On-Premises vs Cloud Computing: Key Differences, Pros & Cons

Modern business is arguably more flexible, mobile, and changeable than ever before. The risks—both practical and reputational—attached to data breaches or security concerns, meanwhile, can be said to be larger than ever. That makes an enterprise’s choice of IT infrastructure, and particularly their decision as regards on-premises vs cloud, vital to their survival and success.

If you find yourself needing to choose between cloud computing and an on-premises system (most likely the one you already have), then you’re in the right place. Read on to learn everything you need to know for an informed on-premises vs cloud computing debate.   

On-premises meaning

Let’s start with the fundamental question; what does on-premises mean from a technology standpoint? On-premises (or “on-prem”) computing is how businesses have traditionally run their IT operations. The company’s data is stored on a server located on its physical premises, usually in the same building that everyone works in. 

This has one major benefit: businesses have total control over the machine and how it’s running, which can affect reliability, security, and compliance. 

Instead of serving hundreds of thousands of customers, the server is custom-built to keep the business running around the clock. Security can also be made as tight as it needs it to be and any unique compliance obligations can be easily adhered to.

On-premises vs on-premise: An important aside

Take a quick look around the internet and you may well find references to “on-premise software” or “on-premise solutions”, rather than “on-premises”. When you do, it’s the same software and systems that people are talking about, they’ve just fallen into a bit of a trap created by the complexity of language. 

To be “on-premise” is to be on the point or relevant. To be “on-premises” is to be located in a physical location—I.e., on the premises. Only the second version is correct from a technological standpoint, therefore, but the use of the former is such a common mistake as to have become almost accepted as an alternative. 

Cloud computing meaning

Cloud computing is when a third-party is responsible for your computing resources. That third-party provider hosts all your data in the cloud, and you get on-demand access via the internet. You don’t need to have servers or other infrastructure on-site in this scenario.

Most modern businesses are now opting to use cloud computing. By outsourcing server legwork to a third-party vendor, you can reduce what was previously a long and costly setup process down to just a few clicks. Simple subscription plans also mean you can easily scale and only need to pay for the computing power you actually use.

While these vendors might be following best practices around security and data protection, however, they’re essentially selling a one-size-fits-all solution that might not work for every business.

This covers the basics of an on-premises vs. cloud definition, but what else do you need to know to choose between them?

Cloud vs on-premises comparison chart

There’s no one, single on-premises vs cloud difference, but rather a number of main areas of comparison. We’ll get into each in a bit more detail shortly, but first, here’s a handy at-a-glance table: 

On-premises vs cloud computing: The key differences

The above should give you a good initial primer on the difference between on-premises and cloud computing. If you need a bit more insight, though, let’s dig a little deeper into each main area of comparison:

Cloud security vs on-premises security

Cloud vs on-premises security is perhaps one of the most important considerations for modern enterprises. It’s now common knowledge how damaging a data breach or other security issue can be to any organization, so understanding the landscape in this area when it comes to your chosen technology is vital. 

With an on-premises setup, you must consider and manage every aspect of your servers' security. You need to keep them in a secure physical location, which can only be accessed in compliance with whichever regulatory frameworks your company has to follow. You're also responsible for securing the company intranet, which will have varying levels of access to the server, as well as protecting it in the arms race that is modern cybersecurity.

Cloud computing providers, by necessity, must keep up with the highest standards of cybersecurity. Their data centers typically have dedicated, around-the-clock security, and they’ll protect your data with the most up-to-date and compliant security measures. You still need to keep a close eye on employee access to the system, but vendors are responsible for the safety of the server itself. 

On-premises vs cloud: Infrastructure and deployment

The infrastructure requirements of an on-premises system can be significant. You may need servers capable of running all day, every day, systems to keep them cool, and the right software to access and run your machines. That software, too, requires manual installation on each individual machine and it’s your business that’s responsible for keeping it up and running 24/7.

With cloud computing, vendors do most of the legwork for you. Your data and systems are hosted in the cloud, and you can access them on-demand from virtually any internet-connected device. Data is stored in centers all over the world, with virtual machines running around the clock. Depending on the provider, getting set up with a cloud computing system can be as simple as just a few clicks. 

