On-premises vs. Cloud – the Pros & Cons

The choice between on-premises and cloud is one of the most important decisions that companies have to make when designing their IT infrastructure. Both models have their strengths and weaknesses and offer different benefits – depending on the company’s requirements. But what exactly is behind these terms?

What does on-premise and cloud mean?

On-premises (“on-prem” for short) describes IT systems and applications that are installed and operated locally on a company’s servers, giving the company full control over the hardware, software and data. This model is often favoured when particularly high demands are placed on data protection, security or performance – for example in sectors such as financial services, healthcare or public administration.

The cloud, on the other hand, refers to IT resources that are provided by a third-party provider via the Internet. Instead of operating their own servers, companies use services such as storage, computing power or software that are hosted in the data centres of providers such as Microsoft Azure, Amazon Web Services or Google Cloud. This model is known for its flexibility and scalability and is particularly suitable for companies that need to react quickly to changing market requirements or support globally distributed teams.

On-prem vs. cloud – what’s the difference?

On-prem works on the basis of all IT resources such as servers, storage and applications being operated locally in your company, with the company itself being responsible for installation, maintenance and security. With cloud solutions, on the other hand, these resources are provided over the Internet. Hosting and management is done in a provider’s data centres, meaning that you only use the services you need. While on-prem enables direct physical control, the cloud operates on a flexible rental model with centralised access and automated updates by the provider.

Comparison of on-prem & cloud

A comparison of on-prem and cloud reveals fundamental differences in the functionality and characteristics of both models. While on-prem relies on local IT resources that are operated and managed entirely within the company, cloud services are made available externally by providers via the Internet. Both approaches bring with them specific advantages and challenges that have different impacts depending on the company’s requirements.

The following table provides a detailed comparison of the most important criteria to help you decide between on-prem and cloud:

Advantages and disadvantages of on-prem and cloud at a glance

Advantages of on-prem

• Full control over data and systems:
  • Companies retain complete control over their IT infrastructure.
  • Sensitive data remains local and is not dependent on external providers.
• Individual customisability:
  • IT systems can be tailored precisely to the specific needs of the company.
  • No dependence on a cloud provider’s standards or updates.
• Independence from the Internet connection:
  • Systems remain stable even in the event of network failures because they are operated locally.
  • Ideal for locations with a limited or unstable Internet connection.

Disadvantages of on-prem

• High initial investment:
  • Costs of hardware, software, infrastructure and their installation can be considerable.
  • Can be a financial challenge, especially for small and medium-sized companies.
• Maintenance overhead:
  • The IT department is responsible for maintenance, updates and security measures.
  • This requires specialised personnel and ongoing costs for maintenance and spare parts.
• Limited scalability:
  • Expanding the infrastructure takes time and requires investment in new hardware.
  • Rapid adaptation to increasing requirements is difficult.

Advantages of the cloud

• Flexibility and scalability:
  • IT resources can be started up or shut down quickly and easily as required.
  • Perfect for companies with fluctuating requirements or growth plans.
• Low initial costs:
  • No need for expensive hardware – costs are only incurred for services used (pay-as-you-go).
  • Ideal for start-ups or projects with a limited budget.
• Simple management:
  • Updates, maintenance and security measures are carried out by the provider.
  • IT teams can concentrate on strategic tasks.
• Global availability:
  • Access to data and applications from anywhere with an Internet connection.
  • Supports distributed teams and mobile working.

Disadvantages of the cloud

• Dependence on the Internet connection:
  • Services cannot be used without a stable connection.
  • Bandwidth problems can affect performance.
• Less control:
  • Data and systems are hosted externally, offering less scope for influence.
  • Companies need to trust the provider’s security infrastructure.
• Running costs:
  • While the initial costs are low, long-term operating costs can be higher due to continuous use.
  • Transparency of costs depends heavily on utilisation.
• Data protection and compliance:
  • Data protection regulations such as GDPR can pose particular challenges for international cloud providers.
  • Companies need to ensure that data centres comply with legal requirements.

When does which model make sense?

The decision between on-prem and cloud depends heavily on a company’s specific requirements, industry and goals. Both models have their strengths, and a hybrid approach that combines the advantages of both worlds is often the best solution. Typical scenarios in which the respective models prove particularly effective are shown below.

