Cloud-Based Services vs. On-Premises

The surface costs might give you pause, but the cost of diminishing your differentiators is far greater.

Will a shift to the cloud save you money? Potential savings are historically the main business driver cited when companies move to the cloud, but it shouldn’t be viewed as a cost-saving exercise. There are many other compelling reasons to make the move, perhaps most importantly agility and scalability. A better question might be – will shifting to the cloud improve your business or differentiated value?

Most businesses have already made the leap, although 45% of organizations still have on-premises compute capacity today, according to Tata Consulting. It predicts that by 2020 that percentage will drop to just 12% as businesses journey through digital transformation. There are solid reasons for why so many businesses are making the move, but it’s not without risk. 

Risks to your business

For smaller businesses, there’s still an argument that staying on-premises will be cheaper in the long run. When you factor in the investment in time and energy, coupled with the potential disruption and risk to your existing business, a badly handled move to the cloud can prove to be very expensive.

You are also placing a great deal of trust in your chosen partners. Where will your data be hosted? Compliance and regulatory conditions have to be factored into any deal. If a data breach does occur, your company will still be liable, and so it’s vital to perform due diligence on cloud vendors.

But overall, the potential benefits far outweigh the risks, and there are hidden costs with the on-premises model, not to mention an inability to change quickly with an ever increasing market evolution.

Calculating the real costs

Some people view the adoption of software or infrastructure as a service as renting instead of buying. It may appear more costly per user, if you calculate the amount you’ll pay for cloud-based services over a number of years, compared to a one-off fee for a software package and hardware, but there are hidden costs associated with an on-premises approach and sinking capex into an on-premises model can be an unforgiving anchor around your ability to differentiate.

If you scale up, then you’ll need to go back to your software vendor and negotiate from a position of weakness. You’ve already paid out for software, and you can’t claim any money back, even if it no longer meets your needs. With cloud-based services, you can scale up and down as required or even out, digitally extending the breadth of capabilities within your organization’s remit.

Consider also the maintenance overhead with on-premises software. You’ll have to run your own servers, handle back-ups, tune performance, patch and update, and plan disaster recovery. You’ll need space and expertise. You’ll have to handle customer support, ensuring that your users have a smooth experience that meets expectations. Every little headache associated with your platform must be dealt with by you, round-the-clock.

Simple economies of scale mean that it will be impossible for any but the very largest of businesses, to operate at anywhere near the cost of a cloud provider. The cloud will always be much cheaper upfront because you only pay for what you use, it’s typically a short-term subscription model, and you eliminate hardware and installation overhead. You also benefit from the latest updates, and your software is easier to manage.

Staying agile

Don’t underestimate the importance of flexibility with the cloud. One of the main advantages of cloud-based services is that they offer an easier and faster digital transition from one platform to the next. You can also adopt a digital platform such as MetaArc that integrates into alliance partner services such as a Citrix workspace cloud solution which can be balanced from a blended digital model perspective. An open policy, open technology, and balanced ecosystem of partners allows you to continually differentiate and evolve your business with needed agility.

Being locked in, stuck with a rapidly aging system that would be too expensive or too disruptive to upgrade, can spell disaster for any business. That’s a real risk with a complete on-premises approach, and from a competitive standpoint it can be a serious handicap. Time and time again, agility has been shown to deliver a growth in new business, increased innovation, and greater speed to market with new products and services.

It’s important to assess the implications for your business and for some, an on-premises approach, or more likely a hybrid approach, will still make more sense than wholesale cloud adoption. But don’t be hypnotized by the bottom line, and don’t forget to factor in the business value of flexibility or the cost of business lost against trailing differentiators.

By Nicholas Lee