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Understanding the Differences Between On-Premise vs Hosted vs SaaS + How to Pick the Right Choice for Your Ecommerce

Susan Meyer / 10 min read

Understanding the Differences Between On-Premise vs Hosted vs SaaS + How to Pick the Right Choice for Your Ecommerce

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If you’re running an ecommerce business, there will likely be times when you need to find a new ecommerce platform. 

Perhaps this is because your needs as a business have changed and your current platform can’t scale with your growth. Or perhaps, like many thousands of active stores, you’re on a platform like Magento 1 that stopped being supported in June of 2020. 

Much of choosing a platform and creating your ecommerce site comes down to making an endless series of choices. One of the first choices you will make is how to host your site. 

This decision will impact what your staff looks like, where you invest your resources, how much control you have over your servers, how much maintenance you have to handle, your site performance, and more. It’s good to know your options and what they can mean for your site. 

You likely hear these terms bandied about as options.

  • On-premise
  • Hosted
  • SaaS

Let’s dive into what these options mean and how to choose which is right for you. This is information that you can consider whether you are choosing your first ecommerce platform or making a major decision about switching.

The Main Differences Between On-Premise, Hosted, and SaaS Ecommerce

Let’s take it back to website hosting 101. Websites of all kinds are hosted, or stored, on special computers called servers. That makes it possible for your online store to be accessible to shoppers through their web browsers.

So when we talk about the different options for hosting your ecommerce website, we’re really asking: where do you want those servers to be located? And how do you want to handle paying for them?

  • On-premise ecommerce: Originally this meant your ecommerce website would be hosted on servers on the same property where you run your organization and operate the software. However, today this term is really synonymous with “self-hosted.” This means even if you use an external hosting provider for your servers, it is still referred to as on-premise.
  • Hosted ecommerce: Often referred to as cloud-hosted or PaaS (Platform-as-a-Service), in this model you outsource the hosting of your website to your ecommerce provider. They operate your website on their servers for a cost in addition to the cost of licensing the software.
  • SaaS ecommerce: SaaS stands for “Software as a Service.” With this option both the software to run your site and the hosting are included in one monthly fee and handled by the same company.

The difference between on-premise systems and the other two options are pretty obvious. However, confusion can often creep up on the difference between cloud hosting and SaaS. The main difference is what you have to manage yourself versus what is handled for you.

This chart shows what you are responsible for handling with the different hosting options (here, on-premise ecommerce solutions are referred to as “self-hosted.”)

How the Cloud Works

Source: Bastian Solutions

Examples of On-Premise, Hosted, and SaaS Ecommerce Solutions

Now that you have a basic understanding of the key differences, let’s look at some examples of possible solutions that fall in each category.

There are a seemingly endless array of ecommerce platforms to choose from, but some of the biggest names include Magento, WooCommerce, BigCommerce, and Shopify. Let’s look at where these solutions fall in terms of hosting.

1. On-premise.

Magento has two main options. One of these is Magento Open Source, which is free to download but will require hosting somewhere. You can choose to host it on-premise or pay a hosting provider. In fact, most open source ecommerce platforms can be deployed on-premise or through a third-party hosting provider.

Woocommerce, a WordPress plugin for WordPress, is also an ecommerce solution that is often hosted through a third-party hosting provider, although it can also be hosted on-premise on your own servers with some technical know-how.

2. Hosted.

We mentioned above that Magento has two options. The second one is Magento Commerce Cloud which is a premium version of Magento Open Source that can include hosting as part of a monthly fee (although it’s also still possible to host Magento Commerce on-premise).

However, while hosting is handled by this fee, other aspects of the platform deployment are still handled by you, the business. For example, when Magento creates a security patch or update, it is up to your IT team to implement it.

3. SaaS.

Where SaaS differs from the above is that you are essentially renting both the software and the hosting from the same provider. Two examples of SaaS providers are BigCommerce and Shopify. These platforms automatically make updates for you, so you always have the latest version without worrying about maintenance.

These platforms can provide a high level of performance, so you don’t have to worry about changing hosting providers as your business scales up. It’s all included in your monthly fee.

Pros and Cons of On-Prem, Hosted, and SaaS

These different options all have different advantages and disadvantages. Choosing the one that’s right for you will largely depend on your business size, budget, and specific challenges and concerns.

1. On-premise ecommerce.

We established above that open source platforms like Magento can be hosted on your own servers or by a third-party hosting provider. What are the advantages and disadvantages of having your website hosted right in your own backyard, so to speak?

Advantages of on-premise ecommerce

By hosting your website on your own servers on-premise, you have access to them all of the time. You also own something physical, so if that’s important to you, it’s worth considering. Even if you go with a third-party provider, you still have a lot of control over how your site is hosted. Here are some of the other reasons people may opt for self-hosting.

1. Performance.

The performance of your servers is in your hands. Depending on the skills of your network and systems administrator, you can boost performance right when you know you’ll need it. That said…you’ll see performance is also on the con list, which we’ll get to in a moment.

