Business Fortune: SaaS vs On-Premise Software Costs Security

SaaS vs on-premise software compared on pricing, security and scalability, using 2026 data from Verizon, IBM, Flexera, Zylo and Vertice.

SaaS vs On-Premise Software: A Cost, Risk and Scalability Analysis in 2026

Whilst there is no doubt that software purchasing trends are shifting to the cloud, with spending on public cloud services expected to rise by 21.3% in 2026 and projected to hit $1.48 trillion in 2029, this year’s data shows how both models, SaaS vs On-Premise Software, can be wasteful and leave you vulnerable.

In short, SaaS software offers you ease of use, but you pay for the software through a subscription, the vendor will handle infrastructure and updates and you’ll have scalability. On the other hand, On-Premise software is the opposite of all 3. Below we’ve tested how these factors compare using recent data from Verizon, IBM, Flexera, Zylo and Vertice.

What is the difference between SaaS vs traditional software?

According to NIST, the definition of cloud computing is a clear distinction. SaaS means that you’re using an application hosted on your providers’ cloud infrastructure. There is no control over any underlying layer. As resources are shared between multiple customers, you’ll have a single piece of code. On-Premise software is hosted on your own or rented servers. The software will be installed, updated, backed up and scalable by your own employees.

It’s more about the people doing the work as opposed to the location itself. If you’re running an old application on a rented virtual machine, it will still act like traditional software as your team will handle updates and scalability. Cloud software vs On-Premise software is about dividing up responsibilities. SaaS is simply about who is doing the work compared to traditional licensed and installed software.

SaaS vs on-premise at a glance

Factor	SaaS software	On-premise software
Cost shape	Recurring subscription with a small start-up outlay	Large upfront outlay, then refresh and upkeep
Where money leaks	Unused seats and renewal increases	Idle capacity and hardware refresh cycles
Who applies patches	The vendor	Your team
Who owns logins and data settings	You	You
How capacity grows	On request, billed as it grows	Ordered, installed, then available
Where data sits	Within the vendor's available regions	Wherever you place it
How deep customization goes	Within the vendor's settings and APIs	Down to the code and the server

SaaS pricing and costs

On-premises software will have an upfront cost including licensing, server, hardware, storage, networking, plus electricity, heating, back-up, disaster recovery and staff hours costs. As hardware ages this becomes a large one-off cost. Subscription models help to spread these costs over months improving cashflow in year one compared to traditional software.

However, during renewal periods, this can be a problem. According to Vertice, the platform used to purchase software, SaaS software costs inflation hit 16.4% in June 2026 - the highest ever recorded. In addition, 79% of IT leaders have seen an increase in price during the last renewal period according to Zylo's 2026 SaaS Management Index. Usage-based contracts are becoming increasingly popular with 36.5% of contracts being based on this model compared to 32.4% being per user in Q2 2026. This has been highlighted by Vertice, reducing the predictability of SaaS software that many were attracted to.

Unused software can create significant waste. Zylo found organisations have an average of 305 SaaS apps with $19.8 million in licences going unused yearly. Only 54% of licences are being used. In addition, infrastructure is also creating waste.

Neither solution is free of waste. On-premises will have waste but it is in the form of unused servers. SaaS will have waste visible on the invoice. It really boils down to whether your team can identify and plug the leaks.

Security

Whilst this data doesn’t specify security issues for SaaS vs On Premise, it does show areas where there are security risks. Verizon’s 2026 Data Breach Investigations Report looked into 22,000+ confirmed breaches in 145 countries.

SaaS security

An advantage of SaaS is that the infrastructure and patching is controlled by the vendor. However, everything else is controlled by the customer. According to Motorola Solution’s SaaS shared responsibility documentation, data classification, policy governance and application configuration is controlled by the customer. Identity management is shared between the two.

This can lead to problems. Third party involvement (not just SaaS vendors) was involved in 48% of breaches, this is a 60% increase on the previous year according to Verizon. Only 23% of third party organisations completely resolved missing or inadequately set up multi-factor authentication on their cloud accounts, according to SecurityWeek. This is due to poor login details and permissions which are controlled by the customer.

