On-premises vs. cloud computing – which should you choose?

The choice between on-premises and cloud computing is one of the key decisions for an IT strategy that needs to meet current and future requirements. Is it better to rely on local servers to maintain maximum control, or is the flexibility of the cloud the better choice?

This guide highlights the differences, advantages and disadvantages of both models and provides specific examples from practice. You will learn, among other things:

• On-premises vs. cloud computing: What are the technical basics and differences?
• Advantages and disadvantages: Why on-premises offers maximum control and how the cloud enables greater cost efficiency.
• Costs, data security and scalability: A comparison shows which model could be right for your company.
• Practical examples: Specific use cases that illustrate the advantages of each model.

Whether you are a small business with limited resources or a large corporation with high data protection requirements, this guide will help you make the right decision. We show you which hosting solutions can give you a decisive competitive advantage, not just today, but also in the long term.

Are you still unsure whether you should opt for an on-premises solution or cloud computing for your IT infrastructure? Your choice will influence numerous aspects – from control over your data and systems to long-term costs and the necessary flexibility. Both models have their own strengths and challenges, which vary depending on the size of your company, security requirements and strategic goals.

To make the right choice, it is important to clearly understand the differences between on-premises and cloud computing and weigh up which model best suits your individual requirements. But before we take a closer look at the advantages and disadvantages, let's take a look at the definition of on-premises vs. cloud computing:

This solution is particularly common in industries with strict security or compliance requirements.

For example, a medium-sized machine manufacturer operates its own servers for accounting software and customer data in order to better comply with regulatory requirements. This protects data from external access, but results in higher costs for hardware and IT personnel.

Unlike on-premises solutions, where all resources are managed locally, cloud computing is based on the provision of IT services via the Internet:

This model offers virtually unlimited scalability without requiring companies to invest in expensive hardware. For example, a developer of customised software solutions uses Amazon Web Services (AWS) to respond flexibly to increasing customer demand. With no high upfront costs for server hardware, the company can use its limited budget more efficiently and focus on developing its applications.

Let us now take a look at the advantages and disadvantages of both models and use practical examples to find out which solution is best suited to different requirements.

In summary, it can be said that on-premises solutions offer high control and security, but are associated with high initial costs and ongoing maintenance.

Cloud computing, on the other hand, offers flexibility, scalability and lower fixed costs, but carries risks such as dependence on Internet connections and compliance and security concerns with third-party providers.

Companies that rely on on-premises hosting often invest heavily in setting up their IT infrastructure. In addition to purchasing servers, storage solutions and network devices, there are costs for special premises that are suitable for operating and cooling the equipment. There are also costs for electricity and software licences that are required for use.

Cloud computing, on the other hand, enables dynamic use of IT resources that can be flexibly adapted to specific needs. Instead of making high initial investments, companies only pay for the resources they actually use.

These ‘pay-as-you-go’ models also allow smaller companies to use advanced IT infrastructure without high upfront costs.

Cloud computing really shows its strengths in companies with fluctuating IT needs, like start-ups or seasonal providers, who need to react flexibly and quickly to changes.

On-premises gives managers complete control over their data and security measures. All sensitive information remains within the company's own infrastructure, which is particularly preferred by industries such as finance, healthcare and public authorities.

Advantages

• High level of control: Companies can customise and optimise security protocols.
• No third-party providers: Data never leaves the internal systems, which minimises the risk of external access.

Challenges:

• Resource-intensive: Regular security updates and protection against threats such as malware or phishing are necessary.
• High costs: IT teams must be trained to keep security measures up to date.

• High investment costs: Physical storage for redundancy, introduction of backup software, development of expertise
• High running costs: Licence costs for software, power consumption, data connection costs, operation of multiple data centres
• Backups: Remain within the company
• Restoration: Possible at any time (provided stable data lines are available)
• High effort: Increased effort required to restore data in the event of disaster recovery

Data security in cloud computing

Providers such as AWS and Microsoft Azure invest heavily in state-of-the-art security solutions to protect their customers' data. Encryption technologies, multi-factor authentication and special data centres with strict access regulations are now standard.

Advantages:

• State-of-the-art security: Cloud providers use advanced technologies that are often beyond the capabilities of individual companies.
• Security updates: Automated updates ensure that systems remain protected against new threats.

Challenges:

• Data on external servers: Companies place their trust in a third-party provider, which represents a potential risk.
• Dependency: A security incident at the provider can also affect customers.

