Cloud vs On-Premises Cost Comparison

As organizations pivot and transform to meet the needs of tech-savvy consumers who seek fast, easy digital experiences, the cloud has become an essential component to success. Embracing the cloud along with existing on-premises infrastructure has led to a hybrid IT model for most organizations. This combination generates decisions that need to be made about what data and applications go into the cloud and what stays on-prem. 

While part of the decision certainly stems from workload needs and industry regulations, another major part comes down to cost. The debate around the cost-effectiveness of cloud vs on-premises infrastructure has grown over time and has only become more critical. 

More organizations than ever are strategically tying IT expenditures to business outcomes and need a better view of the true costs of cloud and on-prem infrastructure.  

A basic school of thought is that on-prem infrastructure relates to capital expenditures (CapEx) and the cloud to operational expenditures (OpEx). Sounds like a simple enough breakdown—but that’s just the tip of the iceberg. 

The evolution of cloud solutions 

It helps to understand how the cloud has evolved to better understand the cost-effectiveness of cloud storage. 

While primitive versions of the cloud have been around in certain industries since the 1960s, the cloud didn’t emerge as a tool for the business world until the late 1990s. Through the first decade of the 2000s, it rose in popularity and use until it became ubiquitous in both business settings as well as users’ personal lives.  

Today, it’s hard to overstate the impact the cloud has had on the world. It has been a major driver for digital transformation, enabling remote work and data sharing across locations, and offering global scalability that allows organizations to stay agile and responsive to evolving trends and customer demands.  

Along with cloud computing came cloud storage, which revolutionized the way organizations store and manage vital data. The flexibility and scalability of cloud storage opened up a whole new world for organizations that didn’t have the budget, physical space, or capabilities to increase storage capacity in their data centers. 

Key features of cloud services  

The rising popularity of the cloud and cloud storage was due in large part to their benefits: 

• Flexible pricing model — Typically pay-as-you-go, which means you don’t have to worry about over- or under-provisioning based on future needs.  

• Elasticity — Automatic scaling makes it easier to handle fluctuating workloads.  

• Reduced management workload — Cloud providers handle maintenance, security patches and updates, leaving your IT team free to focus on more critical tasks.  

• Resilience and high availability — Cloud security and resilience features built into cloud platforms give you peace of mind that data is protected and will remain available and recoverable in the event of a security threat, disaster, or data breach. 

Exploring on-prem infrastructure 

Traditional on-prem infrastructure is IT that an organization owns, manages, and maintains on-site at your physical location. It typically includes hardware, software, and networking equipment to provide compute, memory, and storage resources.  

On-prem infrastructure is completely under your control. But that also means your IT team is responsible for every aspect of its maintenance and upkeep, from configuring and deploying systems to routine maintenance, health monitoring, downtime management and troubleshooting, and so on. IT must also plan for future capacity needs and decide how and when to scale up or out.  

IT is responsible for all security and regulatory compliance requirements as well, such as securing hardware and networks, implementing security software applications, patching and updating software, and protecting data as it’s accessed and shared across the network. Business continuity and disaster recovery plans are part of managing and securing on-prem infrastructure—which means you must have a process to restore data and keep operations running no matter what.  

While the cloud has been a game changer for IT across many industries, some industries have been a bit more hesitant about going all in with the technology. That’s primarily because they want to keep control over sensitive data or are subject to stringent regulations around data security, privacy, and sovereignty. Many organizations in industries such as healthcare, financial services and banking, government and public sector, energy and utilities, and aerospace and defense still rely heavily on on-prem infrastructure to process and store critical data and run applications.  

Main components of an on-prem setup 

On-prem infrastructure comprises many components, all of which must be managed and maintained by on-site IT teams. It can typically include:  

• Hardware — Physical servers, storage devices such as network-attached storage, direct-attached storage, and storage area networks (SANs); networking equipment, such as routers, switches, firewalls, load balancers, cabling, and wireless access points; and end-user devices, such as desktops, tablets, and laptops. 

• Software — Operating systems; virtualization software; enterprise applications such as customer relationship management (CRM), employee resource planning (ERP), and file sharing; security applications, such as antivirus, intrusion detection and prevention systems, and data encryption; monitoring and management tools, such as network monitoring, and management for servers, storage, and networks; business continuity and disaster recovery applications; and licenses for software users. 

• Data center facilities — Physical racks and shelving; physical security such as surveillance cameras and access control; uninterruptible power supplies and backup generators; cooling equipment such as air conditioning and ventilation; and connectivity equipment such as routers and hubs. 

• IT personnel — People with the skills and experience to manage and maintain all of the hardware, software, and data center resources to keep operations running at optimal daily performance. 

On-prem cost analysis 

Equipping and securing an on-site data center is costly. It’s important to look closely at all of the components of on-prem IT infrastructure because the costs for each can add up. All of the hardware and software require significant CapEx to purchase outright. 

In addition to the CapEx, you’ll also need to pay for ongoing maintenance. IT will need to tune up or repair hardware periodically, update and patch software, and renew licenses. IT personnel with the right skill sets need satisfactory salaries, and powering and cooling a data center can get pricey—especially as energy rates fluctuate. 

Hidden on-prem costs 

On-prem infrastructure comes with hidden and unexpected costs, too. 

