On-premise vs Cloud: Key Differences Between Two Models

In the digital age, technologies evolve at a rapid pace, opening up new possibilities for businesses and simplifying complex structures. Traditional on-premise IT infrastructures that once were widespread across all companies are losing ground for more agile, scalable, and cost-effective cloud computing solutions. Cloud infrastructure appears to be a game changer in the software industry, which has rapidly gained power and popularity during the Pandemic. According to Flexera, in 2024 92% of organizations are adopting a range of cloud solutions, including public, private, and hybrid models.

However, despite all the benefits that cloud setups entail, on-premise infrastructure is still in demand. 26% of organizations are deploying on-premise setups because of their autonomy and full control. Additionally, for some industries, such as banking, financial services, and insurance, on-premise infrastructure remains dominant for their enhanced and customized security.

Understanding the peculiarities of each infrastructure model is essential for making the decision and selecting the right setup for your business. In this article, we aim to dissect on-premise and cloud computing and determine which one aligns best with your needs. So, let’s start with on-premise!

What Is On-premise?

On-premise, or simply “on-prem,” is a traditional model of setup where all the IT infrastructure is owned and managed by the organization within its physical location, like a data center or server room. This means physical servers, storage devices, networking equipment, and software licenses are maintained and troubleshot by the full-fledged IT department in-house. The on-premise setup can be challenging and cost-consuming for small businesses and startups, yet it was widely accepted by large businesses across all industries due to its various benefits, including the ability to customize before deploying according to your liking. The most well-known on-prem tools are Microsoft Windows Server, Oracle DB, Db2, and SAP ERP. 

What is Cloud Computing?

Cloud software is a progressive answer to the demands of modern times that have had a huge impact on the entire world. When setting up cloud computing, organizations rent access to infrastructure resources from cloud service providers (CSPs) like Amazon Web Services (AWS), Microsoft Azure, or Google Cloud Platform (GCP), etc. This means companies get servers, storage, software, and networking from the providers over the internet. 

Cloud computing is a flexible solution as it encompasses a vast range of offerings, from basic storage and computing resources (Infrastructure as a Service or IaaS) to pre-built development environments (Platform as a Service or PaaS) and even fully functional software applications delivered directly over the web (Software as a Service or SaaS). Additionally, cloud solutions offer access to a huge pool of computing resources on a pay-as-you-go basis, which is also convenient for businesses of all sizes.

However, transitioning to a cloud setup is not easy and requires a dedicated and experienced team (internal or external) that can seamlessly migrate and maintain your infrastructure to the cloud. Therefore, external teams like NIX gladly offer AWS professional services to support businesses or help analyze needs and choose between Azure vs AWS vs GCP cloud environments.

Key Differences Between On-premise and Cloud

Comparing on-premise vs cloud, you will find out fundamentally different approaches to setting up infrastructure, each with its pros and cons. Let’s look closely at the main contrasts:

Infrastructure

When deploying on-premise infrastructure, organizations need to take care of their computing power and storage. This means physically purchasing and installing servers and networking equipment in their data centers. Additionally, they need to configure hardware and software, procure licenses, and ensure uninterrupted power, cooling, and space requirements to support their infrastructure. All this requires a significant investment of time, resources, and dedicated in-house IT department.

Also, while on-premise infrastructure offers a high degree of customization, scaling down can be equally cumbersome. Disassembling and selling off underutilized hardware is a complex and time-consuming process. You may find yourself stuck paying for resources you no longer need, reducing the overall cost-efficiency.

In contrast, to deploy cloud software, you don’t need to physically install and configure hardware, make the space for storage and servers, or have a full-fledged IT department. Organizations simply select the most suitable services from cloud providers like AWS, Azure, and Google Cloud, and can easily turn to outsourcing teams of experts who can help with the seamless deployment of cloud solutions and make it cost-effective and productive. 

Additionally, in terms of scalability, a cloud service provider offers a vast pool of virtual resources that can be easily scaled up or down on-demand with just a few clicks or API calls. The ability to reduce capacity when your business pace is low and increase it significantly, when a business experience grows, makes cloud setup a very flexible solution. It allows you to optimize costs and remain adaptable to any changes your business may face.

Control

Control is another key difference. With an on-premise setup, when all the software is on your servers and managed by your team, you gain control over the infrastructure, allowing you to customize configurations, manage security settings, and dictate maintenance schedules. This makes on-premise setup the most suitable option for companies with a strong focus on data privacy.

Conversely, a cloud setup places much of the control in the hands of service providers. The cloud service provider takes on the burden of infrastructure, security protocols, data, and automatic updates, while organizations can configure and manage applications to some extent. However, this can raise concerns over data sovereignty for businesses with stringent compliance requirements. 

Security

On-premise solutions are traditionally considered as a secure option because the company owns everything: the hardware, software, and data. Also, on-prem servers can operate without an internet connection, reducing the risk of cyber attacks. However, it entails the full responsibility of the company’s IT department for security policies and keeping everything up to date.

