Cloud vs On Premise Cost Comparison: A Comprehensive Guide [2024]

The sheer thought of choosing whether to store your enterprise's data in the cloud vs. on-premise may seem complex and overwhelming. Still, most firms, small and large, opt for cloud storage.

While cloud storage is overall the best choice for most businesses, there are some instances when it’s not ideal. 

Let’s go over the pros and cons of both on-premise vs. cloud storage so you can make an informed decision on what best suits your business needs. 

What Is Cloud Computing?

Cloud computing involves the utilization of remote servers on the internet to store resources such as software, data, storage, networking, and emails. In cloud computing, data encryption,  processing, and management are handled by a third-party operator that also operates data analytics and reporting.

Cloud computing has unlimited storage capabilities and computing power, allowing small businesses to compete on the same level as large firms. Overall, it’s used on a need basis; firms only pay for what they use and can scale down or up to suit market and customer needs. 

With cloud computing, businesses require a reliable and reputable vendor since the vendor is in charge of storing their data. S-PRO is a dedicated software development company with excellent engineering capabilities for startups and scale-ups. We provide dynamic and secure cloud services that allow companies to run IT functions seamlessly.

In 2020 the cloud computing market worldwide was estimated to be worth 371. 4 billion.

Advantages of Cloud Computing

• User experience: User experience is essential to a company’s success. Cloud computing allows companies to develop and launch services and products quickly. Therefore, companies can keep up with industry changes and customer demands. Cloud computing improves customer relations by bringing customers and businesses together on shared apps with technology that simplifies their transactions.
  
• Security: Data security is vital for any online enterprise. Cloud computing enhances data security through payment tokenization and assists companies in complying with EMV standards. With cloud computing, businesses can protect data or grant partial access. Information is backed-up and secured regularly and thus can be accessed when needed.
  
• Real-time analytics and data: Real-time data analysis and reporting provide important metrics with a single click. This is vital for businesses as it assists them in adjusting offers to meet client demands.
  
• Efficiency: This is a significant difference between on-premise and cloud storage. Cloud computing comes with integrated automatic data recovery and back-ups. Cloud computing providers regularly perform software updates; hence, customers always have the latest technology.
• Scaling: Cloud computing is built to scale. If your company requires more storage, you can increase your capacity with a single click. You don’t have to upgrade hardware; the services can be swiftly expanded to meet company needs. Companies that are rapidly growing don’t have to worry about slowing down due to slow equipment. 

Disadvantages of Cloud Computing

• Cost: Although cloud computing comes with low CAPEX costs, businesses may spend more cash on the cloud’s lifecycle subscription. Data recovery costs also have to be factored in. Consider your budget when you’re doing a cloud vs. on-premise cost comparison.
  
• Security: Not having control over your company’s security is a considerable risk. Although vendors are diligent with their security measures, it takes a huge leap for companies to entrust them with their data. One of the biggest threats to cloud computing is hacking; thus, if vendors don’t implement appropriate measures, private data can be at risk.
  
• Data Recovery: Like any digital service, access to vital information is impossible if the internet connection fails on the vendor’s or your company’s side. Data recovery is a time-consuming process for the system since businesses don’t have instant access to their equipment.
  
• Customization: In cloud computing, the vendor controls customization. Depending on the services your company provides, flexibility can be limited. 

“If you think you've seen this movie before, you are right. Cloud computing is based on the time-sharing model we leveraged years ago before we could afford our own computers. The idea is to share computing power among many companies and people, thereby reducing the cost of that computing power to those who leverage it…”
David Linthicum 

What Is On-Premises?

The on-premises model refers to IT software and hardware apps that companies host on-site. With on-premise hosting, companies have control of their IT infrastructure as they’re in charge of the system's security, updates, and maintenance. 

Most conventional and legacy information center resources are usually on-site. On-premise software is ideal for companies that want to have complete control over their systems. On-premise systems give businesses control over service quality and data security. 

Nevertheless, on-site systems are slightly complicated and costly data management solutions. Additionally, firms with large data amounts must buy their own hardware and servers with IT specialists to maintain uptime. 

Advantages of On-Premises

• Cost: For small and medium enterprises, on-site systems are more cost-effective when contrasted with the on-prem vs. cloud costs. The need to store large amounts of secure information isn’t always a requirement depending on your business' service. On-prem systems are suitable for companies who only want to invest in an initial system setup with low maintenance costs. 
• Security: With on-site systems, information is kept in-house, and third parties don’t have access. Companies have physical control over their backup system and don’t need the internet to retrieve data. For industries where privacy is a major concern, it’s obvious which system leads on the cloud vs. on-premise comparison chart. 
• Customization: Companies can build and personalize hardware systems based on their needs with on-premise systems. They can also personalize their offerings on-site and manage the solutions if market or consumer needs change. 
• Can operate without the internet: One of the main advantages of on-premise systems is that you don’t need the internet to access data. Unlike cloud systems, companies with in-house premise systems don’t lose access to data when the internet connection is lost. 

