On Premise vs Cloud

Updated: Mar 16

Which is better on Premise or Cloud – The answer is frustratingly - yes!


The war between keeping IT workloads on premises versus moving them to the cloud is over and both sides have declared victory (or defeat?). In the bastions of corporate IT, there seems to be a perennial war over whether IT workloads should remain in corporate data centers (aka on premise) or be migrated to the cloud.


There are certainly strong opinions on both sides and where you stand very much depends on your circumstances. On the one hand is security, regulatory requirements and control, all of which seem to favour on premises. On the other hand, there is scalability, reduced burden of infrastructure management and reduced CAPEX which seems better suited for the cloud.


This kind of back and forth reminds me of US President Harry Truman who was infuriated by his economic advisors always saying on the one hand this and on the other hand that, prompting him to shout, “Can’t somebody bring me a one-handed economist?”


Maybe we need more one-handed IT Consultants.


On premise vs Cloud – what is the difference?


In the simplest of terms, the difference between on-premise and cloud is essentially where your hardware, software and associated equipment resides (collectively IT). On-premises means that a company keeps all this IT onsite, which can be self-managed or managed by a third-party. With the Cloud, the IT is housed offsite (i.e., someone else’s data center) with that someone else responsible for monitoring and maintaining it.


Naturally, there are hybrid structures which can incorporate the best of both worlds.


Twenty years ago, it was commonplace for both servers and datacenters to be in mixed use real estate environments. Often, data centers were in corporate head offices with IT staff collocated in the same facilities. There was a strong desire to be in close proximity to the data center and the computer servers to as a convenience to deal with any IT issues.


This is where the term “server hugger” came from.


While we still see data centers in office buildings, this is increasingly rare compared to purpose-built corporate facilities, designed to be highly secure and efficient or companies locating their IT equipment in third party colocation facilities.


A framework for consideration


The framework for evaluating whether it is better to move your corporate IT workloads to the cloud can be as simply or as complexed as you like. It really comes down to a discussion on risk.


The risk of making the wrong decision.


Some would argue that the more complex the model the lower the risk, on the other hand, others would argue the opposite (we need that one handed consultant again).


RELATED: 2022 Global Data Center Market Comparison Report - Explore a unique way to assess and score 55 global primary and emerging data center markets utilizing 13 criteria.


Fundamentally, most models consider (in no particular order) cost, security, compliance, control and manageability. Naturally, more categories can be added and each of the categories can be expanded dramatically; however, most models contain the aforementioned components at their core.

Size matters


Cloud service offerings typically favour small and medium-sized enterprise (SMEs) who generally do not have a lot of developed legacy IT systems. Moving IT workloads to the cloud and, in particular, taking advantage of Software-as-a-Service (SaaS) models is comparatively easy for SMB organizations.


The decision to move to the cloud is so much more complex for enterprise given the large, complex legacy applications that require re-factoring to move to the cloud. This explains some of the sluggishness of cloud migration. Of course, there is also the fact that many organizations embrace the perspective that “if it ain’t broke don’t fix it,” thereby placing virtual “do not disturb” signs on legacy applications.


How much is this gonna cost me?


The costing component of on premises versus cloud is very complex. Most organizations and IT consulting firms employ the concept of Total Cost of Ownership (TCO) with its holistic approach to accounting for the costs associated with operating, maintaining, and upgrading overall IT systems over their lifetime.


This is true if the systems are on premises, owned but located in colocation facilities or leased within the confines of public cloud offerings.


The design, build and deploy phases account for the upfront costs an organization can expect before going live with a new system in an on premises or colocation scenario. In addition to the IT infrastructure, the engineering preparation of premises may require a significant budget for cooling, communications, security, and redundancy of systems. Proficiency is required to design an infrastructure that will support the business needs and the organization’s future growth.


Most hardware and software installations have an effective useful life of about five to seven years after which time a capital-intensive upgrade is likely necessary to address ever changing business requirements. Annual costs should not be underestimated either as approximately 80% of ongoing IT spend supports the maintenance and administration of the system while only 20% supports new projects.


