,” says Ismail Shaik, director, KTree Computer Solutions.

Nature of usage: Manav Promoters, a Pune-based developer that uses the Pentaho BI application (an open source business intelligence app) and with plans to implement Openbravo and SugarCRM (open source ERP and CRM respectively), couldn’t agree more. “SaaS, I feel, is cost effective if the implementation is over a short term. I would lean towards SaaS if we were evaluating a solution that is complex to install. However, since I am planning to use the applications over the long term, I preferred open source. The other aspect is that while installing an application in-house, I can leverage the same platform for multiple applications and bring the cost down further. Also, my business requires a high degree of customisation, which may not be possible if I use SaaS,” says Rupesh Banthia, director, Manav Promoters.

Flexibility: In terms of flexibility, open source is believed to have an edge over SaaS as it is easy to customise. “An open source solution or application can be tweaked or changed to suit one’s business processes. Thus one isn’t locked into one technology or vendor, allowing one to migrate easily to other technologies,” says Shaik. An example of the flexibility advantage open source offers can be seen at Smartequitysales.com – a provider of mortgage-based software systems. The firm earlier used a SaaS-based module of SugarCRM. However, the software was not flexible enough and the firm could not add its own industry-based work processes to the CRM application. Further, it did not own the data in its servers, which was an issue for the company. All this made Smartequitysales.com switch to open source entirely.

In the SaaS model, many organisations have access to the same solution. This renders intricate customisation or alterations impossible, making the model appear rigid. While some SaaS solution providers stress on choosing an application or tool closest to your intended usage requiring little or no customisation, others like Aurigo Software Technologies and Ramco Systems claim to have conquered this problem. “Since SaaS is in the cloud, it can be thought of as less flexible, but when choosing a SaaS vendor it is very important to select a vendor that has built solutions to be flexible and extensible. There are premier SaaS solutions that allow any company to tailor the application to suit their needs. The tailoring is possible in many ways, most of which do not require any technical capabilities,” says Kevin Koenig, V P, product management, Aurigo Software Technologies. Vouching for the ease of customisation S Badrinarayanan, V P, Real Talent Engineering, says: “The SaaS solution we have adopted is more flexible than most ERP solutions. ”

Quick deployment: SaaS boasts of speedier deployment than open source as SaaS is already deployed and users merely access an existing infrastructure that can be provisioned to support a growth in the number of users. Some service providers claim that they can get the system up and running in less than two days. This gives the client the liberty to use the services to test the waters, and maybe switch to other service providers later. “Our SaaS-based ERP application was implemented in a period of 12 weeks. A detailed implementation plan combined with frequent project reviews, thorough understanding of business processes by the consultant team, well organised master data collection and well planned end user training are few of the key success factors for the short implementation time. For us, it was a seamless transition from legacy to SaaS-based ERP,” says Badrinarayanan.

With open source, however, quick deployment is not often possible. “In the case of open source, hardware needs to be purchased, installed and configured. Knowledge about the open source application needs to be gained to support the deployment. In addition, providing a highly available solution is complicated and requires a deep understanding of IT environments, which most companies don’t possess,” says Koenig.

Security: Compared to open source, data is less secure in SaaS. “The issue of data ownership comes into play if the data is highly confidential or if there are legal constraints about it leaving the premises, in which case an open source application hosted within the company data centres would be preferred,” says Himanshu Sharma, founder, BusinessInsights Consulting.

In the SaaS model, companies are insecure about their data’s vulnerability as the data is not stored within their own premises. SaaS vendors believe they have overcome this problem by ensuring information security at every level. “As long as the SaaS vendor is SAS 70 Type II certified, any company should feel comfortable with deploying its mission critical data in a SaaS environment. For instance, numerous Fortune 100 companies are already seeing significant benefits from SaaS deployments of CRM. Thus, data security is no longer an issue,” says Koenig.

Is a hybrid the way out?

Some people believe a hybrid model will emerge. This could be either SaaS vendors creating solutions based on open source or open source vendors using the SaaS model. This could be the best way for businesses to benefit from the best of both worlds. “With a hybrid model, businesses can get features they want but aren’t available in open source or SaaS separately. For instance, in a hybrid model, the vendor takes care of data back-up, upgrades of software and systems, etc, so the company doesn’t need a full fledged IT team. But with an open source solution, a small team is needed to support the implementation, resulting in maintenance being an issue,” says Shaik.

In a nutshell

Whether it is open source, SaaS or the hybrid model, each brings unique advantages that may be more applicable in certain circumstances. If a business has a larger user base and volume of data, a hybrid model will help them enjoy the benefits of the SaaS model with little expenditure on infrastructure. On the other hand, if you don’t want to do the development on your own and be hassle free, SaaS might be a better choice. But, for some with unique business processes or those in verticals like mining, integrating a SaaS model with an existing system might be difficult. In such cases, open source is a better option. If you have technical expertise in-house, then open source would be ideal.