Disadvantages of On-Premises

• Data recovery: Since data is stored on-site, on-premise systems risk data loss in a disaster situation. If the organization does not frequently back-up data, there’s no guarantee of recovery.  
• Security: Most of the substantial data breaches in the last decade have been from conventional on-premise systems. Due to insufficient practices or inexperience in appropriate safety protocols, sensitive information is at risk regardless of where it’s stored. Therefore, add the cost of solid security systems when comparing the price of on-premise vs. cloud computing. 
• Scaling issues: If your business scales up and requires additional storage space, it’ll be challenging to scale up your on-premise system quickly. On-premise systems require companies to purchase new hardware and dedicate personnel to build it. 
• Needs extra personnel: On-premise systems require IT personnel to manage and maintain them. You can either hire new staff or delegate some of your existing team members to this job. Thus, you’ll reduce the efficiency of your IT staff as they’ll have to take on more tasks or increase costs by hiring new staff. 

Cloud vs. On-Premise Comparison

	Cloud	On-premise
Cost	Cheaper as a business doesn’t have to cover on-going costs	Expensive as a business must cover power and hardware costs
Deployment	A vendor hosts resources on their premises	A company is responsible for managing its resources
Security	Riskier for companies since a vendor has access to data	More secure since a company has control over all its data
Control	A vendor has control of data and encryption keys	A company has control over their data and they can determine what happens to it
Compliance	A company has to look for a reputable vendor who is compliant with industry data privacy standards	It’s the company’s responsibility to ensure they comply with data privacy regulations
Customization	Very rigid since the vendor controls servers	Flexible. A company can adjust their system based on market and customer demands
Implementation	A vendor controls implementation, hence takes less time	Takes a long time since the company is responsible for process

1. Cost

Cloud: Companies using cloud computing don’t have to incur the cost of storing and keeping up with their staff. They only have to pay for the assets they consume. Therefore, cloud computing is a cheaper option. 

On-Premises: Companies using on-premise must cover ongoing costs of power consumption, space, and hardware, making it pretty expensive. 

2. Deployment 

Cloud: There are different kinds of cloud computing; thus, deployment depends on the type. The provider hosts the resources on their premises. However, companies can access these resources anytime and as much as they wish. 

On-Premises: In an on-site system, resources are deployed on-premises and within a company’s IT framework. The company is responsible for securing, storing, and integrating data. 

3. Security 

Cloud: Even though cloud data is scrambled and only the business and the vendor have access to it, most people are wary of the cloud’s safety protocols. Vendors have demonstrated cloud computing via long-term and acquired safety protocols. However, the validity of their safety claims is decreased since companies don’t have control over the data. 

On-Premises: Companies prefer storing sensitive data in-house. This information can’t be shared with third parties like in banking sites. In such cases, an on-premise system is better. 

4. Control

Cloud: With cloud computing, data ownership is a contentious issue. The provider keeps encryption and data keys; thus, companies will be unable to access data if there's a downtime. 

On-Premises: With on-site infrastructure, enterprises retain all their information and control what happens to it. For these reasons, businesses in highly-regulated fields will be reluctant to use cloud computing. 

5. Compliance

Cloud: Companies that opt for cloud systems must conduct adequate research to ensure that their vendor complies with all regulatory mandates in their field. Private data must be safe; partners, employees, and customers must have their privacy protected. 

On-Premises: Most enterprises have regulatory control regardless of their field. The most common one is HIPPA which protects private data. There are also others, such as FERPA, which have student details. Businesses that are answerable to such laws must be compliant. 

6. Customization

Cloud: Cloud computing has less customization and flexibility since the vendor controls the servers. Nevertheless, these systems have more stability and regular updates.

On-Premises: Companies with these systems can customize them according to their needs. However, this often leads to challenges with software updates and increased implementation time. 

7. Implementation

Cloud: Since companies can’t customize their systems, implementation takes less time.

On-Premises: It takes more time to get the system up and running since the company controls implementation. 

Cloud Hosting vs On-Premise Costs: Comparison Chart

If you still can't figure out whether you should opt for cloud hosting or an on-premise option, the cloud vs on premise cost comparison will come in handy. Check out a sample data center cost comparison chart to make an informed decision.

