On-Premises vs. Cloud: Key Differences and When to Use Each

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On-Premises vs. Cloud: Key Differences and When to Use Each

For anyone in the information technology (IT) world, there is a better than good chance they have been asked at least once about their opinion of on-premises and the cloud.

Traditionally, this refers to servers which are often large computers that hold a lot of data related to the company and its clients. However, on-premises and the cloud could also be talking about software and whether it is installed locally or managed directly on a business’s computers. 

No matter if a company is big or small, considering on-premises or the cloud is a big consideration in the hopes of finding the right fit. Cloud computing has no doubt grown exponentially in popularity, likely because it is frequently hosted by a third party that does most of the work for you. on-premises servers require additional headcount for server management which can increase overall business costs and are not as nimble to scale up or down when business is growing or slowing. 

Let’s take a deeper look at some of the key differences between these two competing ideas and see when you definitely should use one over the other. 

On-Premises vs. Cloud: Side-by-Side Comparison

AccessibilityHosted locally on-siteDelivered and hosted through an internet connection
CostsLarger upfront capital investment for hardware, installation, staffing, and supportTraditionally used with a monthly or yearly fee that increases over time based on growth
InstallationDeployment can take days, weeks or months depending on scaleA reputable cloud provider can deploy within a few days to a week if necessary
ScalabilityRequires in-person staffing to properly scale upAdditional costs likely required but increased scale can happen faster
ReliabilityVaries but does not require internet connectionRequires internet connectivity
On-premises vs. Cloud infographic

On-Premises vs. Cloud: What’s the Difference? 

What is On-Premises? 

Before looking at more specific differences, it’s important to understand from a high level what the difference is between on-premises and cloud.

When someone says on-premises, they are referring to an IT infrastructure that is located in a physical office and managed by a company’s in-house IT team. Explained another way, there is physical hardware in the form of a server that is managed by a team that has physical access to all server hardware. The most important takeaway with on-premises is that a third party is unlikely to ever have any physical access to the server. 

As far as the cloud, this means that the software you are using is available online using an internet connection. There is no physical hardware anywhere in the proximity of your business as the servers that run the cloud are all offsite at a location owned and managed by the cloud company. Cloud software is traditionally accessed through a web browser like Google Chrome or through mobile apps on a smartphone or tablet. 

Popular examples of cloud hosts could look like Amazon Web Services, Microsoft Azure, or Google’s Cloud Platform. Services like OneDrive, Google Drive, or iCloud are popular examples of cloud-based services that provide file storage to users without using any physical equipment. 


Unsurprisingly, one of the major key differences between these two competing platforms is control. When you manage servers on-premises, you have absolute control over the data contained within the servers, who has access to it, and how frequently they have access. If control is the biggest concern of a company’s server process, this is a definite win for on-premises as cloud control is a little more difficult.

A major advantage in favor of on-premises control is for companies that work in highly regulated fields. In these instances, there might be increased worries about moving sensitive docs off-site to a cloud-based platform. 

Should an issue arise with a cloud service a business utilizes, they have to reach out to the company and are at risk of losing time and money while the cloud company provides a fix. Cloud servers and software take all of the control away found with being on-premises, which is okay for many businesses who want one less thing to manage, but it’s a key takeaway in this category all the same. 


As is the case with control, one of the big advantages in favor of on-premises servers and software is that there is tighter control over secure information. The same can be said for privacy where businesses that have on-premises control are also managing who has access to information, therefore making it more secure. Despite the reality that on-premises costs are often higher than with the cloud, there is a distinct advantage in maintaining on-premises servers if security is a primary consideration. 

For cloud-based servers and software, security has long been one of the big factors that have stood in the way of broader adoption. Public breaches of cloud-based platforms have been an eyesore for the business and there is no cure-all to help stop these breaches once and for all. There are definite security threats in the case of losing intellectual property or secure data stored on someone else’s servers, and therefore you are highly reliant on their security protocols that are essentially promises on paper. 


This is a pretty easy one to track but when it comes to accessibility, on-premises is always going to win since it’s a physical piece of equipment you can walk right up to. All hardware is deployed in a company’s on-premises environment so there is on-the-spot management.

This is contrary to the cloud which could find you potentially waiting for third-party providers to reach back out to you. This is especially important during non-business hours in the event a critical business function goes down and you are unable to reach someone on the cloud management side. 

While accessibility might seem like a distinct advantage for on-premises servers, it’s not exactly a slam dunk. For cloud computing, there is something to be said about the accessibility of software, services and data all from the cloud through an internet connection. This makes it easy to pick up and manage your services from anywhere in the world, at any time, without worrying if someone is physically in the building to help support your needs. 

The cloud also makes it easy to share information faster among your team (or teams) since everyone can readily access information through a web browser or cloud-based software. 

Upfront Costs

Thinking about upfront costs in this space can be a little subjective as to which one is better. It’s important to note an on-premises solution is a capital expense and requires a significant investment upfront. You have to purchase equipment, potentially pay for installation, train and hire staff, and that’s just the stuff you can think of right from the start. How much those costs are can vary considerably, but they could range from a couple of thousand dollars to hundreds of thousands of dollars depending on the size of the business. 

