Public Cloud vs On Premises Cost: Which Is More Effective for Your Business?

More businesses than ever before are turning to public cloud infrastructure — but does it actually save you money?

Every business wants to be more efficient and innovative; many see the cloud as the easy and smart solution. But will the cloud will actually help them achieve this goal? Maybe. Maybe not. 

Taking a chance on new technology might be a worthwhile risk in a booming economy. At the very least, it’s easier to justify. However, that’s not our current financial reality, and CIOs must defend the budgeting decisions they make now more than ever — especially when it comes to investments that are difficult to reverse.

An assessment of public cloud vs on premises cost is crucial for any CIO looking to justify whether they should stick with their current infrastructure or proceed with migration. But analyzing cost is only a part of the whole picture — we’ll help you fill out the rest of the details so you can make a fully-informed decision.

Public Cloud vs On Premises Cost: Which to Choose?

Providing a definitive comparison between cloud vs on premises cost is more difficult than crunching a few numbers and arriving at a simple numerical answer. Everyone’s needs differ; some organizations have workloads that are compute intensive, others are more storage heavy.  The point is that every organization is different, which means that the best IT infrastructure for them will differ.

As you’ll see, cost is the last factor to consider, not the first.  Especially since it’s generally known that the Public Cloud is typically 30-50% more expensive than on-premises IT infrastructure.

The proper way to analyze the cost of the Public Cloud versus other options is to start with the Operations characteristics of the workload.The easiest way to start is to understand what characteristics of workloads each infrastructure option requires and see how each provider generates prices to provide those resources. The following table compares common resource requirements and how each option approaches them.

	On-Premise	Cloud
Hardware and storage	Components such as hard drives, servers, racks, and so on must be purchased and managed on-site. Businesses must also consider power and cooling costs.	Businesses offload hardware needs to external server farms and rent storage and processing power at a pay-as-you-go rate (usually hourly).
Staffing	Organizations must have skilled staff capable of building and managing on premises infrastructure.	Businesses must ensure they have skilled staff who can efficiently manage, configure, and track usage of cloud-based infrastructure.
Scalability	Physical infrastructure requires additional hardware to scale up to meet increased demand.	Cloud infrastructure can scale up and down as necessary — businesses simply rent additional storage or processes as needed. As infrastructure is managed by large third-party entities, it rarely experiences downtime.

But these comparisons only start to get at much larger questions: Will migrating to the cloud save your business money and make operations more efficient, or is maintaining on premises infrastructure the right call?

The answer? It depends — but on-premises infrastructure is usually the better financial choice.

For example, start-ups are trying to build a viable product, and investors don’t want to pay for infrastructure until necessary. These businesses are usually better off renting compute power and storage from the cloud or software-as-a-service providers than spending that money on managing on premises architecture as most venture capitalists want to see their money going into shippable products.

Meanwhile, manufacturing companies often have very stable workloads and don’t usually see many spikes that would require rapid scaling. For them, offloading these processes to expensive public cloud platforms doesn't make sense.

Ultimately, whether or not you stick with on premises architecture or migrate to the cloud should be based on the kind of workloads your architecture handles — not necessarily the industry you belong in. Tools like email, video conferencing, and archival systems are perfect for the public cloud because these systems form the plumbing that makes the rest of your network operate efficiently. Meanwhile, most workloads are stable and predictable and don’t necessarily need to be performed in the cloud.

Despite this, there is a massive push from cloud providers and the surrounding industry that feeds into them to get businesses to move into the cloud. Forecasts from Gartner that predict massive cloud infrastructure spend add to this feeling of inevitability. “Everyone is moving to the cloud,” these reports proclaim. “If you don’t migrate too, you will be left behind.”

The problem is that no one is doing the math or analysis for themselves. We’ve spoken with over a dozen CIOs who have migrated to the cloud and asked them about their process for analyzing whether it was a proper fit. Every single one said they didn’t have one — they only made the jump because everyone else they knew did. 

