With organizations looking to cut costs, many are migrating data and operations to the cloud. The cloud offers scalability, flexibility, and speed that traditional on-premises deployments often lack. At the same time, some on-premises assets can be valuable, even in a cloud-facing world. To make informed decisions, business leaders need to understand the differences between on-premises versus cloud and where they fit into corporate IT strategy.
What is On-Premises?
Referred to as on-premises or on-prem, this computing model consists of software downloaded to a physical device that the organization owns. People often use the term in reference to an organization’s data centers, including corporate-owned servers, networking systems, and system components. Additionally, on-premises can refer to internally designed applications specific to the organization’s use cases.
What is Cloud Computing?
Cloud computing is a model where another organization owns the servers, storage, databases, and software, delivering them “as-a-service” to customers. Instead of owning the hardware and software, the organization pays to use the services when it needs them.
Some services that organizations pay for using this “on-demand” model include:
- Computing power
Three types of cloud services models exist:
- Infrastructure-as-a-Service (IaaS): pay to use the servers, virtual machines (VMs), storage, networks, and operating systems
- Platform-as-a-Service (PaaS): pay to use on-demand services for developing software, including testing, delivering, and managing software applications
- Software-as-a-Service (SaaS): subscription-based software accessed from the internet that includes maintenance as part of the cost
Additionally, cloud computing incorporates the following types of technologies:
- Workloads: cloud-deployed applications, services, or other resources running in the cloud, including VMs and databases
- Containers: an alternative to VMs that integrate all software component dependencies, running them in an environment isolated from the physical environment
- Serverless: also called “Function-as-a-Service” (FaaS), breaks up cloud-hosted applications according to components to be used on an as-needed basis as a way to reduce compute resources when the application is not in use
Cloud vs. On-Premises Comparison
Cloud and on-premises deployments both run applications and enable business operations. However, they have several important differences.
Resource availability is the primary differentiation point between cloud and on-premises deployments.
When companies move to the cloud, they often do it because the cloud is a “scalable” resource. Analyst Gartner defines scalability as a system’s ability to increase or decrease in performance and cost in response to changes in application and system processing demands.
In other words, organizations can use as much compute power, storage, and services as they need at any given time. Since the cloud provides “on-demand” services, companies are not limited to the capabilities of their existing hardware. As the company’s computing needs grow, they can add more resources.
In comparison, on-premises resources offer finite storage and compute power. Since on-premises resources like servers have limited memory, organizations need to consider the way in which they want to use them and how long they think they will maintain them. Often, this leads to underspend or overspend while also limiting things like application, database, and storage use.
Many organizations struggle when they move to the cloud because they need to change how they pay for services.
Cloud resources use either a subscription-based or usage-based pricing model.
- Subscription: either flat-fee per organization or person for a year
- Usage: amount of computing resources consumed during a given time period, often monthly
As organizations migrate to cloud, many find that they need to account for additional hidden costs arising from their cloud deployments. These hidden costs include:
- Unexpectedly need to add more users (seats) as they onboard new workforce members
- Inability to track cloud usage
- Inability to “right-size” or appropriately estimate usage
- Improper auto-scaling, or inability to automate the appropriate amount of usage needed for tasks
On-premises software often uses a licensing model. With licenses, an organization pays a flat usage fee, giving them the ability to distribute the software to as many workforce members as they want during the license period.
Most license models are one of the following:
- Perpetual: usually applied to a specific software version based on a one-time purchase with unlimited use forever
- Floating: defined number of licenses that can be used by anyone who needs them until are licenses are in use
- Subscription: periodic payment model that automatically renews at the end of the payment period
While most companies can manage license models easily, these often come with their own problems, like:
- Inability to obtain security updates or customer support for operating systems or software after provider-supplied end-of-service data
- Increased up-front costs
- Data loss risk
Maintenance and Management
Understanding the different maintenance needs for each type of deployment also helps make informed IT decisions.
When utilizing a SaaS, the service provider pushes updates to the cloud resource without end-users needing to act on their own. Organizations transfer responsibility for vulnerability patches, uptime, and backup to the service provider.
However, when utilizing an IaaS or PaaS provider, organizations are responsible for maintaining and securing applications and workloads within the cloud environment.
Since the organization “owns” the software, firmware, or hardware, it is responsible for all maintenance activities. These activities include installing security patch updates to all devices, maintaining data center availability, and responding to services requests.
Security across cloud and on-premises deployments is one area with no clear winner. Each deployment has its own benefits and costs which is why leadership needs to understand them before making a decision.