2. Control.

You have control over your platform’s source code. You can make the customizations and modifications necessary. Of course, this is again dependent on the skills and the time your team has to devote to it.

Disadvantages of on-premise ecommerce

While self-hosting on your own servers or through a third-party can give you the ultimate control, there are some downsides to that control. For starters, when something goes wrong, it’s also all on you. And even when everything is operating smoothly, it’s still on you and your team to maintain.

1. Infrastructure.

You were excited about owning your own equipment, but that equipment is both expensive to set up and maintain and requires replacing or upgrading every few years.

2. License fee.

Even if you’re the one hosting your website, you will still likely pay a license fee to your ecommerce platform. As mentioned above, Magento Open Source is free to download and use, but Magento Commerce, even when hosted on your own servers, has a license fee that starts (according to Magento partners) at $22,000 a year for merchants making less than $1 million in GMV. Licensing fees can go up as your business grows, so scaling up can get expensive.

3. Performance.

Performance can be both a pro and a con because, while you have complete control over it, you are also limited by your own infrastructure or that of your hosting provider. Hosting providers have access to content delivery networks, which are geographically distributed networks of servers and data centers. You don’t have to worry about a bad flood in your server room knocking out your whole system. That said, with hosting providers you get what you pay for, and you should be wary of bargain basement providers. If you have high traffic needs and need a reliable secure system, you will need to budget accordingly.

4. Back-ups.

Speaking of a catastrophe wiping out your whole system…what do you do if your servers fail? With the on-premise model, you need to purchase not only the infrastructure to handle your day-to-day needs but also the extra servers you need for peak traffic times or to back-up your information should the unthinkable happen. You have to pay to house and maintain these redundancies even when everything is smooth sailing. If you are choosing a third-party host, this is another reason to not skimp and go with a cheap one. A cheap hosting provider may not provide the backups you need in case of emergency.

5. Security.

If that’s not enough to worry about, you’re also in charge of the security of your site. Your ecommerce platform will likely provide security patches and updates, but it’s up to your system administrator to install and configure them. Miss one and your system could be at risk. This can also keep you from being PCI compliant, which can lead to fines.

When to use on-premise ecommerce

On-premise solutions may make sense if your business has a big budget, as the associated tech debt from setting up and maintaining all of the infrastructure can be large. It may also be a good choice if your business is extremely complex. For a long time, on-premise solutions were seen as the only way a business with a lot of customization needs could have total control over their retail site and data. There are also some use cases, such as sites that require HIPAA compliance, where on-premise might be necessary. However, as SaaS has improved over the years, some SaaS solutions can offer increased flexibility and customization similar to that of a self-hosted solution for a lower total cost of ownership.

2. Using hosted ecommerce.

The next option is cloud-hosted ecommerce. This means your ecommerce platform offers a cloud-hosting option. You may also hear this talked of as Platform-as-a-Service (PaaS) or Infrastructure-as-a-Service (IaaS) because those in tech love our hard-to-pronounce acronyms. IaaS and PaaS are when your ecommerce platform includes hosting as part of your cost. They are not the same as SaaS. This chart illustrates some of the differences between SaaS vs IaaS and PaaS.

saas vs paas vs iaas breakdown

Source: Hosting Advice

Essentially, cloud-hosted ecommerce allows you to outsource the hosting of your site to your ecommerce platform, while still maintaining some of the control, and the maintenance responsibilities, of an open source system.

Advantages of a hosting service

Cloud-hosting can give you a nice middle ground where you relinquish a little control, but still have access to your platform source code. Here are some other reasons you might choose this option.

1. Lower cost.

Not having to pay for your own servers and their maintenance, updates, and replacements or for reliable hosting from a third-party provider can be a huge cost saver. That said, keep an eye on the cost because, as your business grows and traffic to your site increases, you will likely require more bandwidth. Most PaaS platforms give you some wiggle room if you know a traffic spike is coming, but they don’t include unlimited bandwidth.

2. Limited support.

While you will still need your team to support the cloud hosting implementation, you will have support from the hosting service provider if anything goes wrong. However, there are some limitations to that support. You have prioritized support in case of a major outage, but you should read the fine print on your contract with your hosting provider to determine what all is covered. You don’t want to be stuck in an emergency without help.

Disadvantages of a hosting service

Using a third-party hosting provider can seem like the perfect solution between on-premise and SaaS…but there are also some downsides.

1. License fee.

As with the on-premise hosting, you will still be paying a licensing fee to your ecommerce software in addition to the cost of hosting. For example with Magento Commerce, their cloud-hosted option will include the cost to host and the cost of the software itself, which can add up quickly. Based on feedback from the Magento ecosystem, the costs of Magento Commerce with hosting can start at $40,000 a year.

2. Performance.

While having a content delivery network provided through a hosting service can improve your performance, you will also have less control over the servers. You cannot tailor them to your specific business needs and requirements as easily. You may be able to work with your hosting provider to optimize them, but there will be additional costs.

