On Premise vs Cloud: Key Differences, Cost, Pros & Cons

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Despite the maturity of cloud storage, enterprise IT departments continue to weigh the risks and benefits of on-premise vs. cloud storage, particularly when it comes to the organization’s most critical data. In the view of many businesses, cloud storage has pros and cons.

However, the exploding volume of data is necessitating the use of cloud storage solutions. And the increasing use of cloud-based software applications means that cloud solutions are displacing their traditional counterparts over time.

Before choosing to buy cloud storage, companies should understand the key differences between on premise and cloud storage.

On Premise vs Cloud Storage

On-premise storage and cloud storage reside in two different locations. On-premise storage utilizes in-house hardware and software. That is, the hardware is owned and managed by the enterprise versus a cloud service provider.

Cloud storage resides in remote servers, across town or across the country. It is typically provided by one of the large cloud computing companies such as AWS, Microsoft Azure or Google Cloud.

What are the Key Differences Between On-Premise and Cloud Storage?

A key difference between on-premise and cloud storage is financial. Cloud-based software and cloud resources are treated as operational expenses (OpEx). Because they are rented monthly, these charges are part of the operating expense.

In contrast, on-premise software and hardware are treated as a capital expenses (CapEx). They are typically purchased once as a capital expense.

One of the benefits of private cloud storage is that it combines on-premise control over infrastructure, security and data with the flexible nature of cloud technology. Like public cloud storage, private cloud storage provides the ability to dynamically scale resources up or down as necessary.

Unlike public cloud storage, customers do not need to worry about performance degradation that may occur as the result of using a remote data center, since private cloud storage resides within an enterprise’s data center.


Source: EBC Group

To lay it out in detail:

On-Premise Storage

  • Storage resources are procured, owned and managed by the enterprise.
  • The enterprise is responsible for securing the storage resources and data.
  • Storage resources remain dedicated to the company.
  • The investment is considered CapEx, which is a typically a high cost.

Cloud Storage

  • Storage resources are owned and managed by a third party.
  • Storage resources may be purchased on a pre-paid or pay-as-you-go basis.
  • Storage resources may be shared in a multi-tenant environment.
  • Software is kept up-to-date as part of an active subscription.
  • IT does not have to install software updates and patches.
  • The investment is considered OpEx, which is a lower monthly cost.

Public Cloud Private Cloud
Cost Pro: Pay as you go
Con: Unmanaged resources can cause cost overruns
Pro: Better utilization of on-premise storage resources
Con: Major upfront investments
Security Pro: Value-add services; investment levels no enterprise could afford
Con: It’s out of IT’s control
Pro: Complete enterprise control
Con: Limited by the enterprise’s own security expertise
Data Pro: Easy to upload
Con: Not so easy to get out
Pro: Complete enterprise control
Con: Lacks scalability
Privacy Pro: Value-added service
Con: Compliance
Pro: Compliance
Con: Insufficient internal controls
Data Center Redundancy Pros: Fault tolerance, disaster recovery
Con: Data replication
Pros: Fully redundant
Con: May still require external backup


Cloud vs. On-Premise Cost Comparison

Comparing the cost of cloud and on-premise storage can be misleading, mainly due to false assumptions. For example, there’s a general belief that public cloud is cheaper than on premise storage. However, many enterprises face sobering invoices they did not expect. Cloud storage pricing should not be assumed – it needs to be researched very carefully.

“Cost” can also have different meanings. For example, there’s the cost of purchasing on-premise resources versus using cloud resources. For on premise, it is wise to identify underutilized storage resources before deciding how much capacity is needed. Under buying or over buying assets is a common lament.

For public cloud, pay-as-you-go may seem attractive cost-wise until unused resources (such as virtual machines) are left running unmonitored for hours, days, weeks or even months. Similarly, prepaid public cloud capacity can seem attractive because it tends to be less expensive than pay-as-you-go. However, pre-paying for unused resources involves unnecessary costs.

In addition, cost comparisons of on premise versus cloud storage are not always apples-to-apples comparisons. If they were, then one might compare the cost of the same:

  • Number of virtual machines
  • Number of CPUs
  • RAM per virtual machine
  • Storage capacity per virtual machine

However, the wild card is the usable life of the asset, which is a public cloud handles through redundancy. If one VM, server, or data center goes down or is destroyed, it does not affect the end user’s cost. However, when on-premise equipment fails, there is the cost of replacement.

Human resources should also be considered. More IT personnel are required to manage on-premise storage than public cloud storage. While on-premise storage management software and cloud storage management software share similarities, with on-premise there are still physical boxes to manage.

The use case also matters. Highly regulated companies tend to split their storage between on-premise and cloud. Sensitive data, such as patient health records, are stored on-site while non-sensitive data is stored in a public cloud.

Non-storage related costs should also be considered when pondering what to store on-premise or in the cloud. For example, if a public cloud had an outage, what would the downstream costs be if the data were not available? If a natural disaster took out the company data center, could business as usual continue?

on premise vs cloud storage costs

Cloud storage can be considerably cheaper than on premise at lower data levels. But as the total amount of storage increases, so does the total cost.

Are Hybrid Cloud Storage Strategies Popular?

Most enterprises have some type of a hybrid storage strategy that involves some combination of on-premise and cloud storage. Storing all data on-premise may not be feasible or cost-effective given the sheer amount of data enterprises have to manage.

Conversely, it may not make sense to store all data in the cloud if there are privacy and security concerns that are better addressed by storing the data on premises.

Most organizations take a hot-warm-cold approach to data storage and stratify their storage accordingly. This ensures that data that needs to be readily accessed is immediately available and data that needs to be retained for legal reasons but is not otherwise used can be stored affordably.

on premise vs cloud storage

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