The Cloud vs. On-Premise Cost: Which One is Cheaper?

I’m sure you’ve heard about the many benefits of moving to the cloud. Things such as improved scalability, flexibility, and security are all notable advantages of cloud computing. But what about the cost? Some individuals promote the cost savings offered by the cloud, while others maintain that on-premise systems are, in fact, cheaper. In this blog, we are going to walk through a cloud vs. on-premise cost comparison to determine if one environment is cheaper than the other. 

Factors That Affect Cloud vs. On-Premise Cost

Various factors will affect how much you pay for both cloud and on-premise infrastructure. Because of this reason, there is no definitive answer to which environment is cheaper. Depending on the needs of a business, there are some instances in which on-premise is cheaper. And then there are other situations where the cloud is less expensive. 

However, the majority of organizations will find that cloud computing will cost them less than on-premise infrastructure. Here are the factors that influence the cost difference. 

No Upfront Hardware or Software License Costs

One of the cost benefits of moving to the cloud is that you don’t have to make sizeable initial hardware investments. Instead, you basically rent hardware, paying a much smaller monthly recurring fee. Because of this difference in cost structure, you can use your budget much more wisely. 

For example, when you don’t have to invest a large sum into a server all upfront, you can instead invest in marketing or research and development. These investments can work more towards growing your business, in turn bringing in more revenue. 

The same is true about server licenses. With a traditional on-premise environment, you purchase your server licenses upfront, which are typically pretty expensive. With the cloud, a portion of license costs are built into your monthly bill. Similarly to the infrastructure, it’s as if you are renting the license instead of buying it outright. The elimination of this capital investment allows you to invest in other areas of your business to help you grow. 

No Hardware Replacements

Another factor that often pushes the cloud to be cheaper than on-premise hardware is the fact that you don’t ever have to replace hardware. If you’re using on-premise infrastructure, you will likely be replacing your hardware every few years. There are two main reasons this takes place.

Firstly, as technology evolves, organizations will need to upgrade to stay up-to-date and competitive. New servers will have the latest upgrades and increased performance capacity. Secondly, companies replace their hardware to avoid equipment failure. Old servers become less efficient and have increased chances of failure, which leads to downtime and lost revenue. 

But as we discussed above, new servers are expensive. Making these large capital investments every few years adds up. In the cloud, you don’t have to worry about these costs. And you won’t have to worry about the unexpected cost of a broken server. You will have monthly payments that you can plan and budget for. 

Pay for What You Use

In the cloud, another significant factor that leads to cost savings is the fact that you only pay for what you use. With a server, this is not always true. A server only has so much storage space and availability, and when you reach this limit, you’ll need to buy an additional server to increase availability or storage. 

For example, imagine you are nearing capacity on your current servers. Now imagine that your marketing team runs a promotion, and you get a significant boost in traffic. Your current servers are already running at near capacity, meaning you don’t have the availability for these additional users. 

So, what do you have to do? To accommodate the additional availability, you’ll need to buy a new server. Not only does this cost time and money, but what happens once the promotion is over and your traffic levels return to normal? You might still be utilizing a small amount of resources from the new server, but for the most part, it’s going unused. This type of situation is common for businesses with seasonal traffic or that are growing. 

With the cloud, you can scale up or down whenever needed, and you only pay for the resources you use, making it extremely cost-effective. 

The Cost of Power and Electricity

One of the biggest differences between the cloud and on-premise infrastructure is that you aren’t managing physical equipment. This means you don’t have to worry about having space for the hardware, powering it, or cooling it. 

These costs are often forgotten but can add up quickly. Depending on how many servers your business requires, you may need to rent out additional space for this hardware. And powering and cooling the infrastructure is a 24/7 task. With the cloud, you don’t have to pay these additional costs.

The Cost of IT Maintenance

Another maintenance cost associated with on-premise infrastructure relates to IT personnel. Physical hardware requires physical maintenance. Someone has to make sure everything is running properly and fix things when they break. 

If you have on-premise equipment, a good amount of your IT department’s time is going to be spent on these types of menial tasks. However, by migrating to the cloud, these tasks disappear. This means that you may not need as large of an IT department or that their time can be used more efficiently and effectively for your business.

When IT staff can work on more prominent or more proactive projects, it helps your technology run better, which in turn improves the efficiency of the whole organization. 

Potential Drawbacks of The Cloud

We’ve discussed some of the cost benefits of the cloud, but it wouldn’t be fair if we didn’t talk about some potential drawbacks as well. These are factors that may affect your spending, so it’s important to review them so you can evaluate the cloud from all angles to see if it’s right for you.

Cloud Service Costs Can Add Up Quickly

One of the many benefits of the cloud, in general, is the long list of services and tools that are available. From AI and machine learning tools to developer tools, the cloud has a lot to offer. However, if not appropriately managed, the costs of these tools can spiral out of control. 

Many various elements affect cloud pricing, which is why you or someone at your organization needs to understand what you are paying for in the cloud to avoid unexpected costs. 

The good news, however, is that many cloud providers offer tools that help you manage your spending in the cloud. For example, Microsoft Azure, our preferred cloud provider, offers Cost Management + Billing. This service is free for Azure customers and helps you optimize your cloud spend while maximizing cloud potential. 

Cloud Outages Can Lead to Downtime 

When you use the cloud, you are relying on the cloud provider to keep everything up and running. And sometimes, the cloud provider may let you down. It is rare for a cloud provider to experience an outage, but it does happen. 

If your cloud provider experiences an outage, so do you, and there really isn’t anything you can do about it. This is the trade-off for not having to worry about managing your infrastructure — you don’t have as much control over your environment. Hopefully, outages don’t last long, but no matter how long, the downtime could cost your business money.

In Conclusion

Overall, most businesses find cost savings in the cloud. And from the factors we listed above, it’s no wonder why. However, there are the potential costs of uncontrolled spending and cloud outages that lead to downtime. If you are considering moving to the cloud to save money, make sure you understand both the cost benefits and drawbacks.

To learn more about cloud computing & backup, check out our Ultimate Guide To Cloud Computing!

The Ultimate Guide To Cloud Computing

Related Insights