3. Security.

Even though your ecommerce platform is taking on the job of hosting, that doesn’t mean they’re handling security for you. You will be in charge of your own protection, making sure you’re up to date on all security patches and making sure you maintain PCI compliance.

When to use hosted ecommerce

Because you still have access to the source code, using hosted ecommerce — with a PaaS or IaaS deployment — can be a good option when you want to use open source software and also want to work with a single vendor for your platform and hosting. However, you will still have to manage your own security and updates.

3. SaaS: Software as a Service.

And finally we come to SaaS. Software-as-a-Service means that you will pay your ecommerce software provider a monthly fee. In exchange, you get not only the software but also hosting and all maintenance included. That means that when your software provider makes updates and adds new features, that you automatically have access to them. You’re always on the latest version.

SaaS has significant advantages

SaaS has a number of benefits and, especially in recent years, it has become a more and more appealing option for powering online shopping carts. Previously SaaS systems were considered a black box that you had to work within. However, now some SaaS providers are making it easy to still get flexibility and customization, giving you back a lot of control.

1. Low cost.

Because all of your hosting and maintenance is included, using a SaaS solution can not only give you a lower total cost of ownership, but it can also make it easier to calculate your operating costs with fewer surprises. Most SaaS platforms include all the bandwidth your store might need.

2. Ease of use.

You no longer have to worry about software installation, updates, maintenance, or configuring your servers. All of this is handled for you by the platform provider, making SaaS options easier to set up and and to use. SaaS platforms also provide customer support to help with any challenges you do run into. This is support that goes beyond just phone calls for a major issue. You can call and get guidance on setting up a new feature or if you get stuck figuring out an integration.

3. Features.

There are a number of SaaS ecommerce platforms, and they compete based on the features they can provide you. As a result, many have an incredible list of ecommerce features built-in. And because they update automatically, as new features are added, you will get immediate access.

4. Time to market.

SaaS options require less configuring on your end and are faster to deploy, meaning you can get your site up faster and start selling sooner.

5. Security.

Security is one less thing on your plate if you choose a SaaS option. Most SaaS ecommerce providers are PCI compliant and some include even stricter data security. For example, BigCommerce is ISO/IEC 27001:2013 certified which is an internationally-recognized standard for information security.

6. Performance.

SaaS ecommerce providers are optimized specifically for ecommerce, so they tend to have high performance and fast load times for your customers.

SaaS has limited disadvantages

SaaS does have a few limitations, which may or may not be a factor for your business.

1. Flexibility.

SaaS platforms do give you less control over your own server configuration and maintenance. This can in some cases mean you have less flexibility in setting up your system. It’s important to note that not all SaaS platforms are created equal, and some provide more flexibility than others.

For example, BigCommerce has made strides in what we’ve termed open SaaS. Essentially, our investment in easy integrations with a strong partner ecosystem, providing access to your own data, and offering robust APIs (application program interfaces, which allow systems to talk to each other) mean that the platform can be extended to be as flexible as you need it to be.

2. Customization.

Along the same lines as flexibility, there is always the concern that SaaS platforms won’t allow you to have the same customization because you don’t have access to the source code.

If you have extreme customization needs, this will be a larger concern. If you have moderate customization needs or just want to make sure you have the room to innovate and grow, you will want to look carefully at your SaaS platform to make sure they have the API call volume and integrations to truly support the customization you want on the backend.

When to use SaaS ecommerce

SaaS is a good choice when you want to keep your infrastructure costs low and not focus on maintenance and security. You can then invest that time and resources into more innovative, revenue-building changes like those related to customer experience or an omnichannel strategy. Developers and IT teams can still work on an open SaaS platform, so you don’t have to worry about getting rid of your existing staff. However, instead of spending time on upkeep and security, they can focus on innovation and optimizing your site.

Conclusion

Choosing the right ecommerce platform for your online business can feel like an endless series of questions. Focusing on how you want to host your website can be a good starting point to help winnow down your choices.

The key is to decide what you most value for your business and existing business model. Do you want to have more control, even though that will also require more resources, risk, and maintenance? Or are you willing to relinquish some control to invest in other areas? Do you have extreme customization needs that require heavy development work? Or can the innovative digital experiences you want to create for your online storefront be done with existing platform systems?

These are questions only you can answer. Hopefully this resource has given you a clearer idea of what the different hosting options can mean to help further your search.

If you are planning to leave your current platform behind—especially if your current platform is Magento 1—and you’re searching for your next solution, you need to move fast. Learn how BigCommerce can help you do it.

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    Susan Meyer

    Susan Meyer

    Enterprise Content Marketing Manager

    Susan Meyer is the Enterprise Content Marketing Manager at BigCommerce, where she researches, analyzes and educates brands making more than $10M in annual online sales on tech stack scalability, flexibility and overall growth strategies that alleviate growing CAC. She lives and works in Austin, Texas and her decade of writing experience spans everything from young adult nonfiction to technical documentation.

    View all posts by Susan Meyer

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