This is one of the biggest sticking points for companies that are considering SaaS. Security is an important consideration when allowing someone else to maintain your business-critical data, especially for companies with large data sets. However, with online banking and online payroll systems becoming the norm today, the security issue seems to be a bit of a red herring. Few things are more important than our bank accounts, yet most of us are comfortable with putting this information in the cloud.
In truth, data security is independent of whether the server is sitting right next to you or in a different city. SaaS vendors are actually able to invest much more in security, backups and maintenance than any small to medium enterprise. For this reason, a web-based system typically has more security measures in place than an on-premise system.