On-premises vs cloud: Data storage

With an on-premises system, whatever data you need to store must be accommodated on-site. That means you need the space and capabilities to handle this—as well as any backups you may wish to make for the purpose of disaster recovery.

On the cloud computing side, all your data is hosted virtually in the cloud. You may need to pay more for a greater volume of storage, but the physical storage limitations are largely removed. Backing up data in a cloud environment is generally also quicker and easier.  

On-premises vs cloud: Costs

If you’re implementing a new system, set up costs can be very high in the case of an on-premises alternative. You’ll need to invest in the infrastructure and in the expertise required to implement it. As time passes, it can also be costly to retain that legacy system expertise to manage and maintain an on-prem system. 

The costs to consider with a cloud computing alternative are generally more straightforward. Cloud computing solutions usually use a subscription model that scales to accommodate different customers and levels of usage. You needn’t worry about physical, on-site installation, and ongoing maintenance and management is the provider’s responsibility. 

On-premises vs cloud: Access and control

You can access on-premises servers remotely, but you'll need to install all your own software to do it. If this ever breaks while your system administrator is working remotely, they could be cut off from the machine all day. Control over your system and the data within it, however, is always solely in your hands.

With data centers all over the world, most users will find that cloud computers are as fast and easy to access as on-premises ones (provided they have a good internet connection). There can be some limitations to your control over systems and data, however, as you are reliant on the provider hosting the data. 

On-premises vs cloud: Integration

It’s typically more difficult to integrate legacy on-premises systems with the other tools your business uses—particularly if those are cloud-based. You may require a software developer who can custom-build these bridges for you, and if your integrations break or fail to work as they’re supposed to, it's your job to fix them.

Cloud platforms, on the other hand, are increasingly built with integration in mind. Any integration cloud providers develop will be of value to hundreds or thousands of customers, so it's a no-brainer to continually create, update, and maintain these.

On-premises vs cloud: Upgrades

Upgrading on-premises systems can be a minefield, particularly in large enterprises. It’s a process which may cost you time, money, and productivity. If leaders within the organization aren't happy to down tools, major updates could be delayed as teams negotiate what is and isn't essential. Big, labor-intensive updates are often more about maintenance than anything else and won't make a big difference to ROI.

Cloud vendors push frequent upgrades to keep their services fast, reliable, and secure. Everything from quick bug fixes to major migrations are included in the pricing plans, and all upgrades are completed with as little disruption as possible.

Benefits of cloud vs on-premises

That’s a good summary of the key differences between on-premises and cloud computing. Now, let’s drill down into when and why the cloud computing alternative could be the right option for your business. 

Storage and scalability

With an on-prem system, storage is determined by your equipment. To add more, you need to physically add more storage to the machine, incorporate another server in your setup, or migrate to a new system entirely. These are all delicate, high-stakes processes that require time and money.

If, on the other hand, you don't need as much storage as you have, you might be wasting resources. Unfortunately, downsizing is just as much of an operation as scaling up.

Scalability, then, is definitely one of the benefits of cloud vs on-premises services. Flexible storage plans allow businesses to easily scale according to their needs. And, if you don't know exactly what those needs are, pay-as-you-go plans mean you only pay for what you use each month and nothing else. 

This can work especially well for seasonal businesses whose needs can dramatically change from one month to the next. Their system can handle a rush in December or over the summer, but they don’t need to pay for that capability for the rest of the year.

Upfront and ongoing costs

Cloud solutions offer an attractively low barrier to entry. There's no hardware involved, and everything is priced into one simple monthly or annual fee. This can make the cloud vs on-premises cost comparison seem like a pretty one-sided one.

You should note, however, that both options can have some hidden costs. Your cloud subscription price will increase as your business scales, meaning your quick fix of ROI at the beginning may shrink over time. 

If you run an efficient system, your on-prem costs may not rise as much or as fast as your company grows, but you'll have to work to squeeze ROI out of it as time goes on and the system ages. In this situation, hybrid integration can prolong the life of legacy systems.

