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:

Despite its advantages, cloud computing also has its own share of disadvantages, including:

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:

Like cloud-based solutions, on-premises IT setups also come with drawbacks. Below are a few of them:

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.

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