Last updated on May 13, 2024
Understanding cloud vs on-premises costs
Saving costs is one of the primary reasons organizations transition from on-premises IT systems to cloud-based environments. While cloud computing can provide organizations with potential financial advantages, it’s also essential to understand the full implications of cloud vs. on-premises costs when it comes to IT infrastructure pricing.
However, even before looking into the differences between cloud and on-premises costs, it is necessary to understand what cloud infrastructure is. In this post, we’ll look further into cloud vs. on-premises costs by delving into the factors that differentiate them and how they affect your business workloads. Finally, we’ll compare the pros and cons of cloud vs. on-premises costs.
Differences between cloud and on-premises servers
The fundamental difference between on-premises vs cloud servers is where the underlying IT infrastructure resides. The cloud-based servers—also called virtual servers—are essentially pooled, centralized server resources that cloud service providers (CSPs) host and deliver over a network (typically over the internet) to multiple subscribers on an on-demand basis.
These servers can perform the same functions that a traditional physical server can do by delivering the processing and storage capacities necessary to power business workloads. Cloud servers work by virtualizing physical machines to create virtual machines (VMs), which subscribers from remote locations can access.
The server virtualization processes are performed by a hypervisor that abstracts the physical servers’ processor, storage, and networking resources. The hypervisor then uses these resources to create and power virtual or cloud servers..
On-premises servers, on the other hand, consist of physical servers that organizations can host on their premises. Unlike cloud servers that are hosted and managed by third-party CSPs, on-premises servers are hosted internally within the organization, where in-house IT teams are responsible for their deployment and maintenance.
In the past, most servers were largely on-premises, meaning that each organization had a physical datacenter room that housed its compute, storage, and network resources. Because the hardware components required regular maintenance services, including updates and security, IT teams had to be on standby to deal with configurations and updates.
However, with the emergence of cloud computing and affordable internet connectivity, cloud-based servers have become more popular. Instead of relying on on-premises servers, organizations are increasingly shifting everything to the cloud, allowing employees to access corporate resources from any location.
Factors that affect cloud vs. on-premises costs
Many factors can affect how much an organization pays when it comes to cloud versus on-premises IT infrastructures. As such, there is no definitive solution as to which environment is cost-effective. For example, there can be instances where an on-premises IT infrastructure is cheaper than a cloud-based solution.
Similarly, you can also have other situations where cloud-based solutions are less expensive when compared to on-premises IT infrastructure. However, in most cases, companies will likely find cloud-based solutions cheaper than on-premises infrastructure. Let’s examine some factors that influence the price difference between these solutions.
Upfront costs
One of the cost benefits associated with cloud servers is that the organization doesn’t have to make a sizeable investment in the hardware components. Instead, the organization uses its budget more wisely by renting the hardware at a much smaller subscription-based fee. This is especially beneficial for startups with tight budget lines. For example, startups can finance marketing, research, or development activities instead of investing a large sum of money in expensive servers.
The same is also true about the server software licensing structures. For example, in an on-premises IT environment, businesses are compelled to buy their server software licenses upfront, which can be expensive. This contrasts with a cloud-based infrastructure that allows organizations to use the server software on a subscription-based pricing model.
Hardware replacement costs
Cloud-based solutions are cheaper than on-premises infrastructures because you don’t need to replace the hardware. This contrasts with on-premises infrastructure, where IT teams will likely replace the hardware after a few years, incurring costs in the process. There are two primary reasons why hardware replacement is inevitable.
The first reason is evolving technology. As technology evolves, you’ll need to upgrade the hardware to stay abreast and remain competitive. Second is the fact that you’ll need to avoid equipment failure. This is because old servers often become less efficient with time, causing increased chances of failure, leading to frequent downtime and lost revenue.
As mentioned earlier, buying new hardware requires significant capital investments. With a cloud-based infrastructure, you don’t need to worry about hardware replacement costs due to the subscription-based pricing scheme.
Pricing models
Cloud-based infrastructures allow businesses to pay only for services consumed on a pay-as-you-go pricing model. These infrastructures can grow and shrink quickly, based on the prevailing subscriber requirements. For example, an organization that experiences a burst in traffic can scale the consumption of cloud resources upwards quickly to meet the demand.
