Cloud vs On-Premises

What is On-Premises?

On-premises, or on-prem for short, refers to a method of operating and managing IT resources in which the hardware and servers are kept on the company's own premises. This means that the company in question has full control over its IT infrastructure, including physical servers, storage devices, network components, and software applications.

Is the Private Cloud an On-Premises Solution?

Among other things, the private cloud can be seen as a form of on-premises, as the cloud is hosted in the company's own data centers or premises and the resources and infrastructure are available to the company in virtualized form.

Although the private cloud has some cloud-like features such as scalability and flexibility, it is still considered an on-premises solution because it is managed by the company's internal IT department and retains control over the entire infrastructure.

Why should a Company use On-Premises?

The decision to use on-premises can make sense for companies in many cases. The reasons for using this method of resource management can vary. For example, some industries, such as healthcare or financial services, are subject to strict data protection and compliance regulations.

On-premises solutions offer greater control over sensitive data than other forms and enable compliance with these regulations. In addition, companies with high performance requirements or specialized workloads can use on-premises systems to maximize performance and minimize latency. If investments have already been made in the company's own hardware and infrastructure in the past, continuing to use on-premises resources can make economic sense by expanding existing resources.

The arguments described above can be turned into competitive advantages, provided that the benefits of this method can be exploited.

What is Cloud Computing?

Cloud computing describes the provision of certain services and resources such as servers, storage, databases, and networks via the internet, known as the “cloud.” The task of cloud providers is to host and manage these resources. Companies can use these services as needed and scale them flexibly without having to purchase or maintain physical hardware.

The costs of cloud computing compared to on-premises solutions can vary greatly and depend on many factors, including the amount of data stored and processed. When comparing costs, it is therefore important to consider both approaches in their entirety.

While on-premises models involve upfront investments, project costs, depreciation and replacement of hardware, and ongoing operating costs, consumption-based billing models for cloud services eliminate upfront investments almost entirely. However, depending on the amount of data stored, the operating costs of cloud computing can be higher than those of on-premises systems. It is therefore advisable for companies to carry out a detailed cost-benefit analysis with different expected data storage volumes before deciding which of the two options to implement.

When is it advisable to use the Cloud?

The cloud is primarily chosen by companies that want fast and agile scaling of resources in order to adapt to changing requirements. In addition, cloud services typically require little or no initial investment, as services are billed on a pay-as-you-go basis and only the resources actually used are paid for.

Is the Cloud cheaper than On-Premises Solutions?

The actual costs incurred depend on various factors, including the specific requirements of the company. In many cases, cloud computing can be more cost-effective than on-premises solutions because it reduces the need for high initial investments in hardware and maintenance costs. It also enables better use of resources and flexibility in terms of scaling. On the other hand, cloud computing can incur higher costs for data storage provision. Therefore, when using cloud computing, the advantages and disadvantages of this method must be weighed against the company's requirements.

Cloud Computing vs On-Premises

The difference between cloud computing and on-premises solutions goes far beyond just the location of the systems—it also encompasses aspects such as costs, security, compliance, and ongoing operations. While companies retain full control over their infrastructure with local installations, they transfer this responsibility to external providers with cloud services.

With the advent of hybrid and multi-cloud strategies, choosing the right approach has become more complex. Many companies are finding that neither pure on-premises nor pure cloud solutions cover all their requirements. For example, legal requirements in industries such as healthcare or finance often require local control of sensitive data, while the cloud offers advantages in efficiency, speed, and scalability – especially in development and testing.

As a result, most organizations today rely on hybrid or multi-cloud models that combine the regulatory requirements of local systems with the flexibility and dynamism of the cloud. It is crucial to understand these differences in order to align technological decisions with strategic business goals.

Advantages and Disadvantages of Cloud vs On-Premise

Cost Management and Financial Flexibility

Cloud computing eliminates the high initial investments that are common with local IT infrastructures. Instead of tying up large sums of money in hardware, data centers, and networks, companies can invest their capital specifically in growth and innovation. The cloud operating model also ensures predictable, usage-based costs that can be flexibly adjusted to actual needs.

On-premise solutions, on the other hand, score points for stable workloads with better long-term cost transparency. With no recurring subscription fees, companies retain control over their technology cycles. Although the initial investment is high, the total cost can be lower over longer periods of time if resource requirements remain constant.

Scalability and Operational Agility

Cloud platforms offer virtually unlimited scalability. Companies can immediately expand or reduce resources as needed—without any delays due to hardware procurement. This reduces costs during quiet periods and ensures smooth performance during peak times. Dynamic or growing companies in particular benefit from this flexibility.

Local infrastructures, on the other hand, require long-term capacity planning. To cope with peak loads, oversized systems often have to be maintained, which leads to expensive underutilization during normal operation. On the other hand, companies retain full control over the timing and scope of scaling.

Security Situation and Risk Management

Large cloud providers invest billions in security measures, threat analysis, and specialized personnel—a level that individual companies can rarely achieve. They offer sophisticated encryption, identity management, permanent monitoring, and automated responses to threats. Smaller companies in particular benefit from this professional level of security.

Local systems, on the other hand, allow complete control over security policies, data locations, and access rights—a decisive advantage for highly regulated industries or particularly sensitive data. Having your own infrastructure allows for customized protective measures and avoids dependence on external providers in the event of security incidents.

Performance and Reliability

Cloud environments, on the other hand, offer global availability, redundancy, and reliability that few companies could build themselves. However, shared infrastructure can lead to performance fluctuations, and dependence on a stable internet connection poses risks for latency and availability.

On-premise systems offer consistent, predictable performance because resources are used exclusively. There are no “noisy neighbors,” and hardware and networks can be tailored precisely to your own applications—ideal for scenarios with high performance or latency requirements.

Access to Innovation and Technological Progress

Cloud providers continuously integrate the latest technologies—from AI and machine learning to big data and IoT. Companies can take advantage of these innovations immediately, without their own development efforts or infrastructure investments. This accelerates the introduction of new products and simplifies experimentation with modern features.

With local systems, on the other hand, new technologies must be researched, tested, and implemented in-house—a time-consuming and resource-intensive process. While this allows companies to retain control over technology selection and rollout timing, it often slows down access to innovation and hinders digital transformation.

Conclusion

The choice between on-premises and cloud computing depends on the individual requirements and goals of the company. Both approaches have their advantages and disadvantages, which should be carefully weighed when making a decision. On-premises offers maximum control and security, for example, and may therefore be more suitable for industries with strict compliance requirements and specific performance requirements. On the other hand, cloud computing offers flexibility, scalability, and cost efficiency. It is crucial to consider the specific requirements of the company and possibly consider a combination of both approaches.