Cots vs SaaS: What's the Difference?

Software serves companies the world over in a wide variety of ways—a fact that should come as no surprise. After all, the constantly expanding capabilities of computer systems have opened doors for organizations to explore new ways of getting work done and even entirely new industries that could never have come to exist otherwise. However, as software and hardware have evolved, new needs have surfaced, making better solutions necessary.

COTS and SaaS both came into being to solve the issue of organizations having to handle IT concerns on their own using hired staff and purchased hardware, and the costs that come with these. Understanding the differences between these two approaches to software distribution can help inform your software purchasing decisions for years to come.

What is COTS?

The COTS system’s meaning is actually quite simple: It’s a “custom, off-the-shelf” piece of software. This type of software is generally produced to accommodate some specific business need or provide functionality that supports core company processes. Companies choose COTS solutions for the same general reason they would adopt any other form of technology designed to streamline business processes: It can have a positive impact on their bottom line. Developing software to accomplish all of the same things that a COTS solution offers can take quite a bit of time, plus the right developers will need to be onboard or hired first to make it happen. COTS are essentially ready for use and can be configured to better serve a given company’s interests.

COTS software rose to prominence as an alternative to in-house development. Developing solutions in house is ideal from a functionality and customization standpoint, but it often leads to a lot more maintenance and developer expenses than solutions purchased from third parties would incur. However, COTS solutions are not without their drawbacks. Businesses are tasked with determining if a solution can truly match their needs before they purchase it outright. The nature of a commercial off-the-shelf software transaction essentially being a one-off deal (or, in some cases, a lease) keeps upfront costs relatively high. Thus, choosing the wrong COTS solution can lead to significant sunk costs without actually solving your organization’s problems.

What is SaaS?

“SaaS” stands for “software as a service.” On its own, this doesn’t really reveal what makes it special—that would be the cloud environment it runs in. SaaS solutions require no physical hardware for companies to adopt and make use of them. Instead, they are hosted and managed off premises by a third party. This makes them flexible, and that flexibility translates to a wide host of benefits for businesses (more on those below).

Given the breadth and scope of this steadily emerging industry, SaaS tools can actually be broken down into a number of niches. At a high level, we can clearly define horizontal SaaS, which targets many customers and performs many functions, plus vertical SaaS, which handles individual functions and specialties. Vertical SaaS solutions, in particular, abound at this point, helping companies accomplish all kinds of things at affordable price points and in a scalable fashion.

COTS vs. SaaS

Both types of software have their place; individual companies should take time to determine which option best suits their needs. Here are a few reasons to consider either of these options:

Reasons to use COTS


Although many SaaS vendors now offer solutions with privacy features built in, there may still be legal and regulatory hoops for companies in certain industries to jump through that make it impossible to leverage a publicly accessible solution of any sort. For example, organizations operating in sectors such as healthcare will need to adopt solutions that accommodate the data privacy rules put forth in the Health Insurance Portability and Accountability Act (HIPAA). COTS solutions can be installed and managed on premises to prevent unauthenticated access to sensitive information.

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Preexisting infrastructure

Companies with a wealth of IT talent and infrastructure already at their disposal may find it easier and more effective to opt for COTS tools. They can expand their in-house IT team’s responsibilities to accommodate the new software without having to pay as much to handle development from the ground up.

Reasons to use SaaS

SaaS tools and platforms provide quite a lot of flexibility at an appealing price point. Here are the main reasons to set your sights on the cloud instead of COTS:


COTS solutions require IT infrastructure to support and IT staff to configure. Maintenance can also be a point of contention with a COTS approach, leading to excess spend for little value. SaaS, on the other hand, offers all the same or even more functionality than many off-the-shelf options, while abstracting away all of the maintenance work you would have to handle otherwise. Cloud-based SaaS software is also uniquely capable of scaling alongside your company’s actual growth and requirements. That means upfront costs can be minimized and will only increase as your needs do. Pay-as-you-go pricing structures enhance this effect, making spikes in your company’s needs easier to manage as well.


COTS tools may work well in isolation, but they’re rarely guaranteed to play nicely with all of the other tools companies have at their disposal. This poses a problem when businesses are looking to shed light on their data. COTS software can create data silos and a barrage of impediments for anyone trying to connect it to analytics, etc. Compatibility is another closely related issue that affects COTS solutions, but is of no real importance with SaaS alternatives. As SaaS tools reside in the cloud, they can be accessed by a wide variety of machines and hardware. This makes it easier for companies to choose physical tech that matches their needs and budget without needing to factor in each piece of software they intend to use.

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Feri Fekete

Feri Fekete

Co-founder of VeryCreatives



Digital Product Agency

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