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This article was published on November 25, 2013

The cloud vs on-premises software: What you need to consider for your business

The cloud vs on-premises software: What you need to consider for your business
Ian Gotts
Story by

Ian Gotts

Ian Gotts is a tech CEO and non-exec director, author of 7 books and a challenging yet entertaining speaker. Having sold his last company to Ian Gotts is a tech CEO and non-exec director, author of 7 books and a challenging yet entertaining speaker. Having sold his last company to TIBCO he is now reinventing the event management space with his latest startup based in San Francisco / @iangotts

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It seems like the whole world is moving to the cloud for all IT applications. Whilst this is not true, there is a danger of the herd mentality. This article considers the different aspects that should be taken into account before launching into the clouds.

Much of the material is taken from a book by the author of this article called Thinking of… Buying Cloud Computing? Ask the Smart Questions.  The book offers 90 pages of questions that act as a comprehensive list of all the issues that need to be considered. Sadly, it provides no answers – it cannot, as every client situation is different. It is never what may be described as a “fun read”. But what is does do is make sure that all the questions that should be answered are asked. It also gives insights into the impact of every question guiding the reader to the right answer.

This article has identified the more strategic questions that need to be addressed when considering a cloud based application over an on-premise implementation.

While you would expect the questions to be technical in nature, a surprising number are business-related. These questions have been grouped into Strategic, Financial, Operational, Technical and Vendor.

Strategic: Why are you considering cloud?

Cost savings; 

What is the total cost of ownership – have you considered the full infrastructure, network, comms, software license, support and upgrades? In the long run cloud will probably be more expensive, so cost savings should not be the primary driver. If it is, then you are missing a huge opportunity.

Flexibility / expansion; 

Cloud gives you the ability to rapidly scale when there is peak load and can be used to quickly expand into new regions with limited upfront investment. On-premise would require significant infrastructure investment that then spends time under-utilized.


You will be able to drive new and innovative ways of working. But is there a desire and demand inside the company to make it happen? On-premise applications can lock you into existing patterns and practices.

Financial: Where is ROI?

Move from CapEx to OpEx;

Cloud computing allows a different funding model: OpEx. That can unlock investment that can be used to transform the business. But it is a wheel you cannot get off. That OpEx funding needs to be in the budget every year.

Infrastructure investments / upgrades;

You already have the infrastructure in place. A move to cloud means that you may need to invest to upgrade devices, browsers and comms to be able to access the services effectively. However, the cloud provider will normally have the most up to date, patched server operating system and database to provide optimum performance and security. Can that really be said of your internal IT?

Green credentials; 

There is a strong case to be made for cloud being greener. Companies typically having multiple servers and network rooms with all the associated air conditioning. Instead, the cloud provider has a huge and therefore more efficient server farm where cooling and electricity is cheap. Being able to tout this as part of a wider company program may be useful.

Cost to implement and migrate; 

Just because it is cloud, that doesn’t mean there are no implementation costs – unless you are adding “software installation and upgrades,” which is a small part of the overall costs.  This is the ONLY difference between a cloud and on-premise implementation.

Vendor pricing model; 

While many cloud vendors advertise a monthly fee rate, upon closer inspection it is often annual or quarterly up front. But this is still less than the perpetual license fee for on-premise, although now some on-premise vendors will offer a rental approach, giving you the same financial profile as a cloud application.

Operational: How can cloud enable operational efficiencies?

More flexible working;

Any systems implementation – cloud or on-premise – should be driven by a desire to improve efficiencies or open up new opportunities. But with a cloud application, the ability to access it from any browser anywhere in the world may allow far more flexible work patterns. No longer are staff tied to an office or VPN.

Outsource activities;

With a cloud application and data hosted externally, it is much easier to open up access to 3rd parties. This paves the way to outsourcing non-core operations or even parts of operations more easily. With an on-premise application this approach often requires a more sophisticated set of security profiles than is currently in place.

Geographical expansion; 

Opportunistic expansion through new offices or partners can be limited by the extent of the on-premise network or VPN access. A cloud application makes this very straightforward. But this is only a benefit, if there are growth aspirations.

Geographical standardization;

The holy grail for the COO is to get consistent operational processes across the organization. Oftentimes, different legacy systems hamper this, or can be used as an excuse to maintain the status quo. With a new cloud application, there can be a more rapid push for standardization and the resulting benefits.