Upfront costs for cloud solutions are less likely to impact the company’s bottom line which is why they are considered an operational expense. What you will pay for a cloud-based solution is likely to be a monthly or yearly subscription cost, depending on how your company has negotiated for the software or software suite. Those costs are more likely to be in the thousands and not the hundreds of thousands like on-premises solutions. 

cloud computing
Cloud-based solutions have easy-to-follow, scalable upfront and ongoing costs that typically just include a monthly subscription.

Ongoing Costs

Like upfront costs, the ongoing costs for on-premises solutions are likely the same in terms of general maintenance costs, staffing, electricity bill increases, etc. These costs remain easy to plan for outside of the very rare instance where something goes terribly wrong like a terrible storm damaging a warehouse. 

The ongoing costs for cloud-based solutions are similar to the upfront costs in that you are continuing to pay a monthly subscription. The best aspect of costs around the cloud is that packages are scalable so you can pick and choose exactly what services and support you need and those you don’t. Many cloud companies will customize their services to help meet your business needs and provide costs based on those needs. This way you don’t get set up with services you don’t need and don’t want to pay for. 

Where cloud solutions can be a real issue is when costs balloon because of a sudden need for significantly more storage. Most companies should have enough warning to prepare for any jumps in cost but that’s not going to happen every time, and because costs are often fixed, any sudden increase can impact the bottom line. 


While it’s not likely to be the first thing people think of as a consideration for on-premises versus cloud solutions, it’s a big one all the same. Companies large and small generally operate under some type of industry regulation or within specific legal parameters. Because of that, their needs for data storage are different and, in some cases, regulations will prevent them from storing data offsite. 

This is one area where the on-premises model definitely shines over cloud computing as locally owned data is much easier to process and store under the roof of the business. This is why it’s more controlled and customers in a heavily regulated field might feel a whole lot more comfortable with on-premises security levels. As many industries have regular audits to verify they are adhering to compliance policies, it’s a lot easier to conduct these with on-premises equipment than with cloud solutions. 

Cloud-based solutions certainly go out of their way to adhere to all relevant compliance policies, but because they are trying to serve many different masters, they can’t be everything to everyone. This goes back to the security consideration, but even if data is encrypted on a cloud server, many companies don’t care and don’t want to be in a situation where they do not have direct control over data because of strict compliance rules and regulations. 

On-Premises vs. Cloud: 5 Must-Know Facts

  • Cloud-based solutions allow you to access your software applications or data at any time, so long as you have an internet connection. 
  • Due to complicated regulations, there are thousands and thousands of businesses that cannot consider a cloud solution because of existing government or industry standards. 
  • A cloud solution is going to have lower energy costs since a business is no longer paying to power any number of servers on-site. 
  • There is often a significantly higher upfront cost to setting up on-premises solutions over a cloud solution. 
  • Data loss is a real concern and should something go wrong on-premises, there is a chance for permanent data loss. Cloud solutions generally have backups that ensure data is backed up in at least two locations. 

On-Premises vs. Cloud: When Should You Use Each? 

In the battle between on-premises and the cloud, there is no right answer as neither solution is definitively better than the other. Instead, there are only instances when one solution is better.

For example, if security is a primary consideration, on-premises is the better option, and that’s also true for any business that worries or has to regularly navigate complex compliance concerns. What is also true is that a cloud-based solution is better for companies that don’t have significant funds to start an entire on-premises solution and maintain them. If you as a business owner are worried about scalability, the cloud is a much better solution as you can upgrade your subscription costs pretty much anytime.

Rest assured, cloud companies are always happy to take more money. Upgrading storage on-premises requires additional hardware and potentially extra staffing, and this can add up quickly. Accessibility is another primary concern, and for on-premises, you have to be physically present which isn’t always possible. Going with a cloud solution enables you to be anywhere you have an internet connection and still have access to your software or data. 

These are just a few scenarios (and it’s impossible to run through every scenario), but it should be easy to determine when you and your business should use one or the other. 

Are you a new startup looking to keep costs to a minimum so you can quickly grow? A cloud solution is better for you. Have you already invested a lot of money and time into on-premises server stacks? Switching to the cloud might be cost-prohibitive.

Frequently Asked Questions

What is a hybrid cloud solution?

A hybrid solution is one that combines both on-premises and cloud-based solutions into one and allows the benefits of both allowing data to be shared between both the cloud and a physical server on location.

Who are cloud solutions providers?

This is a very open question as there are thousands of cloud solutions providers but it’s often regarded as a SaaS (software as a service) company. 

What is considered on-premises?

An on-premises network is one that is physically hosted and maintained by a company, likely by information technology (IT) employees. 

How much upfront costs are necessary to launch either an on-premises or cloud solution?

There is no easy answer as to how much upfront cost either solution can require but for the most part, a cloud solution will initially cost less. 

Does an on-premises server require an internet connection?

Generally speaking, no, an in-house server does not require any type of internet connection but they are often connected for maintenance purposes. 

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