This level of agility enables the organization to achieve real competitive advantages. In an on-premises infrastructure, this is not always the case. For example, the company must buy new hardware components if the server’s storage capacity and availability reach their limits. This not only costs money and time, but also leads to wastage, especially for businesses with seasonal traffic.
Rent and electricity costs
One of the primary reasons that cloud-based solutions are more appealing than on-premises IT infrastructure is that the organization doesn’t manage the physical equipment. As such, you don’t have to worry about the physical space for housing the servers and the associated energy costs for powering and cooling them.
With on-premises IT infrastructure, this isn’t the case. For example, depending on the number of servers the organization requires, you may be compelled to lease additional space to accommodate the hardware. Besides rent, these components will incur extra energy costs.
Maintenance costs
On-premises IT infrastructure requires physical maintenance, whereas in-house IT teams need to ensure everything is running smoothly. This process is costly in terms of money and time that IT teams spend on menial tasks. Cloud infrastructures eliminate these costs because CSPs handle maintenance.
Cloud vs. on-premises cost difference affects your workloads
There are many trade-offs in the differences between cloud and on-premises costs. However, not all of the trade-offs apply to every business or workload. You must understand them to make the right choice when it comes to cloud versus on-premises costs. Let’s explore some of these workload considerations.
Storage requirements
You’ll need to predict how much storage capacity and server resources an enterprise-level workload requires if you’re architecting a storage infrastructure environment in an on-premises setup. In most cases, you’ll find that the prediction is wrong, either because you bought too much storage for fear of running out or because you purchased too little.
Determining how fast the workload will consume the storage capacity can also become problematic in an on-premises IT environment. A cloud-based infrastructure is a more appropriate solution for enterprise-level workloads because of its agility and scalability. For example, you can begin small and expand as storage requirements increase.
Workload resiliency
Workload resiliency is a planned IT infrastructure aspect associated with disaster recovery (DR) and other considerations, such as data protection. In this regard, highly resilient workloads, such as file services and Software –as a Service (SaaS) applications, must be spread across multiple datacenters.
In an on-premises setup, everything in the primary servers must be mirrored in the secondary servers. This process can be expensive for an organization because they have to invest in the necessary hardware and software. In addition, companies need to hire IT teams to develop, test, and deploy their DR strategies.
In contrast, cloud-native file services usually come with high resiliency, where data is spread automatically across multiple datacenters without duplicate infrastructure costs.
Computational performance
You’ll need to buy computationally-intensive and faster storage systems if you want a high-performing workload in on-premises infrastructure. These systems can be expensive. Besides, you’re likely to end up with a costly device with more processing and storage capacity than you actually need.
This isn’t the case with cloud infrastructure since you pay only for compute and storage capacities that you’ve used. As such, you can easily choose your compute and storage requirements you need for a particular workload by selecting the appropriate cloud service level.
Data utilization
How you use data can also influence the choice between cloud and on-premises IT infrastructure. For example, building a big data analytics environment for internet-of-things (IoT) in an on-premises setup can be challenging owing to the extraordinary volumes of data these devices transmit.
The total cost of IT ownership in such an environment can be extremely high because data scientists would need to deploy multiple scaled graphical processing units (GPUs) and Hadoop clusters. Besides the complexities associated with setting up these environments, they can be costly. Using cloud-based solutions for big data analytics can shorten the time it takes to deploy the infrastructure from a couple of months to just a few minutes.
Pros and cons of cloud vs on-premises solutions
Both cloud and on-premises infrastructures can feel all-powerful, with seemingly infinite benefits. However, despite their benefits, these solutions aren’t ideal for every problem in the organization. Let’s explore some advantages and disadvantages of cloud vs on-premises solutions.
Pros and cons of cloud-based solutions
Cloud-based infrastructure has many potential advantages, including that it:
- Provides significant cost savings. The capital expenditure (CapEx) is practically non-existent in a cloud-based infrastructure, as physical servers are not required, nor is any physical infrastructure to hold the hardware components. This also reduces the costs involved in setting up and maintaining the infrastructure.
- Accelerates time-to-market. A cloud-based infrastructure allows for rapid development and launch of new products and services because IT teams can scale up or down the computational resources to respond to demand levels quickly. This allows businesses to change their product offerings in near real-time.
- Offers enhanced security. Cloud-based infrastructures provide robust security protocols, including end-to-end encryption and multi-factor authentication (MFA), to protect corporate resources.