On-premises solution		Cloud solution
The cost of each server	$6,000	Monthly	$6,000
Server refresh cycle	5 years	Yearly	$72,000
Running servers/year (power, cooling, maintenance, etc.)	$3,000	Installation fee	$0
Number of servers	12
IT support for hardware & backups/year	$50,000
Tape library & backup software	$20,000
Capital Expenditure (# servers * cost per server + tape library & backup software)	$92,000
Operating Expense (# servers * cost of running servers * 5 years + IT support* 5 years)	$430,000
Total CapEx + OpEx over 5	$522,000	Total CapEx + OpEx over 5 years	$360,000
		Cost saving	$162,000

Why Cloud Outperforms On-Premise: Cost Arguments

Still not sure whether you need cloud hosting or an on-premise option? Here are some arguments that prove the cloud data center cost efficiency:

On-demand self-service

With cloud hosting, you can order whatever you want whenever necessary. Cloud options let you make provisions regarding server settings or network storage without interacting with the provider’s IT administrator. 

Measured service 

Monitor, control, and report resource usage, enabling transparency for providers and consumers. This way, you can easily access insights on your network's performance and usage monitoring stats. 

Broad network access

Retrieve data over the standard network via client platforms, including smartphones, PCs, or laptops. 

Resource pooling

Providers offer provisional and scalable services to multiple customers at once. Adjust these services to suit each customer’s needs with no apparent changes to end-users. 

Rapid elasticity

Let users automatically request additional cloud space or other services. Cloud resources are practically infinite or automatically available. Compared to on-premise servers, this process is significantly more accessible and convenient. 

In cloud vs on premise cost comparison, these factors also impact the final price, including many necessary services for the setup fee. Here's an example of a price comparison chart that reflects some of the most widespread monthly expenditures if you choose cloud or on-premise solutions:

Hybrid Systems: The Solution to Your IT Infrastructure Dilemma

87% of businesses have already implemented a hybrid IT infrastructure.

When you go over the cloud vs. on-premise pros and cons, you’ll realize each system has perks the other doesn't. To get the best of both worlds, you can opt for hybrid systems that can give you the ultimate flexibility, scalability, and security. Go for hybrid systems if you’re wondering which is better among cloud vs. on-premise vs. hybrid. 

Regardless of your company’s size, with hybrid systems, you’ll be able to use in-house and internet services, resulting in a scalable, easy-to-use, secure system. With hybrid infrastructure, your company controls data; you can choose which to keep in-house and which to outsource; thus, data is more secure. 

Employees can use the cloud to access emails, apps, files, and desktops, ensuring high uptime levels. Data is simultaneously backed up on your company servers; therefore, if there are issues with the internet, you can still access data. 

The Choice Is Yours

“When investing in software, either purchasing a licensed software solution or using a Software as a Service model, vendor stability is key to ensuring that the vendor will be around in the future.”
Jeffrey Barry for F. Curtis Barry & Company 

The best system for managing your IT framework largely depends on company characteristics and requirements. Cloud computing allows companies to manage their data efficiently and quickly with their readily available virtual gadgets, high access speeds, and security. 

Cloud computing is best for companies that have a limited budget and can’t manage to buy and maintain servers and hardware. If your company’s main concern is security, on-premise systems are the best option for you. This is because they give companies control over their data; thus, it's secure from external threats. 

However, with on-premise systems, companies have to purchase software and hardware. If you want to leverage the advantages of both systems, you can also opt for hybrid systems. Various migration tools are available if you use one platform and want to shift to another. 

Conclusion

Most businesses struggle to choose which system best fits their needs. There are many things to consider when selecting a data management system. The best way to decide which system is best is to put your company's needs first.

Besides this, objectively weigh the benefits and disadvantages of cloud vs. on-premise. Renowned for its excellent software development services, S-PRO can help you determine which system best suits your business needs. Contact us here to get a free consultation from our experts. 

Frequently Asked Questions

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

The main difference between on-premise and cloud systems is where it’s installed. On-premise systems are usually hosted locally on company servers, while the vendor hosts cloud systems. 

2. Why should a business choose on-premise over cloud storage?

On-premise systems give businesses more control over their data. Therefore, data is more secure, and there are minimal chances of a security breach. 

3. Is cloud cheaper than on-premise?

Yes, the start-up costs of cloud storage are lower than on-premise. This is because, with on-premise systems, the company has to incur the fee of hardware and software. 

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

On-premise is a conventional data storage method where information is stored in-house, and companies control it. SaaS is a rapidly growing system in cloud computing where third parties host company data and companies access it over the internet.

5. Will the cloud replace the data center?

The cloud is not a data center replacement; it compliments it. However, cloud computing is changing companies' deployment of IT capacities across data centers and colocation facilities.