On Premises vs. Cloud

2020 was a watershed year for cloud service providers: for the first time since the advent of cloud computing, enterprise spending on cloud services dwarfed on-premises spending, marking what pundits believe is an accelerating, inexorable shift away from physical data centers.

Notwithstanding, on premises is not likely to go anywhere any time soon. In fact, 98% of businesses still rely on on-premises IT infrastructures, according to a survey by Spiceworks of over 500 IT decision makers. That said, the pandemic and resulting work-from-home (WFH) movement have accelerated cloud adoption even further. As it stands, the global cloud computing market size is anticipated to grow from $371.4 billion in 2020 to $832.1 billion by 2025, at a compound annual growth rate (CAGR) of 17.5% over the forecast period. 

Ultimately, each modality has its advantages and disadvantages, with most organizations likely to leverage a combination of both. Here is a review of some of the main benefits and drawbacks of on premises versus the cloud:

On Premises

Many enterprises in traditional industries such as manufacturing and shipping/maritime employ on-premises-only IT infrastructures as a matter of practical continuity. For example, many of these companies must support aging operational technologies (OT) that require strict, local management. Others might have compliance requirements for keeping infrastructure on premises, such as industry oversight bodies mandating strict safety/privacy measures that aren’t possible with the cloud. Lastly, many have concerns regarding security and loss of local control of software/hardware assets. Whatever the case may be, on premises still has unique benefits over the cloud and may in many cases be deemed more appropriate, depending on the requirements of each organization.

On-Premises Pros

Compliance regulations often deal with security- and privacy-related issues. In the cloud, these issues can be complicated, amplified, and generally more difficult to address. When it comes to on premises, however, organizations are in full control and ownership of the data and underlying infrastructure. Customers and partners can be more easily reassured or appeased regarding matters of data governance. Additionally, keeping data on-site bolsters the organization’s compliance posture in respect to HIPAA, PCI-DSS, and GDPR, to name a few.

A long-standing argument against the cloud is its security (or lack thereof). Generally speaking, a competent IT staff can more readily support and secure a robust on-premises installation than cloud-based resources. For example, when cloud outages occur, even the most competent of IT administrators are left at the mercy of the cloud vendor. On-premises solutions enable organizations to truly be in control of their own supporting technologies.

On-Premises Cons

Since organizations are in full control of their own IT resources — be it networking devices, bare metal servers, or software packages — they are also entirely responsible for building and managing them. This typically results in costly capital expenditures for staff, security, hardware, and software (i.e., licenses) that would otherwise be avoided in the cloud. Additionally, scaling on-premises IT resources to meet increased demand or evolving requirements involves significant planning, ordering, and deployment efforts.

See more: How Hybrid Cloud is Used by BP, Morningstar, MLB, Coca-Cola Europacific Partners, and TruGreen: Business Case Studies

Cloud

Regardless of which type of cloud resource is being  consumed — be it infrastructure as a service (IaaS), platform as a service (PaaS), or software as a service (SaaS) — organizations only pay for what they use on a metered basis. Compare this to the cost of an on-premises server, to include all software and additional dependencies: the initial price of the on-site hardware investment is fixed and has already been accounted for, regardless of how much of the overall resource is used over time. From the perspective of smaller organizations with limited budgets, the cloud levels the playing field by allowing access to technologies that would otherwise be unattainable if they had to build and host it themselves.

Cloud Pros

The cloud enables organizations to build, use, and manage IT resources as operating expenditures (OPEX) versus capital expenditures (CAPEX). Companies pay only for what they use. On top of this, they are empowered to scale their IT resources dynamically, on the fly with shifting demands and requirements. 

Consider the e-commerce website operators that experience seasonal fluctuations in traffic due to the holidays. For them, being able to scale their server resources with demand allows them to provide a consistently high-quality visitor experience, while remaining cost-efficient in terms of IT spending.

Cloud Cons

Compliance with security regulations and privacy measures can be more complicated with cloud-based IT infrastructures. However, the issue is fairly black and white vis-à-vis up/downtime: If the cloud provider’s infrastructure goes down, so do all of its customers’ services that depend on that infrastructure. For example, AWS’ outage last year famously brought down the online services of Target, Autodesk, and Roku, to name a few.

Also, less-than-experienced administrators can spin up cloud resources and often overlook critical details for securing those IT assets. For example, misconfigured AWS S3 buckets are a leading cause of data breaches in the cloud, while cloud-native databases such as MongoDB continue to be prime targets for cyber attackers. Finally, cloud services are by nature vendor-specific. Customers will typically experience significant lock-in when it comes to IT assets deployed in a particular cloud provider’s infrastructure.

Overall Comparison

Here’s how on premises stacks up against the cloud when measuring several key attributes, from cost to ease of use:

Conclusions

In reality, most companies benefit the most from a combination of both on-premises and cloud IT services. 

For example, many small businesses and medium-sized enterprises have shifted to Google G Suite for their back-office needs (e.g., email, productivity, and scheduling/calendars), while still maintaining a physical, corporate IT network with file backups occurring regularly on premises. As a reflection of this trend, Google’s offerings are well ahead of Microsoft Office 365, with 59.41% of the office suite market share in 2021. And though the pandemic may have brought on a global shift toward the home office, many companies still plan on returning to a physical workplace and some form of on-premises IT environment once safety permits.

That said, companies that intend to remain competitive by adopting offerings such as machine learning as a service (MLaaS) and big data as a service (BDaaS) will have no option but to consume these services in the cloud. These newer, strictly cloud-based as-a-service solutions will make moving away from on premises at least a partial requirement for continued enterprise innovation and agility. 

See more: Top Cloud Service Providers & Companies of 2021