Cloud security is a shared responsibility. Under this model:
- Service providers: Responsible for security of the cloud resource, meaning responsible for any vulnerabilities impacting infrastructure or hardware they own
- Buyers: Responsible for security in the cloud resource, meaning responsible for access to sensitive information within the resource
For example, if a malicious actor exploits a vulnerability in a server owned by the cloud provider that leads to a data breach, the provider is responsible. If the malicious actor exploits a misconfiguration managed by the buyer, then the buyer is responsible.
In an on-premises deployment, the organization has total ownership over security. If the company has the security resources, this gives it a better way to mitigate risk. However, it also makes them entirely responsible for maintaining and monitoring security continuously.
Many organizations with on-premises data centers leverage managed detection and response services providers to help them mitigate cybersecurity risk.
[Related Reading: How to Perform a Cybersecurity Risk Assessment]
The differences in computing decisions also impact financial reporting and forecasting. In many ways, this difference is one of the most difficult paradigm shifts organizations face.
Operating expenditures (OPEX) are the everyday costs that businesses incur as part of operations. Generally, these costs cover products and services with limited life-span that an organization consumes regularly.
The cloud’s scalability and shorter term subscription-based pricing mean that many organizations report these services as OPEX. In doing so, organizations have greater flexibility and more opportunity to make changes to their IT services than they would otherwise. If the organization can appropriately control cloud costs, then it can reduce its operating ratio, indicating financial efficiency.
On-premises technologies are considered capital expenditures (CapEx). The organization pays the total cost for the technology up-front, then the value reduces over time.
While OPEX offers flexibility, the variability can be difficult to manage, especially if the company struggles to manage cloud costs efficiently. CapEx is a fixed cost with quantifiable depreciation values, making long-term financial forecasting easier.
With CapEx linked to income and profitability, moving away from on-premises computing requires an accounting paradigm shift that many organizations struggle with.
Cloud vs. On-Premises Cost
Cloud and on-premises technologies differ but so do the costs associated with them. Although many of the cost differences arise from how the technologies work, drilling into them more specifically provides additional insight as an organization looks to migrate its operations.
Hardware consists of the physical devices the organization uses to run the technology.
The good news for organizations, and one of the reasons for increased cloud adoption, is that the cloud requires no physical hardware. Fundamentally, the organization gets to take advantage of the benefits while the cloud provides takes care of the hardware.
With on-premises deployments, the organization needs to pay for the hardware. This means that despite the depreciation over time, the organization has to consider the longer-term replacement costs. This can create a challenge when hardware fails earlier than expected or is compromised.
Maintenance costs also differ between cloud and on-premises deployments, especially when considering the cybersecurity and IT skills gap.
The cloud services provider pays for the hardware, software, and firmware upkeep, passing that on as part of the subscription cost.
However, organizations should consider the costs associated with:
- Meeting shared responsibility security requirements
- Hiring staff with expertise in specific cloud environments (for example, AWS, Microsoft or Google Cloud Platform)
- Leveraging a third party to identify and manage cloud vulnerabilities and threats
Since the organization owns and controls the hardware, it pays for all maintenance costs. These costs include:
- Hiring IT staff to maintain uptime
- Hiring IT staff to ensure secure hardware, software, and firmware configurations
- Hiring security staff to monitor for new risks
- Time spent pushing security updates to devices
- Time spent responding to service issues
What is the difference between public cloud, private hosted cloud, and hybrid cloud?
Some organizations want the best of both worlds – the ability to control everything with the flexibility cloud computing provides. To make the best decision, leadership should also consider the differences between the two types of cloud and on-premises deployments.
Public cloud consists of traditional “as-a-Service” providers. The organization pays a third-party to maintain its data center. Examples of public cloud include:
- Amazon Web Services (AWS)
- Google Cloud Platform (GCP)
Public cloud services are often multitenant, meaning that multiple customers share resources even though the service provider keeps the data separate.
Private Hosted Cloud
By contrast, private clouds are single-tenant services. The third-party service provider dedicates resources to one customer, giving that organization control over server resources. The service provider isolates the physical servers and all components so that no other customer has access to them.
In this model, the company maintains a data center and dedicated servers. In doing so, it controls all virtual machines, servers, and components, running them within its boundaries. While this option provides the most security and control, it can also be cost-prohibitive.
Making Informed Technology Decisions
Every technology deployment has positives and negatives. No “one size fits all” deployment exists. Some organizations will choose to become cloud-only while others need to maintain a hybrid environment (inclusive of on-premises data centers).
However, all technology choices require a security investment. Organizations need security solutions that can respond to their unique IT decisions. Turning to a managed security solution, like Alert Logic, can streamline the security costs associated with both on-premises and cloud infrastructures.