On-Premises vs. Off-Premises

The organization is completely responsible for the end-to-end execution and management of the infrastructure. Design, purchase, assembly, operation, backup, security, and maintenance are all handled in-house.

The managed service provider is responsible for managing the computing infrastructure. Power backup, maintenance, upkeep, data backup, and other responsibilities are all handled by the cloud provider.

The organization has complete ownership of the infrastructure’s location, devices, network, and security. Any problem with the infrastructure is the sole responsibility of the internal IT team to fix—in the same way that a homeowner is generally responsible for repairing the roof or installing home security systems.

Because the organization has complete control over all the aspects of the infrastructure, it may have more flexibility in creating personalized systems that integrate hardware and software according to the company’s needs.

The cloud service provider owns the facility and computational resources. The organization that uses the infrastructure is like a tenant. It can use the infrastructure in accordance with the agreement with the provider. The company has less control over decisions about facilities and resources.

Because the complete infrastructure has to be built by the organization, on-premises setups generally require large capital outlays. For this approach to make financial sense, the organization will have to generate a positive return on investment above the cost of capital, compared to alternative solutions. Large initial investments also make it difficult to abandon a project part way through—even if business needs or market conditions change.

Most cloud service providers offer a pay-as-you-go (PAYG) model of payment. This subscription-type model alleviates the need for high capital expenditures. Customers can also leave the service whenever they want in most cases. This means they won’t risk getting stuck with unprofitable projects on their balance sheet.

After initial costs are accounted for, the company will have ongoing expenditures for energy, maintenance, and personnel.

On an annual basis, ongoing costs might be slightly less than the costs associated with off-premises solutions. However, companies must also factor in loan repayment as part of the complete financial picture. If the infrastructure wasn’t built with debt, the depreciation of the assets has to be taken into account instead.

Users pay a subscription fee or standard charges based on the resources they use. In this way, off-premises computing can be very flexible. Expenses associated with maintaining facilities and resources are shared across all of the provider’s customers. Generally, this means lower costs for customers than on-premises alternatives.

On-premises infrastructure has limited scalability. Once built, resources can’t be varied dynamically. This can cause a lack of resources or the underutilization of resources, depending on the fluctuating needs of the organization.

Cloud providers offer greater scalability of resources. Organizations can scale resources up or down based on demand. The right amount of resources is virtually always available through the off-premises model.

The infrastructure doesn’t need to connect to the wider internet. The internal IT team can access it through the local network. This increases the privacy and security of the infrastructure, potentially making it a good fit for companies in highly regulated industries.

Users can only access the infrastructure over the internet because it isn’t located on the company’s premises. If access over the internet isn’t ideal, the cloud provider and organization will need to build a secure private network.

Companies are responsible for the security of their infrastructure, platform, and any applications running on the infrastructure. Companies must not only create their own security protocols and deploy protective software but also hire security experts to protect the infrastructure from cyberattacks.

The cloud service provider is responsible for securing its infrastructure and platform. The company using the infrastructure is only responsible for the security of the applications it installs. This significantly reduces the investment that’s needed.

When platform software needs to be updated, the company can make the decision internally and put changes into motion immediately. The same can be done for hardware, though that may require capital allocation and result in a minor disruption in service.

The cloud service provider manages platform hardware and software updates. Companies using the service may have limited control over how and when changes occur. That said, given their scalable nature, cloud service providers may be able to update resources without affecting service levels.