5 min read
June 15, 2021

Decision Guide: On-Premise vs. Cloud Solutions


Mensur Hajdarbegovic

Choosing between on-premise vs. cloud servers is a vital decision for businesses depending on the industry they operate in. Learn the key differences and similarities to make an informed decision.

Businesses have traditionally relied on servers that are kept on-premise. In fact, before the appearance of cloud services, on-premise was the only option. Now, all companies utilize the cloud in some way. This begs the question: Is there any merit left to having on-premise infrastructure?

Cloud computing introduced an interesting alternative: a highly scalable and flexible environment for business technology solutions. There are some important differences between utilizing on-premise vs. cloud servers starting with which one makes the most sense for your business.

On-Premise vs Cloud: Main Differences

The key difference between on-premise and cloud systems is in the ownership of the infrastructure. On-premise solutions are deployed in-house, built on the company’s own IT infrastructure, and rely on the maintenance of the organization.

Cloud solutions are deployed and hosted on the service provider’s infrastructure which, these days, usually means one of the big three service providers - AWS, GCP, and Azure.

Two initial concerns for businesses that are deciding between on-premise vs. cloud or hybrid cloud solutions are cost and data security.

Cost Differentiation

From a financial point of view, the total cost of ownership in both cases is usually similar, but the cost structure is very different. On-premise solutions require a large, upfront investment in the IT infrastructure; this investment is treated as a capital expense (CapEx). IT managers have to plan, purchase and implement the necessary data center infrastructure. They are also tasked with creating a large capital expense before the equipment can even be turned on. Using on-premise solutions gives rise to additional operational expenses (OpEx) for cooling, maintenance, and a tech maintenance crew, for example.

Cloud service providers take care of all these infrastructural needs without the upfront investment. Using cloud services shifts the costs of the IT infrastructure from a large capital expense to a predictable operational expense. Cloud services are usually priced on an annual or monthly subscription basis with a pay-as-you-go pricing model. Pay-as-you-go pricing makes cloud solutions quite agile and easy to scale because you only pay for the computing resources you use.

Data Protection

In an on-premise environment, businesses have full control and responsibility for security and data control. Data security is always an issue, especially when it is handled by a third party in the cloud. This has been a critical concern for a long time in strictly regulated or highly-secure industries like financial or private sector businesses.

The data security and control within modern cloud solutions are often better and easier to set up than those of on-premise solutions. Still, things like malicious intruders and human errors can occur, and therefore cloud teams should be equipped with strong data security best practices.

You can read more about cloud security and data protection in this article, A Pragmatic Approach to Cloud Security.

On-Premise vs. Cloud: Advantages and Disadvantages

To decide between on-premise vs. cloud solutions according to your business model, it’s important to know what you stand to gain and lose from each option. Here is a breakdown of the advantages and disadvantages of both on-premise and cloud solutions:

on-premise vs. cloud advantages and disadvantages

An Alternative Solution: the Hybrid Cloud

Instead of choosing between on-premise vs. cloud solutions, businesses can opt for hybrid cloud solutions. This mix of cloud solutions adds some of the agility and scalability of the cloud to on-premise infrastructure. Companies that are reluctant to move their data to the cloud because of security concerns or that require legacy hardware support, end up using a hybrid cloud solution. The core business services remain on-premise, while other supporting services like Authentication or Domain Name Systems (DNS) move to the cloud. A hybrid cloud can be used as a temporary solution or as a transitional tool.

Making the Right Choice

Large organizations recognize the benefits of transitioning to a cloud model, but moving the entirety of their operations to the cloud can be a big task. Companies that require extremely low data latency which cannot be provided by cloud solutions are one example of why on-premise solutions still matter.

Industries using supercomputing and specific bare metal hardware also avoid the cloud. These businesses have invested significantly into building their own on-premise systems and tweaked them over the years to fit their specific needs. In these cases, the core business logic and data remain on-premise while the rest of the infrastructure is moved to the cloud, creating a hybrid cloud solution.

Smaller businesses and startups, however, can benefit significantly from cloud solutions. For startups, the main benefit of cloud solutions is that they can start working fast without large upfront investments. Cloud solutions allow for experimentation, scale, and various business approaches quickly and efficiently. If the chosen cloud solutions no longer meet their needs, canceling the subscription is possible.

Smaller companies can sometimes struggle with an existing on-premise solution due to cost or lack of skilled IT staff. In these situations, cloud solutions are the way to go.

Most businesses today use hybrid cloud solutions, bound by legacy on-premise systems, data security concerns, or regulatory requirements. However, more and more services are being pushed to the cloud and many companies are making the leap from hybrid cloud to full cloud architecture. Despite the on-premise scale down, the choice between on-premise vs. cloud solutions comes down to business priorities and need.


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