Understanding how on-premises system costs compare to cloud-based solutions 

In today’s uncertain economic environment, understandably every purchase decision needs to be thoroughly analyzed and the cost to the business clearly understood. With so many organizations migrating to the cloud, it is important to understand not only the cost of migrating systems but also the longer-term costs. 

IT managers must understand the main business driver(s) for moving their organization to the cloud, and those drivers need to be reconciled with business application requirements. Some applications will be CPU-intensive, others memory-intensive, while others are cost-sensitive. Likewise, understanding whether this is the best short and long-term solution for the business as well as the total cost of ownership (TCO) and predicted return on investment (RoI) is important.  

Of course, everyone wants to maximize their investment, so understanding where and how hidden costs can creep in is important. TCO is a robust metric to analyze the financial impact of a purchase decision. It identifies all costs associated with owning and using a product over its lifetime. TCO includes direct and indirect costs, such as acquisition, installation, operation, support, and disposal costs.  

When calculating the TCO of running on-site systems versus cloud-based systems, organizations often find that cloud-based infrastructure is less expensive. Below we examine the six key elements that contribute to TCO in both models: 

1. Infrastructure Costs 

The expenses associated with acquiring and maintaining servers, storage devices, and networking equipment can be substantial. Operating on-premises often means incurring higher costs compared to cloud-based solutions. Not only do these costs include initial investments, but they also involve ongoing maintenance. 

For instance, an organization may choose to operate on-premises infrastructure, sparing no expense in acquiring the required equipment. For some time, its data needs are less than its data capacity. Yet, it continues to expend costs maintaining both the functioning and non-functioning servers. Additionally, when data needs eventually exceed capacity, the organization will invest in acquiring and integrating more servers. 

Cloud alternatives offer a more economical option as organizations only pay for what they use. They also don’t need to worry about acquiring and maintaining expensive hardware other than networking equipment.  

2. Data Center/Hosting Costs 

Data must be stored somewhere. On-premises solutions demand physical space, either onsite or in data centers. Scaling on-premises infrastructure to accommodate business growth can lead to further costs, as additional hardware and resources need to be purchased and integrated. There are also ongoing expenses related to power consumption and regular maintenance. Add in more variable costs of physical security and backup solutions, and you can see how the organization pays significantly more over the long term. 

3. Software and Tooling 

Organizations often rely on a variety of software solutions to address different needs within their IT infrastructure. However, managing a diverse set of individual software applications can lead to significant cost implications. In an on-premises environment, each software tool typically requires separate licensing, maintenance, and support costs. As the number of individual solutions grows, so does the cumulative cost of ownership. Additionally, integrating and managing these disparate tools can become complex and time-consuming, requiring skilled IT staff and potentially leading to higher labor costs. 

4. Employee Devices 

From smartphones to laptops, employee-owned devices (BYOD) have become ubiquitous in the modern workplace. While organizations may spend less on procuring devices, this can increase costs in other areas. For example, if employees use their own devices, the organization may need to purchase additional software licenses. Furthermore, different operating systems such as Android or iOS need to be configured to work with the organization’s network and security settings, which can increase costs.  

Fortunately, there are many ways to reduce the TCO of employee devices. One is to select the right mix of devices for your workforce carefully. Another is to invest in cloud-vendor solutions that provide mobile device management and security solutions that streamline support and security operations. 

5. Support and Resources 

With on-premises systems, it’s not a case of plug, play, and forget. They require constant monitoring and maintenance. Therefore, organizations need to hire or train existing staff to support these systems. Ultimately, this increases the TCO as the business pays out more in salaries and training. The time spent on maintenance could have been spent on more productive, higher value tasks. By contrast, cloud-based infrastructures don’t require extensive maintenance, and they often include support services as part of the package. 

6. Data Onboarding and Migration 

Data onboarding and migration from on-premises to a cloud-based platform can be disruptive to business operations. This is due to systems being taken temporarily offline for the transfer to take place. The longer the migration process takes, the more costly the downtime becomes.   

Data validation and quality assurance efforts during the migration can require additional resources, further adding to overall costs. However, cloud-based solutions are often more reliable in the long term. They also offer better uptime than on-premises infrastructure. The increased uptime is because these solutions are not reliant on a single point of failure. In other words, if one component of the system fails, the others can pick up the slack.  

This redundancy ensures that businesses remain operational even in an unforeseen outage. Moreover, cloud providers often have experts dedicated to guaranteeing that their systems are always up and running. 

Why the Benefits Outweigh any Concerns 

It is understandable that IT teams feel hesitant about leaving behind on-premises infrastructure, especially when they have already invested substantial resources into building and maintaining it. However, maintaining outdated infrastructure solely due to past investments or the company’s embedded culture, may lead to even greater challenges and expenses in the long run, as these systems become more susceptible to maintenance issues. 

While the transition to the cloud may seem daunting, it’s a strategic move that ultimately drives down costs and improves efficiency while enabling innovation. Waiting too long to make this shift can exacerbate the challenges posed by legacy systems and lead to staff productivity issues, inefficiencies, reduced performance, and increased costs. 

Photo Credit: Shutterstock/phloxii

Denis Dorval is Vice President, International EMEA & APAC at JumpCloud.