Cloud vs. On-Premise Solutions: Which Is Right For You?

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Two business people standing in server room evaluating cloud vs. on-premise solutions

Moving to the cloud isn’t a new concept. It isn’t a tech fad either. According to a RightScale survey, 81% of companies with 1,000+ employees have a multi-platform strategy. That number is expected to exceed 90% by 2024.

As your business grows, looks at new services, products, or its IT infrastructure, you should be aware of the options available to you. Hosting in the cloud? Or having it on-prem?

As simple as it sounds, you should carefully consider both options and how they align with your business’ growth strategy. You should also understand the core definitions and differences between the two. What are the pros and cons? Risks to your business?

We answer each of these questions in this post to help guide your decision.

What’s cloud computing? What’s on-premise?

Cloud computing is a term for services that are delivered via the internet and hosted by an external party.

The traditional model for these services is on-premise, meaning your data and equipment is primarily in-house. You purchase, store, and deploy your software and data on equipment you own.

Think of it in banking terms. You could have your safe on-premise or in the bank.

When it’s on-premise, your safe is locked in your company’s basement. You have to be in the building to access the safe and any funds inside it. Your company is responsible for protecting the safe and all its valuables.

If you’re using the bank, your safe and the money is stored off-site by the bank. It hosts other companies’ safes and is responsible for keeping each safe siloed to the appropriate company. It’s also responsible for keeping your safe secure.

When you want to access the safe and any money inside, you use a process the bank has created. You can access the contents of the safe from anywhere the bank’s services are available.

 

What can I have in the cloud?

The good news is that cloud services are growing! According to Gartner, Inc., “The worldwide public cloud services market is projected to grow 17.5% in 2019 to total $214.3 billion.”

If you’re trying to move to the cloud, you’ll likely have plenty of options. Or, products or services you currently use may already have plans for a cloud version.

Most cloud services are split into three categories: IAAS, PAAS, or SAAS.

 

Infrastructure as a service (IAAS)

With IAAS, a third party hosts elements of your company’s infrastructure. They may provide servers and storage, and networking. You’re usually responsible for having personnel who can deploy, configure, and manage this infrastructure in the cloud.

Common IAAS providers include Amazon Web Services and Microsoft Azure.

 

Platform as a service (PAAS)

With PAAS, a third party gives you access to hardware or software tools like business analytics or operating systems for application development. The third party will host the tools you need on its infrastructure so you can easily create or run your apps.

You pay for access to the site and can manage various versions of your apps, test new features, without buying and managing the physical equipment that’s necessary for development. You’ll also gain access to their servers, storage, and data centers for your applications.

Typically, pricing is based on use numbers. What you pay is based on how often people access your app.

Common uses of PAAS include application hosting or Java development. Providers include Google App Engine and Heroku.

 

Software as a service (SAAS)

SAAS is the largest category of cloud services and one you may be most familiar with. Simply put, a third party delivers a software application over the internet. If you’re using a software that’s web-based it’s probably SAAS.

Business tools you may have in the cloud include your CRM, HR, payroll, and accounting programs. Some top SAAS companies are Salesforce, Google, Adobe, MailChimp, Microsoft, SurveyMonkey, Dropbox, LastPass, and Sage Intacct.

When you’re using a cloud-based software, you visit a website URL, log in with your credentials, and the application will run on the provider’s infrastructure. They’re responsible for the maintenance, security, upgrades, storage, etc. of that application.

Team leader leading meeting with employees about cloud and on-premise solutions

Cloud vs. on-premise

Before we start to list out the pros and cons of cloud vs. on-premise solutions, it’s important to know that these pros and cons truly depend on the size and scope of your business.

Some of the pros we list could be a con for you. When evaluating whether to move to the cloud, you should fully understand the commitment you’re making and the impact on your business.

Some pros may outweigh the cons. Some cons may be too significant to ignore. The factors driving your decisions and the future readiness for your business matter most. With that in mind, here are advantages and disadvantages of cloud vs. on-premise solutions.

 

Pros of the cloud

1. Decentralization of data

When you transition to the cloud, your data can be stored across multiple regions. This decentralization allows you to minimize the risk of a disaster or other event from completely wiping out your data or taking you offline.

When it’s spread across the country or the world, you can still access your data if one region is affected. However, it’s a pay to play space. Using more regions is going to cost you.

2. Continuity & scalability

With cloud solutions, you can easily spin up resources and use the cloud with your business’ workflows. If your business fluctuates, you can increase or decrease your cloud capacity without having to purchase more equipment.

Cloud solutions are also highly reliable, meaning the risk of downtime is low. Users will nearly always have access to it – work can happen anywhere, anytime.