• Tooling: provided by the provider; cloud storage is generally cheaper to operate
• Availability: higher in the cloud than on-premises
• Backups: not always directly accessible; automatic handover of resources requires trust in the provider
• High costs possible: for bandwidth when moving backups (depending on infrastructure)
• Integrated backup solutions: already included in many services and resources, reducing complexity

Scaling on-premises systems poses significant challenges that often tie up time and resources:

1. High expansion costs: Purchasing new hardware such as servers and storage, and installing it, requires significant investment.
2. Lengthy planning: Expansions require thorough analysis and planning, as space, power requirements and network resources must be taken into account.
3. Technical limitations: Existing infrastructure often sets limits on growth, for example due to insufficient computing power or storage space.
4. High administrative overhead: Companies are responsible for all technical aspects such as updates and maintenance.
5. Limited flexibility: It is difficult to adapt to sudden requirements, such as unexpected user numbers.

For example, an online retailer specialising in automotive spare parts is planning to expand its IT infrastructure to meet growing demand. However, purchasing and integrating new servers takes months, leading to bottlenecks in order processing.

Scalability with cloud computing

Cloud computing, on the other hand, offers a flexible and dynamic alternative that is particularly suitable for growing or fluctuating requirements:

1. Automatic scaling: Resources are automatically increased or reduced as needed without the need for physical hardware.
2. Fast provisioning: Additional capacity can be activated within minutes to respond to increasing requirements.
3. Lower initial investment: Since no physical infrastructure is required, initial costs are minimal.
4. Pay-as-you-go model: Companies only pay for the resources they actually use, which increases cost efficiency.
5. High availability: Cloud services often offer global server locations, allowing users worldwide to benefit from fast access times.

For example, an event management company uses cloud services to increase capacity at short notice during a major ticket sale. After the campaign, resources are automatically reduced, saving costs.

On-premises systems offer maximum control over the IT infrastructure. Hardware, software and data management are entirely in your own hands. This is particularly relevant for industries with strict data protection requirements, such as healthcare, banking or government agencies.

However, maintenance requires considerable internal resources, as IT teams must regularly install updates, implement security measures and fix errors. For example, a pharmaceutical company manages its sensitive research results on company-owned servers to ensure legal compliance and protect its intellectual property. This model requires a dedicated IT team that is available around the clock.

Cloud computing is characterised by low maintenance costs for companies. External providers take responsibility for updating software, managing infrastructure and protecting against security threats.

This is an attractive option for organisations without their own IT department or with limited staff. However, control and data protection are partially placed in the hands of the cloud provider.

An architecture firm, for example, uses cloud solutions such as Microsoft 365 to manage documents, emails and projects. This allows employees to focus on their actual tasks.

On-premises solutions offer maximum security in terms of control, but require considerable internal resources. Cloud computing, on the other hand, is low-maintenance and particularly suitable for companies that depend on flexibility and low operating costs.

On-premises solutions are particularly suitable for companies that require maximum control over their data and must comply with strict regulatory or industry-specific requirements. This solution provides a closed environment that reduces the risk of external security breaches.

A law firm, for example, stores confidential client files locally in order to retain complete control over data protection and comply with security requirements.

This model is particularly suitable for companies that value flexibility and low initial investment. It really comes into its own in dynamic industries or business models that require rapid responses to market changes. The ability to flexibly scale IT resources as needed makes cloud computing particularly attractive.

For example, a marketing company temporarily stores large amounts of data in the cloud for campaign analysis and scales up quickly when needed.

Hybrid models combine the advantages of on-premises and cloud solutions by storing sensitive data locally while utilising the cloud for flexible workloads. This solution is ideal for you if you need both flexibility and control.

For example, an energy supplier stores its customer data locally to comply with data protection regulations and uses the cloud for smart meter data analysis to make energy usage more efficient.

The decision between on-premises and cloud computing is not a simple choice, but a strategic step that must take into account the individual requirements and goals of your company. Both approaches offer specific advantages and disadvantages that affect costs, security, scalability and maintenance.

On-premises solutions give companies full control over their data and systems. Physical proximity to the data and the ability to implement security measures independently make on-premises a secure but also maintenance-intensive option. High initial investments and ongoing costs are further disadvantages. Scaling is also time-consuming and costly, as it requires new hardware and long-term planning.

Cloud computing offers maximum flexibility and enables companies to dynamically scale IT resources as needed. Fixed costs are reduced and it is easier to adapt quickly to changing business requirements. Cloud services such as AWS or Azure are particularly attractive for start-ups and growth-oriented companies, as there are no high upfront costs. However, there may be security concerns as data is stored on external servers. There is also a dependency on the internet connection, which can affect availability.