Cloud vs. on-premise solutions – advantages and disadvantages

Why the trend is moving to the cloud and why a cloud solution can relieve the burden on your own IT department

Enterprise software can be installed either on-premise or in the cloud. This article explains what consequences this has. In order to understand the added value of the respective solution, you first need to know what exactly is hidden behind the two options.

According to a Statista survey, 82% of all companies surveyed in 2020 said they were already using either private or public cloud solutions. As the current trend is for more and more software solutions to be offered in the cloud, this article takes a closer look at the advantages and disadvantages of cloud and on-premise solutions.

What is a cloud solution?

With a cloud solution, the company rents a server from another company that specializes in maintaining server capacities. In return, the own company can easily scale the capacities and does not need any specific know-how for maintenance.

What does On-Premise mean?

With on-premise solutions, the company buys a server and manages it completely itself. This means that the company is responsible for ensuring that the server is equipped with appropriate security technology and that it is regularly maintained and updated. In addition, when new software is introduced, the company must ensure that the appropriate server capacity is available. For my company, on-premise means that the server is usually located in my building and cannot be accessed from outside.

Advantages:

Both types of installation offer various advantages. The 5 biggest advantages are described in more detail below.

Cloud

  • Scalability – Installing the software in the cloud enables easy scaling of server capacity, for example, if additional software is purchased or the number of employees increases
  • Low upfront costs – A cloud solution can be used immediately upon sign-up and requires no prior investment
  • No direct maintenance costs – The cloud provider is responsible for ensuring that the servers are updated and maintained accordingly. Thus, the server is always equipped according to the latest security guidelines.
  • Device-independent access – Data is accessible via the Internet regardless of the device
  • Updates & continuous development – Software-as-a-Service (SaaS) models are permanently updated and further developed.

On-Premise

  • Full control over your own data – Your own data, and possibly also customer data, is not stored on the server at another company.
  • Data access even if the Internet fails – If the Internet should fail, direct access to the server still allows access to the company’s internal data.
  • High degree of customization – Normally, standard software is used as a basis and then extended by individual customizations or adapted to the specific application.
  • Own IT infrastructure – The own company is completely independent from other server providers.
  • No ongoing software costs – Software is usually purchased outright and not obtained via a licensing model.

Disadvantages

Cloud

  • Data control – At the end of the day, the data is not located in the company itself, but on the servers of a cloud provider.
  • Ongoing costs – Software for SaaS models cannot be purchased, but is acquired via subscription or licensing models.
  • Need for Internet access – Successful use of cloud systems requires stable Internet access in order to retrieve the data
  • Fewer personalization options – SaaS software is mostly standard software and can only be customized to a very limited extent
  • Vendor dependency – Cloud providers can tie their own company down with specific and proprietary solutions, making it difficult to switch providers

On-Premise

  • Special hardware – Depending on the software, servers with different capacities and performance classes are required
  • Special IT know-how – Special IT knowledge is required for maintenance in order to secure the data properly
  • Delays in case of problems – In case of problems, the own company is responsible to solve them
  • No automatic updates – If an update is released for the software used, it is not automatically installed in on-premise models, but must first be purchased.
  • Risk of software being discontinued – On-premise solutions are often highly customized, which, in addition to high acquisition costs, means that when support is discontinued, there are no longer any (security) updates or further developments.

Further remarks

One of the most frequently used arguments – for both sides – is probably IT security. The proponents of the on-premise solution argue that it is significantly more risky to store your own data with another company. The proponents of the cloud solution, however, counter that cloud service providers spend significantly more resources and better-trained personnel on security than their own company ever could. If the cloud provider neglects one of its main businesses, IT security, then it usually loses its customers very quickly.

The high level of standardization in cloud computing also allows licensees to directly fix major bugs at one customer and other customers to directly benefit from the improvement. In addition, software that is standardized to a large extent is much more compatible with other applications compared to highly individualized software.

The business models that arise for on-premise and cloud providers differ greatly. On-premise means for the own company that a one-time, relatively high sum is due. Through this one then acquires the software. During installation, adjustments are often made so that the software runs smoothly on the hardware provided. The complete purchase of the software & many customizations also mean that the provider will not regularly import updates and further develop the software. However, with a cloud provider, the software is rented rather than purchased. Since the software is installed in a cloud, this means that rapid updates can be imported on a regular basis, from which all customers benefit equally. The majority of the administration and also the potential further development is therefore not the responsibility of the already often overburdened IT departments, but of the software provider. This means that the company can always use the latest software.

Why is the trend moving toward the cloud?

The trend towards cloud solutions is mainly due to the fact that companies do not have to maintain the corresponding know-how and the installation of the software in the cloud is significantly faster than if they first have to buy, install and maintain their own expensive servers. Companies can flexibly add or remove resources in different performance classes, for which otherwise months of procurement processes would have to be triggered.

Technologies have never developed faster than they do today. New technologies like NLP are finding more and more use cases and are being built into more and more solutions. If you buy a server today, you will probably have a server that is no longer state of the art in 2-3 years. In addition, AI-based applications often require more computing power than classic systems. The fact that in many companies it is not possible to estimate how much computing power will be needed in a few years leads to companies avoiding purchasing their own servers and preferring to rely on flexible solutions in the cloud.

Other risks, such as flooding, for example in the Ahr valley in Germany in July 2021, pose risks just like fire, which can lead to companies losing their on-premise data completely. A cloud provider can take other & better security measures against such risks and thus protect the data even better than the own company could do with smaller investments.

It will be interesting to see how the cloud market develops in the future.

Bastian Maiworm ist der Gründer des Enterprise-Search-Tech-Startups ambeRoad. Als Jungunternehmer spricht er über die neuesten Entwicklungen im Bereich Startup und Enterprise Search. Bei ambeRoad war er maßgeblich an der Entwicklung der Vertriebsstrategie beteiligt und kennt aufgrund seiner Erfahrung die Probleme, die sich bei Kooperationen zwischen Konzernen und Startups ergeben, sehr genau. Dies nutzt er, um die Digitalisierung und Zusammenarbeit zwischen Startups und Konzernen weiter voranzutreiben und zu optimieren.

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