V2 3 Biggest Mistakes when Comparing Cloud and On Premise

3 Biggest Mistakes When Comparing Cloud and On-Premise Solutions

By Shannon Corgan, Director of Marketing

Cloud lowers Total Cost of OwnershipYou’re making a huge mistake when you strictly look at license costs to compare cloud vs. on-premise costs for your business. There are so many more costs you need to consider to know the total cost of ownership (TCO) for your business applications.
Here are a few cloud vs. on premise costs to consider:

1 blue orangeHardware costs – For on-premise solutions, what servers or hardware upgrades will you need purchase to use the on-premise solution? With cloud solutions, you don’t really need to worry about this. Most are available on any device owned by the company or the employee. Cloud vs. on premise hardware costs are minimal compared to on premise. 

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IT Admin and Customization – How much time will your IT staff have to apply fixes, patches, and upgrades for an on-premise solution compared to automatic updates from a cloud solution?  How much time will your IT staff have to work with the software developers to customize the on-premise solution? Cloud vs.on premise IT Admin and customization costs are minimal or non-existent.

3 blue orangeMaintenance Fees – When you purchase on-premise software you have on-going maintenance fees to access their new features, fixes, and patches. The maintenance fee is typically 15% - 20% of the license for on premise solutions. There are no maintenance fees for cloud vs. on premise costs. 


Now that I’ve given you a few things to think about when you’re evaluating cloud solutions and on-premise solutions, let’s take a look at the cost comparison for a cloud solution and an on-premise solution. Hurwitz & Associates conducted a study on the four-year total cost of ownership (TCO) for on-premise and cloud solutions. They broke down the TCO into five categories of costs which included the costs for evaluating and selecting software, IT infrastructure, license fees, implementation and support, and user training. They found that the TCO for cloud solutions was 77% lower than the TCO for comparable on-premise solutions. The largest TCO variance between the cloud solution and the on-premise solution was due to the hardware, IT Admin, and IT Infrastructure costs required for on-premise solutions. To dig into the details of the TCO analysis by Hurwitz & Associates to understand the cost variances between cloud solutions and on-premise solutions, click here.

The key findings for cloud vs. on premise costs in the Hurwitz & Associates research were:

  • Cloud solutions for user licenses account for 57% of total solutions cost

  • On-premise software costs are about 14% of total solutions cost

  • Cloud solutions require no IT infrastructure costs

  • For on-premise solutions, costs range from $150,000 for 10 users to more than $275,000 for 100 users over four years.

For a better understanding of the hidden costs of on-premise solutions that can increase your TCO costs up to 77%, check out our recent blog, The 12 Hidden Costs of On-Premise Software. Now that you know you could achieve a cost savings of up to 77% with the cloud, you may be wondering how to get started on your own informal TCO analysis to compare a cloud solution to an on-premise solution. No need to whip up a spreadsheet of your own, Software Advice has a great TCO Calculator to try out.

If you haven’t purchased a cloud solution for your business, now is the time. According to the 2018 IDG Cloud Computing Survey, 73% of businesses have adopted cloud technology. In addition, IT departments are allocating 30% of their overall IT spend to cloud solutions. This is an all-time high budget allocation for the cloud.

To learn more about the benefits of the cloud and to simplify your employee time tracking, data collection from the field with mobile forms, or asset tracking, check out our popular blog, 5 Reasons to Move to Cloud.