The difference between Cloud ERP and on-premises ERP

Cloud-based computing (also called Software as a Service, or SaaS) allows users access to software applications that run on shared computing resources (for example, processing power, memory, and disk storage) via the Internet. These computing resources are maintained in remote data centers dedicated to hosting various applications on multiple platforms.

Cloud ERP Software is Software as a Service that allows users to access Enterprise Resource Planning (ERP) software over the Internet. Cloud ERP generally has much lower upfront costs, because computing resources are leased by the month rather than purchased outright and maintained on premises. Cloud ERP also gives companies access to their business-critical applications at any time from any location.

While technically the only difference between Cloud ERP and on-premises ERP is where the software is physically located, there are other significant differences. Here we explain some of the key characteristics and advantages of Cloud ERP software.

The Cloud is particularly valuable to small and medium-size businesses (SMB’s) because it provides access to full-function applications at a reasonable price without a substantial upfront expenditure for hardware and software. Using the right cloud provider, a company can rapidly scale their business productivity software as their business grows or a new company is added.

The Benefits of Cloud Computing

Cloud manufacturing software has been proven to reduce costs in many ways because it:

• Avoids upfront costs for all computing infrastructure such as hardware and data servers
• Reduces ERP support services because IT support is provided by the data center
• Eliminates paying upfront for application software licenses in favor of a monthly fee
• Shrinks the cost of maintaining and supporting those applications since the cloud vendor handles the updates and upgrades

The most important benefits of Cloud ERP go beyond cost-savings and include:

• Paying only for the computing resources needed
• A fixed monthly rate so companies can use their cash on other business initiatives
• Taking advantage of Cloud ERP applications faster since installation of hardware and software on servers or user devices is not required
• The ability to adjust the amount of cloud service as a company’s computing or storage needs fluctuate
• Enjoying the confidence that the data has been backed up and there is a disaster recovery plan
• Avoiding attacks on the company’s server because the data in not stored locally, but in the cloud
• Accessing the accounting system from anywhere makes it easy for a company to expand geographically since the Internet is everywhere and there is no need to implement hardware and software at remote locations

At its most basic, cloud computing is all about renting processing resources and storage rather than buying and maintaining them in-house (on premises). It may come as a surprise to some, but this is not a new concept. In the 1970’s, service firms used large mainframes to run applications and provide data storage for other companies that would rent those computer resources and storage space. This was called “time-sharing”.

Time-sharing was expensive and fell out of favor once the price of computers dropped and companies could afford to buy and maintain their own systems. For the last few decades, companies have been buying, installing and maintaining their hardware and software in their own facilities.

Fortunately, new technologies have been introduced, such as widespread Internet availability, low cost of mobile devices, expansion of computing power, and massive storage availability. Technology has improved to the point that very high functioning applications can safely and securely run remotely on computer hardware hosted remotely. This eliminates the need for individual companies to deal with hardware issues and allows their employees to work anywhere at any time.

Clearing the confusion from buzzwords around the cloud

Talk about the Cloud is everywhere, and so are cloud buzzwords, which can result in confusion and misconceptions. Here is a brief discussion of the more common terms:

Licensing options: Purchase or Subscription

• Purchase (or Perpetual): These terms refer to when a company BUYS a software license. The company pays to owns the license and also pays an annual maintenance fee for upgrades.
• Subscription: The company pays an annual or monthly charge to use the software license. Upgrades to the software is usually included in the subscription price.

Deployment options: On Premises, Hosted, or SaaS

• On Premises (or In House): The company is responsible for the infrastructure (hardware, system software, communication hardware, software on user devices, etc.) and the deployment of the application software (implementation, support, upgrading, etc.)
• Hosted: The company or hosting provider buys a license for the software. The hosting provider manages most, if not all, of the infrastructure and software deployment as described above. The hosting provider can be an independent company or a division of the company itself. Hosting is one way to outsource IT operations.
• Software as a Service (SaaS): This method of deployment is a combined software licensing and delivery model in which software is licensed on a subscription basis and hosted by the software provider, all for a single price that is typically a fixed amount. In many cases the software provider uses a Public Cloud for the hosting.

Private Cloud and Public Cloud

• Private cloud is privately owned and maintained by the company or a hosting provider. Based on business requirements or regulations, sometimes this may be the only option (view datasheet).
• Public cloud is owned by a service company, such as ERPNext, IBM or Amazon. The service provides all the hardware, load balancing, backup and security.
• Hybrid cloud is a blended approach with a mix of on-premises, private cloud and third-party, public cloud services.

Multi-Tenancy and Single-Tenancy

• Multi-tenancy is where the CRM Cloud software provider has single instance (version) of software on a server and serves multiple tenants (customers) simultaneously.
• Single-tenancy is where each customer has their own application and data base.
• Cost Savings
  • It is believed that multi-tenancy reduces the cost for the software provider, which is absolutely true for cloud apps that are quickly purchased and downloaded like Pandora, Facebook, etc.
  • For Cloud ERP, the cost savings are insignificant when compared to providing the server hardware, operating system, and database; development of the very sophisticated ERP programs; sales and marketing required; and on-going support.
• Flexibility is reduced when you share the same program with many others. The impact may be loss of control in:
  • Customization and tailoring
  • Upgrading schedules

Thin Client and Web Services

• A Thin Client, in cloud terms, is any device (PC, tablet or phone) that requires NO application or communication software to be downloaded. Any thin client can access the application from anywhere, similar to a web page.
• Web Services are simply application components. They are designed for and used on the Web. Common examples are apps on a mobile phone, such a weather app. Business applications may include zip code look up, sales tax calculation, or much more sophisticated applications.

Note: ERPNext can run either as multi-tenant or single-tenant, be deployed in the cloud or on premises, and can be licensed either by subscription or purchase, depending on each customer’s needs.