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3 Essential Business Factors to Consider When Choosing Between On-Premise or Cloud-Based Software

This piece weighs business factors in terms of cloud consideration for company operation.


Amber Nunnery

21 days ago | 4 min read


In a cloud-driven world, on-premise software has aged gracefully. Most businesses currently use a hybrid approach, which is telling of the dual atmosphere of viable IT we’re in. While the cloud hype is alive and well, on-premise software remains loyal to customers, leaving businesses wondering what’s best for them, and how to know. Businesses have unique needs, so this requires multi-level evaluation. Key factors to start with are functionality, cost, and security. 


When considering cloud-based software, it’s important to first determine cloud-capability among current on-premise business applications. How much is already running on-premise? Are they SaaS (Software as a Service) applicable? At times, despite the off-premise push, on-premise software can still outweigh the offerings of cloud-based software. For example, QuickBooks may be the dominant business accounting software, but the cloud version lacks some advanced features. When this is the case for business applications, it’s necessary to determine whether or not the cloud shortcomings are deal-breakers, or able to be worked around. 

When in doubt, examining file management is a reasonable place to start. If it’s just files that are stored locally, the transfer can be simple. However, if whole databases are running locally, they’ll need to be evaluated for cloud-capability. Ultimately, if your business can’t properly function the way it needs to on the cloud, it’s likely not a smart move right now. 

If you’re currently undecided, that’s okay. A hybrid business model is actually a practical one for many. Microsoft Office 365, for example, is cloud-based, but runs locally on the drive of your PC. Hybrid data centers incorporate classic, on-premise infrastructure, but are securely housed elsewhere, giving businesses flexibility to dynamically store their data as they choose. 

For a growing number of businesses, though, the agility offered from cloud-based software is invaluable due to the recent increase of remote employees. With a remote workforce comes the need for cloud-based software, in order to avoid end user experience error. This is something companies can keep in mind as we continue into the remote-friendly digital age. 

Cost and Risk Assessment

A clear comparison can be made when it comes to the cost of on-premise software and cloud-based software, which is that of CapEx (capital expenditures) for on-premise, to OpEx (operational expense) for cloud. Basically, on-premise CapEx is your traditional, lump sum for a long term product, and cloud OpEx is your day-to-day subscription-like payments for operational usage. 

While some businesses may decide purely on budget preferences, hardware lifecycle can play a role in cost analysis. Businesses naturally meet a fork in the road when hardware reaches its end of lifecycle, leaving decisions that can, at times, trigger consideration of cloud-based software. This is when dialogue should be had in terms of cloud feasibility for business applications, and budgeting needs for the possible transfer.

Aside from cost, risk assessment of the cloud transition is critical. Just as cost requires proper timing, so does cloud-based software. It’s wise to check how long SaaS products have been released before usage, and if possible, wait for an updated and improved release to commit to. This allows time for bugs to get worked out. 

Security and Compliance

To the surprise of many, cloud-based software is more secure than on-premise software. With on-premise software, breaches or losses are more likely to happen due to its physical, in-house vulnerability. On the contrary, SaaS product vendors adhere to best practices when it comes to security compliance requirements, and have the documentation to prove it. 

In the IT world, these reports are known as the SOC (System and Organization Controls) auditing reports, and specifically, the SOC 2 Type 2 report is an evaluation done over time to observe effectiveness of security controls. Created by the American Institute of Certified Public Accountants (AICPA), this report is required, at minimum, for businesses that store customer data. If nothing else, this is a powerful selling point for most when it comes to the cloud. 

Key Takeaways

So when making the decision, here are main ideas to keep in mind. 

  • Functionality is key. If your business application needs aren’t functional on cloud-based software, it’s simply not time to transfer. If a hybrid approach is working, it’s practical. If your business predicts a remote workforce in the future, it’s time to start planning ahead for a gradual or full transition to the cloud.
  • When it comes to cost, your business’s unique needs can determine the appropriate approach. Business budgeting preferences for CapEx and OpEx, hardware lifecycle, and maturity of SaaS products can all influence your financial decision and risk-averse timing for the transfer.
  • If security is a concern when considering the cloud, know that SaaS companies must adhere to compliance reports (specifically, SOC 2 Type 2) in order to be considered trustable. These reports are available to clients and prove the cloud’s credibility, in contrast to on-premise security inadequacies.

All in all, the IT dilemma businesses face is common and ongoing. While cloud-based software is here to stay, it’s important to weigh options about when, how, and to what extent your business should transfer to the cloud. When IT options seem challenging to navigate, careful consideration of these essential factors is key to making the right decision for your business.


Created by

Amber Nunnery


Freelance Article Writer

My writing portfolio explores modern American education, tech philosophy, history and societal topics.







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