How do I choose between On-premise, Private Cloud, Public Cloud or Subscription Licensing for SAP Business One?

Selecting the right ERP solution for your company is not an easy task. In addition to finding the software that has the features and functions that meet your business requirements, you must also decide which vendor has the knowledge and experience to deliver the benefits that the new project will bring.

But that is not all. There are other decisions.

Should you have your own server in the office? Is it secure to have a cloud solution? Should you go with upfront investment on the software or should you choose to pay-as-you-go? Which option is more cost effective in the long term?

If you are evaluating SAP Business One as your ERP solution, these are the options available;

  1. On-premise SAP software licensing with on premise server
  2. On-premise SAP software licensing with private cloud hosting
  3. Subscription SAP licensing on the cloud

We have listed some frequently asked questions to help you with the decision.

Question 1 : It is my company’s policy to have the physical server in my office, which option is applicable and what other factors do I have to consider?

This is straight forward – you can only go with on premise software licensing (option A). There is a one-time investment on the SAP software licenses and an annual recurring fee that includes the new SAP support releases as well as maintenance coverage.

As this is a perpetual software licensing, in the event where you stop paying the SAP annual maintenance you can continue to use the SAP software in its current version.

Different SAP vendors offer varying scope of service for the maintenance fee. You need to find out more on what the fee includes.

As you are maintaining your own SAP server, you may want to consider these;

  • Data back-up : ensure that you have off-site back up of your data. And don’t forget to test the back-up solution regularly.
  • Down-time : what if your server fails? Can your company afford any system down time? You can consider having a second server in your office, or subscribe to comprehensive disaster recovery service that enables some/all users in your company to switch to the recovery server.
  • UPS : in the event where there is a power outage, you need to have a back-up power supply for the server.
  • Replacement of server : a general guideline is to replace your server every 3 to 5 years, so do not forget to include this in your IT budget.
  • Security : data security is in your hands. Ensure that you have security policies and procedures to protect your IT infrastructure against virus and ransomware threats.
  • IT team : if you do not have internal IT team to manage the server, consider a 3rd party managed services contract to look after your SAP server/systems.
  • Mobile and remote users : if you have users who are on the go and would like to use SAP’s mobility application, you will need to setup security certificates. To connect users who are not in the same office where the physical server is, you can set up VPN private hosting from your office.

Question 2 : What is the difference between private cloud hosting (option B) and subscription cloud (option C)?

The main differences between the two are;

  • Private Cloud Hosting

    For private cloud hosting, the investment of the SAP software licenses is upfront (CAPEX).

    This is similar to the on-premise option described above, the difference is you engage a company to host your SAP software i.e. you do not have to worry about the SAP server, UPS, data back-up, failover, security patches and so on. You pay a recurring hosting fee and the amount depends on the scope of service – redundancy and failover, secure connection, volume of data, number of users etc.

    As the SAP software is based on perpetual software licensing; you can continue to use the SAP software in its current version in the event where you stop paying the SAP annual maintenance.

    If you stop paying the recurring hosting fee, you can move your SAP data to an on premise server.

  • Subscription

    There are many names for this option – subscription, SaaS (software as a service), pay-as-you-go and SAP public cloud.

    In this option, the software licenses, annual maintenance, hardware and cloud hosting are all bundled into one fee. In the event that you stop paying the subscription fee, you cannot login to the SAP software. If you would like to have records of the SAP data, you may export the data to Excel records, or in a format that can be imported into another system.

    As this is a subscription model, it is considered as operating expenses (OPEX).

Question 3 : Is a cloud solution stable and secure (options B and C)?

This depends on the company that you engage for the hosting services/ cloud solution.

There are vendors who purchase equipment and host your application in their own premises. This may be an attractive low cost solution, but it does not have the security that a data centre offers – like physically secure environment, multiple network bandwidths and geographically diverse fibre connections to the internet, as well as generators that will keep the servers going for many hours in the event of a power cut.

A modern data centre service provider should ensure that your application has ‘high availability’. In other words, if the server breaks down, the system automatically ‘fails-over’ to another server while the first is being repaired. The vendor should also have a team to monitor the infrastructure for service uptime and security threats, ensuring 99.9% uptime of your ERP system.

Question 4 : Is on premise solution (option A) faster than cloud solution (options B and C)?

In general, applications that run locally on the server in your office will be faster than a cloud solution.

Having said that, the processing of most functions on ERP application are handled in the processor of the computer and not on the user device. For example, the MRP run or a complicated calculation of a report is taking place in the processor of the server and the response time is not affected whether it is a local server or if the application is on the cloud.

It is the retrieving and refreshing of data on the user device that may affect the response time. The connectivity speed in Singapore is one of the fastest in the world, and will continue to improve with the government’s push towards digitalisation for the future economy. For customers who wish to connect to offices or plants around the region, there are cross-border network connectivity options in the region to provide lower latency connections to other data centres beyond Singapore.

Question 5 : There are many cloud hosting offerings – AWS, Azure, cloud vendors. What are the differences and how do I choose?

This post specifically addresses cloud hosting of the SAP Business One application – and not hosting of mail servers, backup, storage or customized developments.

AWS was first launched in 2006 and covers the hosting of a wide range of applications, including open source systems like Linux. On the other hand, Azure was launched in 2010 and started as a Microsoft-friendly environment and good for companies looking for simplified single sign-on connection of Microsoft applications like Office 365, SQL and Windows based developments.

Whether you choose AWS or Azure, do you have an IT team to manage the SAP environment? If you are relying on your SAP vendor to maintain your SAP system on AWS or Azure, you need to ensure that they have the experience in specifying the environment as well as fine tuning the performance of your SAP cloud application.

AWS and Azure are not the only cloud offerings available. Specialists partners like Inecom offer SAP cloud hosting services at very competitive prices and the infrastructure is optimized for the HANA cloud application. The solution includes templatized installations that can be deployed rapidly, and at the same time, can be tailored further to meet your industry’s requirements.

Question 6 : Which is more cost effective of all the 3 options above?

On premise software licensing and private cloud hosting (options A and B) have a higher up-front investment whereas the investment for subscription (option C) is lower in the first year. Conventional wisdom says that over time, the subscription model is more expensive as compared to the other two options.

There is no one-size-fits-all guideline. These are the factors you may want to consider;

  • If you are a start-up company, the subscription model will be more attractive as it has a lower upfront investment amount and will not tie up your cash flow.
  • If you need smaller number of SAP users, like less than 10 users, having an on premise server (option A) is more costly than the cloud options as you have to budget for the server costs, IT staff cost, backup, failover and other related hardware costs.
  • For accounting and tax purposes, some company may choose the subscription model as it is considered as operating expenses instead of capital expenses (OPEX vs CAPEX). You may want to discuss this with your accountants and tax advisors.
  • If you are looking at government incentives and grants to increase the productivity of your company, the ‘qualifying costs’ of the software licensing, hardware, subscription fees, service costs are different.

Still cannot decide which option to choose. Contact us now to find out how Inecom can help.


Related links:
Everything you need to know about ERP Cloud Hosting

SAP Business One SQL vs HANA
SAP Business One with PSG & EDG Government Grants (Updated 31st March 2023)

Find out more about SAP Business One On-premise and Cloud Options