Executive support;

Just like any change initiative, whether supported by a new systems implementation or otherwise, there needs to be educated executive support. The sponsors need to have a clear understanding of the business benefits and not be taken in by the “cloud is new and therefore better” hype.

Technical: What is required to make it work?

Infrastructure and comms upgrades;

Just because the cloud vendor is providing the backend servers, database and application, it does not mean that there is no investment in your own infrastructure. Devices (mobile, tablet, laptops, desktops) may need browsers upgraded and security plug-ins. Internal comms and firewalls may need to be expanded to cope with the additional internet traffic.

Single sign-on;

The biggest barrier to new system adoption is single sign-on. It may seem like a small issue but it is another reason for end users to balk at the change. Single sign-on is often an issue with less sophisticated cloud solutions.

Geo location of data;

Your industry, business or clients may mandate where data can be held. Few cloud vendors have data centers outside mainland US, let alone across all the European countries. This could be a showstopper for cloud.

Offline vs online;

We still live in a world where there reliable wi-fi access is not always available in the locations the staff may be working. A cloud application that is only available online may be a showstopper.

Device support;

The pressure for IT departments to support BYOD has meant a wide range of devices and browsers are now used by staff. Will the support terms of the cloud vendor force a standardization of browser, and therefore device, that compromises your BYOD initiative?

Vendor: Is their offering sophisticated enough?

Long term viability;

Implementing a cloud application is essentially outsourcing that part of the IT function. Therefore you need to understand the long-term viability of the vendor. Clearly you do not want them to go bust, but a huge success leading to rapid expansion can cause grief. Who controls the company – VC or privately held? And what are the owners’ aspirations? An exit to a major software vendor may not necessarily be in your interest. This needs to be part of the negotiation.


Is this a true multi-tenant application with the economies of scale associated with that? Or is every implementation tied to a customer with the associated implementation, upgrade and support costs? This may question the long-term viability of the vendor.


An on-premise application can be tightly customized to fit the business. Unless the cloud application is extremely sophisticated, there will be limited configuration changes that can be implemented. This will require a change in internal work practices to fit with the way the application works. Is this acceptable, and at what cost?

Upgrades / sandbox;

With any on-premise application you choose, what upgrades to take, and when to implement them, things may require changes to the business operations. Most cloud vendors implement upgrades or small patches daily, weekly, or monthly. This can be extremely disruptive. Is the cloud application sophisticated enough to enable you to be selective about upgrades? Do have a separate sandbox environment to test updates before they are implemented across the company?

Interface / API with existing systems;

The interfaces to existing legacy systems from the cloud application could be a showstopper. That is why the cloud applications with the greatest success and penetration into major corporates are very isolated and standalone; email, office productivity, social networking, HR. Over time cloud to legacy integration will get easier through 3rd party adaptors.


Does the cloud vendor’s level of security meet your company standards? In many cases it is better than most internal IT, in spite of the fears of many CIOs. But with cloud vendors they may hand off the hosting to a 3rd party, who may in term be handing off some of their responsibilities. Security needs to be considered for every link in the chain.

Backup, recovery and DR;

Exactly the same considerations need to be considered as were for security.

Support and SLA;

What level of support for the cloud application is provided, over what time zones and in what languages? Can this meet or exceed what is provided in-house for your legacy on-premise systems? Are there penalties for missing support SLAs and how are they reported? Do the penalties drive the right behaviors in the cloud vendor and do they adequately recompensate you as the client?

Good for the client, not so good for the vendors

A move to cloud computing sounds like it is a win-win. You get a service with costs tied to consumption. The vendor enables the multi-tenant economies of scale to make the service cheaper to provide. But what we are seeing is very tight margins for the cloud software vendors who are constantly investing in new functionality or modules. Even the largest vendors dip in and out of profitability, which is worrying. Cloud computing is outsourcing a critical resource – your operational systems – to a 3rd party.

You need to have confidence that the vendor will stay in business. And above all, this needs to be the primary consideration. Think back to when there was a power cut at the office. Every computer shut down, all businesses stopped. If your cloud vendor goes bust or is acquired and the service is terminated, your business is at huge risk.

The challenges are more business-oriented than technical, even with the cloud.

Image credit: John Doo / Shutterstock

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