Data security in cloud computing, on the other hand, comes with a bit more risk because you’re handing over your confidential data to third-party vendors, who will be responsible for securing it with encryption and safe storage. Therefore, you need to choose your vendor wisely and focus on their experience in cybersecurity. 

Compliance

Compliance is vital for some industries, in particular healthcare and FinTech. Сompanies that operate in fields that require adopting specific regulatory standards can benefit from their access to servers, by easily configuring infrastructure according to the policies. However, maintaining compliance on-premise places an additional burden on the in-house IT team. Specialists must ensure timely updates to regulations and adherence of the infrastructure to the security standards. This can be particularly challenging for smaller companies with limited IT resources.

In the case of collaborating with a cloud system, you need to additionally check if they comply with all the required regulations. However, modern private clouds often comply with government regulations and conduct regular privacy, availability, confidentiality, and integrity audits. So, once you check the compliance, you can calmly shift all the audits and updates to your provider and the vendor’s team. 

Cost Comparison

The cost of the setup and maintenance is another crucial aspect when deciding between the two models. On-premise setup is considered the one that requires significant resource injections. When you build your on-premise infrastructure from scratch, you need to invest in the hardware, software, physical space, and equipment, and employ a team of in-house professionals. It’s a more suitable option for large companies with sustainable resources than for startups or small businesses.

In cloud computing, third-party providers shoulder the majority of expenses, such as servers, hardware, maintenance, cybersecurity, and constant updates. They offer subscription-based models that are flexible enough to customize services according to your needs. Moreover, the adoption of cloud services in your company may reduce the necessity for a dedicated in-house IT department. 

However, to make cloud computing costs low, it’s important to engage a third party provider with a team of experts and a solid background in cloud computing. Experienced cloud consultants can assist you in developing a robust strategy, ensuring that your cloud infrastructure is both cost-effective and adaptable.

Maintenance and Software Upgrades

Organizations that opt to build their own on-premise infrastructure are also tasked with system maintenance and ensuring ongoing updates. It means that you need to maintain hardware in storage spaces, enhance server capacity and network bandwidth, install software patches, upgrade operating system versions and databases, and monitor metrics and logs of the entire system. This all requires time, significant ongoing costs, and a full-time team of skilled professionals.

Cloud solution offers a significant advantage over on-premise when it comes to maintenance and software upgrades. Unlike on-premise setups, where the responsibility for maintenance falls on your in-house team, cloud service providers handle the physical upkeep of computing and storage. These cloud automation advantages free up time and resources for more critical business tasks. However, it doesn’t completely eliminate the need for IT expertise. Your team of experts, in-house or external, still needs to set up, configure, and customize cloud applications according to your business needs. So, in cloud computing maintenance is still relevant, but service providers shift the burden of physical care onto themselves. 

Private Cloud vs On-premise Software

So, now that we’ve covered the main differences between on-premise and cloud installations, let’s sum up all the data we’ve collected and compare the pros and cons of each infrastructure model.

Cloud Software Advantages

Cloud computing is an advanced technology that revolutionized industries and shaped the future. Many businesses, regardless of their size, niche, and level of expertise, opt to set their infrastructure to cloud services. Here’s why:

• Cost-effectiveness. Setting up cloud software doesn’t require capital investments, as the service providers take maintenance and upgrades of the physical hardware on their shoulders. Organizations pay subscription fees only for resources they use, eliminating the costs of purchasing, setting up, and maintaining the physical infrastructure.
• Scalability and Agility. Private cloud providers can scale up or down resources to meet your changing needs with minimum effort and at optimal cost. This allows businesses to adjust their capacity instantly to the actual need. Additionally, it allows for avoiding extra costs for excess hardware and software.
• Improved Accessibility. Since cloud-based applications are fully remote, it allows businesses to access them from anywhere with an internet connection. This is only one of the benefits of Google Cloud Platform, AWS, and Microsoft Azure that provides greater flexibility for remote workforces and mobile access.
• Automatic Maintenance. Cloud service providers assume responsibility for ensuring timely updates, regular data backups, and offering top-tier cybersecurity, freeing up internal IT workforces to focus on key business initiatives.
• Disaster Recovery. Cloud technologies offer robust systems that can quickly bounce back from unexpected events like power outages and cyberattacks. By leveraging cloud recovery, businesses can be sure that their critical data is protected and readily recoverable in unforeseen events.
• Effortless Management. Private cloud providers offer user-friendly web-based consoles that provide a centralized view and control panel for your entire cloud environment. This significantly simplifies IT infrastructure management and empowers businesses to operate more efficiently and strategically.
• Modern Technology and Speed. Public cloud services are an example of innovation that boosts businesses to grow faster and gain a competitive edge.