On-premise security

On premise will give you complete control over your data, configuration and access logs. This can be useful if the organisation is heavily regulated or needs an air gap. However, it puts them at risk of not being able to patch quickly enough. Exploiting vulnerabilities became the main cause of gaining access to networks for the first time in the 19 years the report has been running with 31% of breaches caused by this. This has increased by 11% from 20%. The median time to completely patch vulnerabilities has increased to 43 days from 32 days. Only 26% of the vulnerabilities listed by CISA were completely remediated. As the software is being run by you, you will be responsible for the patching.

The cost of a breach can be significant. IBM’s 2026 Cost of a Data Breach Report states the average global breach costs $4.99 million and the U.S. average at $11.5 million. It really boils down to which team can patch quicker and have good login policies.

Scalability

There are two types of scalability.

SaaS scalability

Speed is an advantage with SaaS. One of the 5 fundamental characteristics of cloud computing is quick elasticity according to NIST. This means that when you look at SaaS, you can scale up more seats or usage tiers without needing to order any servers. However, this will increase the cost on your invoice. Every time you add another subscription to your portfolio of 305 apps, you will have more renewals, integrations and admin to do.

On Premise Software scalability

On premise will have staged scaling. You will need to order, rack and configure to scale up. This means you will purchase more than you need for peak times. If you have a steady workload this won’t be an issue, however if you have a workload with peaks it will be costly.

However, elasticity can cause issues. 4723 outages were logged for 86 cloud providers in the first half of 2026 according to IncidentHub. This includes any incident that was published to a status page. This means your SaaS customer will have the same uptime and dependencies as the vendor.

When is On Premise a good option?

If location is a legal requirement. Gartner predicts global sovereign cloud IaaS spending will increase by 35.6% to $80 billion in 2026. They also expect 20% of current workloads to move from global providers to local. Many organisations want full control over where their data is held, but many are using a local cloud.

If you have steady workloads, lots of customisation required, air gaps or you already have people in place to patch quickly then On Premise is a good option. Otherwise, cloud based solutions will save your team 43 days of a task they need to complete on average.

How to Decide Between SaaS and On-Premise?

Most situations will require you to consider:

Changing demand.

If your demand has lots of spikes or is growing quickly, it makes sense to consider how scalable your software is and choose a SaaS solution. If your demand is static, this isn’t an issue.

Patching.

If it would be difficult for your team to patch as quickly as the vendor, then it would make sense to choose a rented solution. However, if they can patch as quickly and it is important to have control then an on-premise solution would be better.

Cost to exit.

Before committing to any solution, work out how much it would cost to leave. This includes how the data can be exported, auto-renewals and cap on increases.

A hybrid solution can be a good option. A cloud based solution for commodity tools and on-premise solutions for regulated or highly customised systems.

The debate around SaaS vs on-premise can often come down to new vs old. However, looking at the evidence from 2026 we can see it is a risk versus risk situation. Using cloud-based software solutions means you won’t have to worry about hardware or patches but you will have to pay for unused licenses, increases on renewals and outages from the vendor. SaaS costs and pricing should therefore be considered. On-premise gives you complete control and you will have the patch race in your control.

Business Fortune asks readers to consider your changing demands, ability to patch and cost to exit. Make sure you review at each renewal.

FAQs

1. What is the difference between SaaS and on-premise?

SaaS is hosted and run by the vendor. You pay a subscription to use the software. On-premise is installed on your own or rented servers. Your team will handle patches, back-ups and capacity.

2. Why do businesses use SaaS instead of on-premise?

This will reduce initial costs. There is no hardware to replace. Patches are managed by the vendor. It is scalable (on-demand). However you will face issues with increases on renewals (79% of IT leaders faced this according to Zylo in 2026) and unused licenses.

3. When should a business move to SaaS?

If you are facing hardware replacements or renewal of support, large amounts of patching backlogs, remote teams causing extra strain on your network or changing demands to make SaaS scalable. However if you are facing requirements due to data residency, highly customised or air-gapped systems then you should hold off.

4. Is SaaS more secure than on-premise?

No, it doesn’t make it more secure. How secure your SaaS is depends on how quickly the vendor can patch and how secure your logins, permissions and data are. On-premise gives you complete control but you will have the full workload of patching.