3. Cost

Moving to the cloud can help you eliminate equipment expenses. You reduce your need for servers, battery backups, and other hardware. You may even reduce some staffing resources because you gain access to the cloud provider’s staff for maintenance, upgrades, and security.

But, while cloud services reduce capital expenses, you’ll likely make up for some of those expenses with operating costs.

4. Redundancy

The cloud can give you redundancy which can be expensive for you to replicate on-premise. You gain redundancy through equipment and data centers built to have multiple fail-safes.

Often, providers are audited and classified to meet industry standard ratings. You’re taking advantage of economies of scale and business specialization.

5. Security

Data security is a big concern for all businesses. Cloud providers are responsible for physically protecting their platforms, infrastructure, and your data. And, if it’s a public cloud with multiple tenants, they have to take extra care to make sure each company’s data is private and secure.

You’ll likely benefit from greater security controls – depending on who your provider is and what’s in your service level agreement (SLA). However, you may need additional security measures – virtual firewalls or controls – to further protect your data.

6. Mobility & agility

Cloud solutions are highly accessible. If users have devices that access the internet, they can access the software they need from wherever they are.

You can get upgrades and deploy applications more quickly with the cloud.

 

Cons of the cloud

1. Service

The level of service you get from your cloud provider is wholly dependent on what you agree to in your SLA. What they’re willing to promise you is what you get.

You might spend more time engaging with their customer service. Your internal IT team can’t get things up and running if there’s any downtime.

2. Control

The services and products in the cloud are largely out of your control. Again, this could be good if you don’t have the resources to hire an IT team.

But if you do, your internal team can’t do much but work with support. If a security breach occurs, the responsibility shifts to a cloud provider, but the blame will likely stay with you. Your business may receive more negative attention and damage than your cloud provider.

3. Cost

As mentioned, cloud migrations are unique to each business. If you’re a large business or a complex business, moving to the cloud could be more costly.

You may pay greater operating costs, have greater workloads or complex functionality. You may also need to hire IT personnel with more specific expertise to work in the cloud – especially if you use a private cloud or hybrid.

4. Inflexibility

Some applications may have data formats that don’t easily transfer to other systems. Moving from one accounting system to another might be a hard process.

Be wary that you’re not getting locked-in by your vendor because they make switching too burdensome. Retain ownership of your data and ask them to ensure their products will keep up with current standards.

5. Internet connection

Access to your cloud applications requires internet access. On-premise products don’t necessarily need an internet connection to function and can perform well, even at low internet speeds.

If you want the best performance out of your cloud products, you’ll need to make sure your internet connection is stable. Even then, access speeds can be limited by the provider.

 

Pros of on-premise

1. Centralized control

All of your equipment will be on-site. You know where your data is and can set your maintenance schedules according to your business’ workflows.

Your IT team can provide service, maintenance, and support fairly quickly.

2. Familiarity

Your IT team knows your environment, the equipment, and your business. They can work directly with your internal users to provide support and may be better skilled at identifying and solving any issues.

3. Latency

If your equipment is set up correctly, access to software is quick. Your internet speed doesn’t matter because on-premise products can operate without it.

Users have limited issues when working in systems or storing and accessing data.

4. Ownership

Unless you happen to lease your IT equipment, if you buy it, it’s yours. You can benefit from some tax deductions or depreciation rates.

And, you’ll have full control over the equipment and your data. You choose what to do with it. If you work in an industry with high privacy concerns or compliance regulations, it may be best to have on-premise products that no other parties can access.

 

Cons of on-premise

1. IT personnel

With your on-premise equipment and applications, you’re relying on your IT team to troubleshoot and correct problems. This means you need an IT team. And, they need to have the knowledge and expertise to support your equipment.

How big of a team do you need? How much of an investment is it to ensure they can handle your systems and users and receive ongoing training? If you’re a small business, this may be a significant investment. If you’re larger, it may be well worth it.

2. Centralized data

It may be nice to have your data in one place, but if disaster hits, you can lose it. Unless you have back-ups.

Restoring back-ups can be a slow, time-consuming process. How does this affect your ability to do business? How could losing data impact your relationships with customers?

3. Storage limitations

When purchasing storage, you get exactly what you purchase. If you don’t use all of it, it’s a sunk cost.

If you need to increase your storage, scaling up takes time. Time to purchase equipment and time to implement. Plus, it takes up physical space when it’s on-prem. Do you have space to grow and add more of this equipment?

 

There’s a lot to consider when looking at your company’s investment in its software and hardware. Maybe you’re ready to move everything to the cloud.

What does that look like? What options are available to you? Think about the service and security features you need. Is it really more cost-effective for your business?

Do a thorough evaluation with your IT team or your business partners to make sure you make the right decisions for your business.

 

Have questions about moving to a cloud-based accounting software? We can offer some expertise as a Sage Intacct partner. Let’s talk!