CIOs are making decisions with incomplete information, leading businesses to overspend on infrastructure by up to 50%. It’s important to remember that public clouds are profit-generating enterprises. They have no interest in making your operation more cost-efficient because their service model is based on utilization. For example, if you spin up a virtual machine and forget to turn it off, your cloud provider has no incentive to tell you that you’re wasting money — and those costs can add up. Meanwhile, if you already have the team and tools to manage data on premises, you’re wasting money to replicate processes already being managed effectively.

If you’d like a deeper analysis of your current infrastructure and want to find out if the cloud is the best place for your workload, we can help. Contact us today.

How to Compare Total Cost of Ownership: Cloud vs On-Premises

Making the best decision for your company means getting a complete picture of your current architecture and the available alternatives. It’s fairly easy to assess the financial cost of some aspects of your infrastructure, but it’s difficult to assign a dollar amount to its more intangible elements.

That’s why it’s better to use a ranking system that will allow you to objectively analyze various factors — operational, organizational, and financial — and compare them against your alternatives in as close to an apples-to-apples fashion as possible.

To do this, first, you must assess your infrastructure options:

• On-premises — legacy: Also known as three-tier architecture, legacy on-premises infrastructure utilizes separate and distinct parts — like servers, storage, networking, and virtualization — and compiles them all into a complete whole.
  
• On-premises — hyperconverged: Hyperconverged architecture is a more modern approach to on-premises infrastructure. It offers functionality similar to the public cloud but allows complete control over its construction and use.
  
• Software-as-a-Service (SaaS): These subscription-based options allow you to run core functions on an external service. Examples include Salesforce for customer relation management or Quickbooks for accounting.
  
• Cloud: This comes in public, private, or hybrid cloud options. While several options are available, the main three choices for the cloud are Amazon Web Services (AWS), Microsoft Azure, and Google Cloud. 
  

Once you have your list of infrastructure options, then it’s time to evaluate each option by a series of factors. First, you should examine operational and organizational factors and rank them on a score from one to five — one being the worst and five being the best.

• Operational: These are the features that make up the day-to-day operations of your infrastructure. For example, what are the performance requirements of your workload, and how efficient is each option at performing them? What are your workload's security and compliance requirements, and how does each option prioritize them? What is the expected lift required to add or reduce capacity? Are there physical considerations?
  
• Organizational: These factors are less tangible than operational or financial, but they’re still important as they will affect your decision whether you realize them or not. For example, your business may be in direct competition with Amazon, making choosing AWS a non-starter. A board member might know someone at Google, impacting your decision. Maybe you’ve had bad experiences with Microsoft and would prefer a different option simply based on your gut feeling. Or it could be as straightforward as the fact that your entire team has been trained to use and maintain an on-premises network.
  

Once you’ve ranked these factors, you’ll know which options fit your organization better. With this information in hand, you can then analyze financial factors on a cost-by-cost basis. Choose your highest-ranking options, and research the pricing of elements like:

• Servers and appliances
  
• Storage
  
• Warranty support
  
• Licensing
  
• Rackspace
  
• Power and cooling
  
• Staffing
  
• Training
  

Once you’ve finished, you’ll have a full assessment that compares which infrastructure is the best fit, as well as how much each option will cost in real-world dollars. And you’ll have proof that you’ve done your homework.

Most organizations will look at their results and see that migrating to public cloud infrastructure isn’t the best option in terms of features and cost. These businesses may be tempted to make the jump to the cloud because they see all their competitors doing it when the better option would be to stay the course. 

Whatever your decision, you’ll have the ammunition to back it up in concrete terms. It’ll help you make the best choice for your business and help you stick to your guns when groupthink tries to sway your mind.

There’s More to Infrastructure Than Cost

Cloud vs on premises cost is a crucial KPI for any business to consider. However, it’s only one part of the equation. Companies that only assess cost often miss other important factors that can impact their decision. 

Don’t just jump into the cloud because everyone else is doing it.  Thoroughly assess the available options for each of your workloads.  If you need further guidance, don’t worry — we can help. We’ve assisted many organizations, from start-ups to large enterprises and from the public and private sectors to find the solution that makes sense and provides the best results. 
Contact us today to learn more.