This is why the TCO comparison of cloud and on-premises alternatives need to be evaluated over a seven to ten year time horizon.


RELATED: 2022 Global Data Center Market Comparison Report - Explore a unique way to assess and score 55 global primary and emerging data center markets utilizing 13 criteria.

This is where colocation and cloud providers can have a big advantage. Their model, by its very nature, is to build infrastructure or compute capacity for scale. Hence, everything from facilities to cooling to backup and the like are overbuilt relative to what any one customer might afford and shared by many.


The speed at which a cloud provider can deploy a new application is difficult to match under a self-hosted scenario. Cloud-based service providers automatically update systems, and your computing requirements are handled and guaranteed (subject to service level agreements) and built into whatever subscription model you have selected.


Cloud providers also offer resources dedicated to maintenance, support, and operations of systems.


All these advantages can reduce your operating costs both in the monetary terms and in the time invested in getting your systems up and running and maintaining them.

However, cloud costs can ratchet up quickly and if not managed properly can get out of control as services provisioned are not turned down. Furthermore, vendor lock in can create situations where annual cost increases are not kept in check by iterative competitive forces.


Security and Regulatory Compliance


This is a very significant factor that in the past has driven many decisions in favour of IT workloads remaining on premises. Whether due to regulatory compliance, reputational risk or overall paranoia, security concerns have kept IT professionals from migrating more workloads to the clouds.


Having said that, the robustness of cloud security continues to increase dramatically each year. Leading cloud providers have also gone to great lengths to acquire certifications from various industry standard bearing organizations such as ISO, IEC, NIST, SAE, PCI and the many others.


In tandem, regulators in many industries are also starting to realize the strength of cloud security and we expect regulations will continue to adapt and be more inclusive of processing and storage of even the most sensitive information in the clouds.


The bottom line here is some of the barriers to cloud adoption are coming down and so are the costs.


I can manage that


Given that most organizations had (or continue to have) an on-premises data center, the issue of control and manageability relates to managing one’s data center and the added complexity of adding any cloud computing.


The skills necessary to manage on premises vs cloud are different. Not only are the skills different to manage ongoing operation, so too are the skills to revector applications from legacy environments to the cloud. With complexity comes cost and risk and this issue has been another speed bump in enterprise’s journey to the clouds.


RELATED: 2022 Global Data Center Market Comparison Report - Explore a unique way to assess and score 55 global primary and emerging data center markets utilizing 13 criteria.


Data Center Infrastructure Management (DCIM) Systems have improved both in terms of robustness, automation, artificial intelligence and their ability to scale across on premise and cloud infrastructures. Many of the major providers have also recognized the management complexity and have created IT architectures such as AWS’ outpost, Google’s Anthros and Microsoft Azure’s Stack (as well as others) which help to reduce complexity in managing hybrid environments where an organization has some workloads on premises, in colocation facilities and still other workloads in the public cloud.


Conclusion


True cost comparison between cloud and on-premise application systems reveals that the cloud is more cost-effective for various organization types and sizes, especially for SMBs. Cloud computing growth is expected to continue because it helps reduce upfront capital expenditures, improve ROI, reduce the investment payback period, speed up deployments, and improve application agility.


In an increasingly agile business environment, cloud services accelerate the pace of innovation by shifting an organization’s resources and focus from infrastructure management to the organization’s core competencies.


Nevertheless, many organizations are not ready to move to the cloud because of concerns about security and regulatory compliance, together with system control.


What is the right structure for you?


On the one hand… oh, never mind. Let us help guide you through the process.


The Cushman & Wakefield’s Global Data Center Advisory Group – your one-handed advisors


We have worked with Hyperscalers, Cloud Service Providers, Enterprise and SMB customers alike to assist them with finding Data Center solutions that are right for them. Our Global reach and reputation, immersive local market knowledge and global best practices yield winning outcomes for our clients with minimal risk and maximum return on investment.


For more information on Cushman & Wakefield’s Global Data Center Advisory Group and how we assist with your Data Center and Cloud Computing needs, please contact us. 

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