- Offers increased efficiency. Usually, cloud-based infrastructures come with integrated automatic recovery and data backup measures. CSPs also maintain software updates, allowing companies to always leverage the latest technology for enhanced efficiency in conducting business operations.
Despite its advantages, cloud computing also has its own share of disadvantages, including:
- High operating costs. Even though cloud-based infrastructures have lower CapEx, the operating expenses (OpEx), such as data recovery costs, can be higher. Also, depending on the company’s allocated monthly budget, CSPs can limit the amount of storage availability an organization is entitled to use.
- Lack of control over ownership of data. While relinquishing control over the security of corporate data allows the organization to focus on its core mandate, it also opens up many regulatory loopholes. Also, if the CSP doesn’t take proper precautions in managing the data, attackers can compromise the confidentiality of organizations’ resources with ease.
- Reliance on internet connectivity for data recovery. As with any online service, access to critical data depends largely on internet connectivity. Complete data recovery can become time-consuming if the subscriber is not connected to a reliable internet connection.
- Lack of customization services. Unlike on-premises infrastructures with purpose-built systems, subscribers must rely on CSPs to customize their cloud-based solutions. Depending on the service that the CSP provides, flexibility can be limited.
Pros and cons of on-premises IT solutions
Unlike cloud-based solutions, on-premises IT setups rely on your organization’s brick-and-mortar office infrastructure to manage corporate assets. This provides several benefits to organizations, including:
- Enhanced security. Unlike cloud-based infrastructure, which is more vulnerable to third parties, on-premises IT infrastructure is restricted completely from the public other than authorized employees. On-premises IT infrastructure is preferred for organizations that handle sensitive data, such as those in finance and healthcare.
- Full control over IT resources. With on-premises IT infrastructure, an organization has complete control over its resources, data, and services—including what happens to them and which users can access them. This contrasts with cloud-based infrastructure, where the company may not be able to access its resources if there is an unexpected issue with a CSP.
- No requirement for an internet connection. Even though most organizations rely on internet connectivity to conduct business, there is always fear that any loss of connection could make it impossible to access crucial resources, harming productivity. With on-premises infrastructure, you have access to an internal network that employees can leverage anytime, even with no internet connection.
Like cloud-based solutions, on-premises IT setups also come with drawbacks. Below are a few of them:
- High costs. On-premises IT infrastructure requires significant upfront costs that go towards purchasing hardware and software. This can be costly for an organization, especially when combined with ongoing maintenance costs, power consumption, storage space, and dedicated IT support.
- Difficult data recovery. Deploying and managing disaster recovery measures can be complex, requiring significant budgets, resources, and timelines that an organization may not have. In a cloud-based solution, IT teams simply need to configure the disaster recovery services that a CSP provides.
- Limited agility. If the organization ramps up and needs more computational resources or other capabilities, it’s more difficult to scale with on-premises IT systems. In a cloud-based setup, you simply select a more expansive plan with a click.
Cloud vs. on-premises costs—deploy both as cost-effective solutions with Parallels RAS
The question of which model is more appropriate when it comes to cloud and on-premises IT systems is still hotly debated. For some organizations, cloud-based infrastructure is the way to go, while others may prefer on-premises IT systems. For others, a hybrid model is the appropriate IT infrastructure framework.
It just depends on the organization, what sort of workloads it intends to run, regulatory requirements it is subject to, and what it wants to do with disaster recovery mechanisms. No matter where you are in your IT infrastructure journey, —an all-in-one virtual desktop infrastructure(VDI) solution has got you covered.
Parallels RAS is a highly secure VDI solution that organizations can leverage to deliver corporate resources to their employees. The solution facilitates both on-premises and cloud-based IT infrastructures, allowing IT teams to scale the resources whenever the organization’s requirements change.
In addition, it integrates seamlessly with hybrid cloud environments and popular hyper-converged infrastructures (HCI) solutions, such as Nutanix Acropolis and Scale Computing HC3. This enables IT teams to simplify the deployment of virtual workloads while enhancing flexibility.
Unlike other VDI solutions on the market, Parallels RAS is affordable. It’s also effortless to deploy and manage, featuring a simple architecture that any IT administrator—including the inexperienced ones—can use to manage virtual workloads.
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