Cloud Software Disadvantages

However, even cloud computing has its disadvantages that must be considered when subscribing to service providers. Here are some of them:

• Dependence on Internet Connectivity. To smoothly operate, cloud services require a stable and reliable internet connection. Internet outages can negatively impact business continuity.
• Vendor Dependency. When moving your infrastructure to third-party service providers, you become fully reliant on their performance and capacity. Customization of cloud services is limited—you’ll have to adapt to the cloud providers’ conditions. Additionally, switching from one provider to another can pose undesirable risks and expenses.
• Privacy and Security Concerns. Since all the confidential data is held by a third-party cloud provider, it might cause concerns among businesses that are accustomed to storing data in-house. There’s a potential risk of cyberattacks, leakage, and data breaches if security measures are compromised.
• Limited Control. When deploying cloud infrastructure, organizations transfer some control over their setup to the cloud provider. Additionally, customization is limited as businesses need to adjust to the cloud applications and configurations.
• Variable Costs. Cloud services often operate on a pay-as-you-go model, which can lead to unpredictable costs if usage isn’t carefully managed. This variability can be a disadvantage compared to the fixed capital expenditure of on-premise hardware.
• Compliance Concerns. For some businesses, strict data and privacy regulations may be crucial, and cloud service providers may not always be able to comply with them. On-premise setup, on the other hand, allows you to adjust to any regulations you need.
• Complex Integration. Integrating cloud-based applications with initial on-premise setup can be challenging and require additional development costs and a team of experts who can help you seamlessly integrate them.

On-premise Advantages

The On-premise setup is a time-tested, traditional, and reliable form of infrastructure that often overshadows modern cloud solutions. And there are valid reasons for its enduring popularity:

• Full Control and Enhanced Security. Building on-premise infrastructure grants businesses full authority over physical setup, software, and data. This allows them to configure security protocols, access restrictions, and disaster recovery plans from scratch. Therefore on-premise setup is often chosen by businesses that operate in highly regulated industries.
• Customization Tailored to Needs. Since businesses that opt for on-premise setups build them from scratch, they have the opportunity to customize their infrastructure to suit their needs. They can choose hardware, software, and configurations that perfectly match their requirements, workflows, and resources.
• Predictable Costs. When organizations decide to build an on-premise system from scratch, they can plan for all the upfront costs, including purchase of hardware and software, ongoing maintenance, and IT team salaries. Increases in unforeseen expenses are rare in on-premise setups.
• Independent Operation. With on-premise infrastructure, it’s easy to minimize dependency on internet connectivity. On-premise setup allows organizations to have control over network environments and be prepared for disruptions caused by internet outages.
• Consistent Performance. Organizations with on-premise infrastructure can leverage the vast pool of resources provided by their setup just for them. It’s a strong advantage over cloud solutions in which resources are shared with other users during peak usage periods.

On-premise Disadvantages

There are compelling reasons why so many companies transition from on-premise to cloud software. Here are some of them:

• High Upfront Costs. Opting for on-premise infrastructure requires significant financial investments, like purchasing physical hardware (servers, storage, networking equipment), software licenses, establishing spaces and facilities, and hiring personnel costs. To manage these expenditures and further maintenance, organizations need a robust budget and financial plan.
• Ongoing Maintenance. On-premise deployments place the responsibility for ongoing maintenance squarely on the business’s in-house IT team. They’ll be responsible for hardware management, consistent software updates, and regular system monitoring. This is a heavy burden that requires full-time specialists with solid experience, which also increases the final costs.
• Limited Scalability. On-premise infrastructure can struggle to adapt to rapidly changing business needs. Adding new servers, storage, and network equipment, as well as implementing the new software, requires extra budgeting and extra time. At the same time, scaling down underutilized equipment can be cumbersome and costly and can lead businesses to pay for resources they don’t use.
• Risky Disaster Recovery. With on-premise infrastructure, organizations store their critical data on-site and this can lead to complete data loss in a case of a disaster situation. Especially if businesses don’t have a solid recovery plan in place, storing data on-premise becomes a very risky option.
• In-house IT Staff Required. On-premise infrastructure demands a dedicated in-house IT team for management and maintenance. It’s important to have a full-fledged IT department consisting of experienced professionals who can devote themselves to existing tasks. It also means increased costs as businesses must invest in their in-house teams.

Conclusion

Comparing on-premise vs cloud infrastructure each have distinct advantages and disadvantages. The ideal choice for your business depends on your budget, need for scalability and flexibility, security, and compliance. So, let’s sum up two infrastructure models and see which one is best for you!

On-premise setup is suitable for well-established, large companies with significant budgets who operate in industries requiring strict compliance and absolute control. Cloud providers, in contrast, are good solutions for those businesses that prefer agility, affordability, and innovative approaches. Cloud setup is a perfect match for organizations of any size: from startups to established corporations that opt to optimize their infrastructure.

While cloud migration from an on-premise system won’t be an easy journey, it’ll be beneficial in the end. It involves appointing a migration architect, defining integration levels, data migration strategy, and selecting, configuring, and then optimizing applications for service providers. This complex process demands time, effort, and the expertise of a team of professionals who can develop a performative and cost-effective solution. 

Therefore, it’s better to collaborate with experienced partners like NIX, who cover all the stages of seamless cloud migration: from consulting and developing a strategic plan to maintenance, cloud financial management, and cloud FinOps practices. Our team of experts can maximize your cloud infrastructure model, make it smooth, predictable, and reliable, and ensure that the journey bears fruit.