Typical scenarios for on-prem

On-prem solutions usually make sense if your company has to fulfil the following requirements:

• Strict data protection and compliance requirements
  • Example: Companies in the financial sector, healthcare or government institutions that manage sensitive data
• Performance-critical applications
  • Example: CAD software or local databases that require high speeds and low latencies
• Long-term cost reduction
  • Example: Companies with a large number of users or workloads and long-term, predictable requirements
• Critical infrastructure
  • Example: A failure of the IT infrastructure is fatal for production plants, research centres or healthcare facilities such as hospitals, which is why they often rely on local systems

Typical scenarios for the cloud

Cloud solutions offer major advantages if your company needs to fulfil requirements such as:

• Dynamic workloads:
  • Example: Companies with highly fluctuating requirements, such as seasonal peak loads or project-based IT resources

• Mobile and distributed working:
  • Example: Companies with employees who are distributed worldwide or travel frequently

• Start-ups and smaller companies:
  • Example: Companies that value low entry costs and want to avoid a high investment risk in their own IT infrastructure

• Innovation and rapid development:
  • Example: Development and test environments that require a high degree of flexibility

Hybrid models strike a balance

Hybrid approaches offer the best of both worlds and are ideal for companies looking for a balanced solution between control, scalability and security:

• Combination of control and flexibility:
  • Hybrid models make it possible to store sensitive or critical data on-prem, while less critical applications and services are hosted in the cloud.
  • Ideal for companies that want to benefit from both approaches.

• Step-by-step migration:
  • Companies that want to switch to the cloud in the long term can use a hybrid model to organise a smooth transition phase without affecting ongoing operations.

• Disaster recovery and backup:
  • Critical data is stored on-prem, while the cloud serves as a backup and disaster recovery solution.
  • This offers maximum safety and failure protection.

• Cross-industry utilisation:
  • Hybrid models are often found in industries such as retail, where local POS (point of sale) systems operate on the premises while the cloud is used for analytics and customer relationship management.

What role does licensing play in the on-prem vs. cloud decision?

Licensing is a decisive factor that significantly influences the choice between on-prem and cloud. It determines not only the cost structure, but also the flexibility and long-term benefits of the IT infrastructure. While on-prem solutions often entail high one-off investments in software licences, cloud services usually work on a subscription-based model that involves ongoing costs. There are pros and cons to both approaches, and a hybrid solution – i.e. a combination of on-prem and cloud – can often make both economic and strategic sense.

With on-prem licences, companies usually pay once for the software and can use it for many years without incurring further licence costs. This long-term usability makes on-prem particularly attractive for stable, predictable IT requirements. However, maintenance, updates and possible extensions often result in additional costs that are not directly included in the licence. Cloud licences, on the other hand, offer maximum flexibility as they are billed on a “pay-as-you-go” model. Companies only pay for the resources they actually use. This is particularly advantageous for dynamic requirements or projects with short-term resource needs. In the long term, however, the running costs can add up and make the cloud more expensive than a one-off investment in on-prem solutions.

A hybrid solution combines the advantages of both approaches and can optimise licensing costs. Critical applications and data that are operated in a stable manner over the long term can be licensed on an on-prem basis. At the same time, cloud services can be used for applications that need to scale dynamically or are only required for a short period of time, allowing companies to avoid high initial investments while retaining the flexibility of the cloud. Hybrid models can also better control licensing costs, as not every application has to be licensed twice for every user. For example, rarely used applications could remain in the cloud, while frequently required applications could be licensed locally.

In sum, licensing plays a key role, as it determines not only the costs, but also the flexibility and scalability of the IT infrastructure. A hybrid solution often offers companies the best value for money, as it combines the advantages of both worlds and enables an optimal distribution of licence costs.

VENDOSOFT will be happy to advise you on any licensing-related decisions. Simply use our free licence consultation to find a customised solution for your company.

On-prem vs. cloud – a demand-based decision

The choice between on-prem and cloud depends on a company’s individual requirements, goals and resources. Both models have their strengths and weaknesses, which is why the right solution often only becomes clear after your own needs have been analysed. Data protection, scalability, costs and flexibility play a central role here.

On-prem offers maximum control over the IT infrastructure as data and applications remain entirely within the company. This is particularly beneficial in industries with high data protection requirements or for sensitive information. Applications that require low latency times or stable requirements also benefit from on-prem. Although the investment costs are high, this can pay dividends in the long term.

Cloud solutions offer maximum flexibility and are suitable for companies with dynamic workloads, global teams or growing resource requirements. Usage-based billing is ideal for projects with unpredictable requirements. At the same time, resources can be scaled quickly. However, the cloud creates dependencies on the provider and the Internet connection.

A hybrid solution combines the advantages of both models: critical applications remain on-prem, while the cloud is used for scalable or short-term projects. This allows flexible, cost-efficient customisation of the IT infrastructure to individual requirements.

The decision should always be based on a thorough analysis of business needs. We will advise you as part of our free licence consultation by VENDOSOFT.