Advantages & disadvantages of the 6 relevant factors for a decision
Cloud or on-prem (also cloud computing and on-premises) are two licensing and usage models for server-based computer programs. Until around 2010, the longer existing on-prem model was the predominantly used one. Since the introduction of cloud technology, however, some people have been asking themselves which model is better when it comes to purchasing new CRM software, for example.
Let's get to the bottom of the question.
Table of contents
What does on-premises mean?
In the on-premises model, the licensee buys or rents the software. The licensee operates the software independently in the in-house data center or on specially rented servers in an external data center. They also buy or rent the hardware required to make the software available for the corresponding number of users in their company and to store the resulting data.
In addition, an in-house system (i.e. your own data center) requires an IT team to take care of updates and maintenance of the servers and data.
What is cloud computing?
With cloud computing, the licensee obtains the CRM software completely as a service, for example. Hence the name Software-as-a-Service (SaaS). However, this only works with a cloud CRM. Read the blog article Is this also available as CRM SaaS?
Hardware, operating and infrastructure costs as well as maintenance costs are borne entirely by the provider and are therefore transparently included in the rental price for the customer. Such contracts are often concluded on a usage or period basis. This gives the licensee a high degree of flexibility when booking usage licenses or storage space as required.
Cloud or on-prem: Which suits your company better?
Which model offers more flexibility?
Flexibility here refers on the one hand to the adaptability of the software to individual business models and company processes, and on the other to the capacity for users and data storage.
On-prem offers a major advantage in terms of software customization: in-house or external developers can make company-specific changes to the purchased software themselves instead of commissioning them from the manufacturer. Depending on the resources used, this can save time and money. The disadvantage is that these changes may not be adopted when the software provider updates the software.
With cloud solutions, software customization options can usually be implemented within the service via configurations or optional modules ( possibly also from third parties). Smaller, personal requirements can often be set by the user themselves (see the example of simply configuring CRM yourself).
However, customizations cannot usually be implemented to the same extent as is possible with individual on-prem offers. But you always have the latest version of the software available .
Expanding the storage space for on-prem solutions involves the purchase of hardware, which is time-consuming and potentially cost-intensive. With cloud computing, storage space and user licenses can be expanded or reduced without effort, but not without cost. Nevertheless, this can offer enormous advantages for agile reactions to changing market conditions.
In return, the on-prem solution usually has lower latency times ( latency = the time it takes for a data packet to travel from its origin to its destination) with the appropriate bandwidth.Offline use of the application is also possible without any problems. Depending on the license model, user licenses can be added or removed just as easily as with a cloud solution.
The biggest positive aspect of cloud technology is that it enables completely new business models, for example in the areas of IoT (Internet of Things), AI (artificial intelligence) or machine learning.
Cloud or on-prem: A comparison of the two models.
| The 6 factors: | On-premises model | Cloud computing model |
|---|---|---|
| Acquisition | Hardware, software, infrastructure additionally required: Operation & maintenance High costs Various providers |
Everything included in the rental price no extra costs only one provider |
| Licenses | Licenses per user and per product to buy as required Graduated prices for products and users |
Licenses per user for complete package bookable on demand Rental prices staggered according to usage or time |
| Storage space | Additional hardware purchase Additional costs |
Storage space bookable as required Rental price is adjusted accordingly |
| customizations | by internal or external developers Costs and time required depend on on use of resources |
Configurations or module selection optionally possible Rental price depends on scope |
| updates | after longer time intervals Customizations are not adopted |
Automatic updates Configurations are retained |
| data protection | High level of security own control & monitoring |
Provider with data center in Germany = GDPR-compliant |
What about data protection?
When it comes to data protection, on-prem has been tempting since the EU GDPR at the latest. In-house storage gives the company full control over data management and security. This solution is therefore particularly popular for business models that require a particularly high level of data security.
Nevertheless, cloud solutions also offer security. In view of the EU GDPR, however, attention should be paid to where the servers are located. It is best to choose a provider in Germany, as they must comply with the German Data Protection Regulation. Our cloud CRM already fulfills this requirement.
How high are the costs?
The cost comparison between on-premises and cloud computing must be viewed in a differentiated manner. Ongoing IT costs of internally managed data centers are often underestimated. Only the one-off acquisition costs of the hardware are calculated and the administrative costs of an in-house system are not taken into account.
The results of a cost comparison are thus quickly distorted.
In addition, costs should not be considered in isolation. Company-specific requirements in terms of stability, flexibility, agility or scaling as well as the willingness for organizational restructuring that a switch to cloud systems entails play an equally important role in the decision for or against a model.
The alternative: hybrid systems
There is now an increasing trend towards not simply choosing one or the other option. The decision is increasingly being made in favor of so-called hybrid systems. As a rule, the robust resources of a cloud are used for good performance and confidential data is stored on internal servers.
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