Ongoing maintenance costs are another factor to consider. Opting for an on-premises system isn't just an upfront investment—it's also a commitment to long-term maintenance. Something which can become increasingly more difficult and expensive as the expertise to manage certain legacy systems becomes less widespread. 

With a cloud solution, this is almost completely taken care of. You might still have employee laptops and workstations to keep up to date, but all updates to your cloud infrastructure are handled by the vendor. That includes patches and other ongoing fixes, as well as more significant upgrades over time.

Disaster recovery

Disaster recovery will look very different for on-premises vs cloud computing services.

With an on-prem solution, your ability to recover data is highly dependent on your circumstances. If you're only backing up your data on one machine, it's vulnerable to physical damage via power failure, overheating, or flooding.

Cloud vendors might keep your data on multiple servers and locations anyway since this makes for better speed and availability—it also means data is more secure if one of those servers fails or becomes damaged. 

If something does happen, those vendors should be able to forward all your requests for data to a server that's still working perfectly. Your staff and customers might not even notice the temporary slowdown in the service.

Benefits of on-premises vs cloud

As with many big business decisions, there’s no one-size-fits-all solution. For some organizations, implementing or—more likely—retaining an on-premises system can be a sensible choice. To round out our discussion of cloud vs on-premises pros and cons, here are a few areas where the latter may come out on top. 

System control

On-premises infrastructure runs in-house, which provides a level of system control that cloud providers often can't match. Being able to customize every aspect of a system according to your business's unique needs is a major pro. Choosing, buying, installing, and maintaining this infrastructure, though, can be a time and money sink.

You'll need to make a big upfront investment in machinery that will depreciate in value as it ages, so you’ll need to compare options and find the infrastructure that will give you the best ROI in the years or decades to come.

With cloud computing, it’s harder to summarize the pros and cons, as there's no one way to do it. It’s not just about having someone host a server for you; vendors will often run fully cloud-native architecture to meet diverse requirements from their clients.

If you have an on-prem system that's starting to become a liability, hybrid cloud infrastructure is another option, but we'll get to that later on.

Security and compliance

Organizations in tightly regulated sectors, like banking and healthcare, might opt for an on-premises solution due to the level of control and reliability it gives them. They might also need a bespoke solution that can serve any complex needs around compliance and frameworks like HIPAA and PCI DSS, which can be easier to implement on-premises. 

Cloud vendors do, of course, give utmost consideration to security and compliance. However, when compliance frameworks start intersecting, they become more challenging for those vendors to accommodate. So, despite on-prem's drawbacks around pricing and maintenance, it may remain a sensible option for companies for which security and compliance are top priorities.

On-premises vs cloud vs hybrid integration: Your third option

The choice of on-premises vs cloud infrastructure depends on several factors. One of the most important being where your business is with regard to digital transformation.

If you're a new company starting with a green field, the only real question is how much control you need over your system. If you have to guarantee compliance or handle a lot of sensitive data, an on-premises system may remain a viable option. Otherwise, cloud technologies are now a standard choice for lean startups.

If you're a mature company that's grown around an on-premises system, it's a more fraught decision—one that'll require buy-in and consensus from multiple stakeholders. Factors to consider include:

• Costs. Upfront investment, ROI, and total cost of ownership (TCO) in the long run.
• Security. Do you need better security than cloud vendors can offer? Do you have the capacity for that?
• Compliance. Do you have regulatory obligations that cloud vendors can't fully meet?
• Maintenance. Does it make sense to commit to maintaining an on-prem system for numerous years? Do you want to run the whole business on this, or do you want to integrate with cloud apps and services?

Fortunately, hybrid integration means it doesn’t have to be a straight either/or choice. Platforms like OpenLegacy enable transitional coexistence: You get all the convenience of a cloud system, but you can still get value out of your legacy system when you need it. This increases the shelf-life of your on-premises system and lets you take advantage of the benefits around security and control for longer.

And, if you're planning to move to the cloud, you can do so at your own pace without worrying about data continuity. You can road-test your cloud systems before you depend on them for everything, which makes the decision to move a much easier sell. 

With hybrid integration, you can enjoy the best of both worlds, and the on-premises vs cloud long-term future of your business doesn’t have to be set in stone.