• Outages: Service outages caused when your infrastructure goes down due to hardware or capacity limitations. This disruption can be very difficult to avoid and can affect customer satisfaction and agility. 

• Overprovisioning and under provisioning: Overprovisioning for expected growth boosts upfront costs for hardware or capacity that might sit idle or unused. But under provisioning can be costly in another way, when downtime or performance lags negatively affect the customer experience. 

• Frequent upgrades: Another hidden cost is the need to upgrade hardware and software every few years. Technology is always evolving, and as new system capabilities emerge, not replacing hardware or software can affect your ability to compete in a rapidly changing market.  

Keeping infrastructure secure can also have unexpected costs. Leaving vulnerabilities in the system can lead to data breaches, which can cost you in recovery but can also affect customer or partner satisfaction and loyalty. Cyberattack methods are always evolving, too, and it’s important to stay on top of that and hire staff that can prevent and address complex and sophisticated attacks. 

Cloud storage cost analysis 

Cloud storage can help you avoid many of the up-front CapEx demands of on-prem infrastructure. Your start-up costs will likely be minimal—perhaps you’ll need to upgrade your networking and connectivity equipment to get better bandwidth or add a load balancer for higher data availability. There could also be a cost for data migration to the cloud. 

The majority of cloud infrastructure is owned, managed, and hosted by the cloud provider. Your cloud costs will primarily be OpEx and come from subscription fees. Most cloud providers offer pay-as-you-go pricing, which eliminates the need to predict future capacity because it’s so simple and fast to scale up or down as needed. You get exactly as much capacity as you need at any moment and pay only for what you use. 

Long-term savings and scalability 

Cloud storage start-up costs are lower than on-prem infrastructure costs—and even better, those lower costs and ongoing OpEx result in significant savings over time. Not only do you avoid having to purchase hardware, but you can also greatly reduce your in-house costs for maintenance, upgrades, and storage management. You don’t need as many people to manage the infrastructure and can even reduce the size of your data center and related demands for power and cooling.  

Additionally, as technology advances, cloud service providers will offer better features and new capabilities that can enhance your business operations and cyber resilience with no additional capital investment needed. To get an in-depth guide into budgeting for cybersecurity, read our in-depth guide How to Budget for Cybersecurity Costs. 

Hidden cloud storage costs 

While cloud storage offers many financial benefits, it can sometimes come with a few disadvantages, like hidden fees, confusing tiers, and vendor lock-in. 

• Data egress fees and other charges — Many cloud providers charge a fee anytime you need to transfer data out of the cloud. You might also be charged for every PUT, GET, COPY, and DELETE request you enter over a specified number. Application Programming Interface (API) calls can also incur a charge. These charges are typically very small but add up fast with the high volumes of objects in your bucket. 

• Long-term storage and tiers — Most cloud providers offer different tiers of storage that come with different prices. For instance, you can get very fast, high-performance storage but it is expensive. Lower-performance storage is cheaper, and archival storage is typically the lowest in cost. But even in lower storage tiers, costs can add up over time beneath your notice, resulting in a surprisingly high bill. 

• Vendor lock-in — It’s easy to get locked in with a cloud provider because each one offers different tool sets and capabilities as well as proprietary APIs and services. And once your data is with one provider, switching to another provider can be very expensive, due to data transfer and retrieval fees, and possibly require re-architecting applications or rewriting code to work with the new provider. 

It's important to note that not all cloud storage providers are created equally, especially when it comes to hidden costs. Wasabi Hot Cloud Storage comes with predictable low-cost pricing and NO egress fees, as well as the elimination of many other charges. And Wasabi storage is one single, simple storage tier. These features mean you won’t get unexpected bill shock or vendor lock-in—just reliable, secure cloud storage that offers high performance at an affordable price. 

Cloud deployment speed and flexibility 

Two areas where cloud computing and storage excel significantly over on-prem infrastructure are deployment speed and flexibility. Today's workloads mean you must be more agile and responsive to fluctuating trends and customer demands than ever before, which requires flexibility to pivot and provide speedy deployment to get products and services to market before competitors. 

Deploying a new service or application in the cloud can typically occur within minutes or hours, compared to weeks or months for on-prem solutions. Scaling resources up or down based on peaks in demand is also fast and easy in the cloud. This kind of agility can be a great differentiator for your organization. 

On-prem solutions take much more time to deploy and scale because you typically need to purchase and install additional hardware and other equipment to get the solution operational. This lead time severely limits flexibility and can even cause your organization to fall behind competitors quickly.  

Compliance and other security considerations 

Compliance and security can be a bit less clear in the cloud than on-prem, primarily because your IT team is in complete control and responsible for virtually everything on-prem. With the cloud, your provider handles a large portion of the compliance and security burden but you also have some responsibilities. 

For instance, providers offer proof of regulatory requirements such as HIPAA, ISO, and PCI-DSS in terms of their platform, but you must still align your computing practices and data with regulations that are relevant.  

The increased control over sensitive information is a big reason why many organizations keep the bulk of their data and applications on-prem rather than in the cloud. Some regulations prohibit data from being stored in specific areas of the cloud or outside the borders of specific geographical locations.  

One way the cloud has an advantage in terms of security is that cloud platforms have built-in security features—and cloud providers invest billions into ensuring their platforms and services are secure. On-prem, you would likely need dedicated IT security personnel with skills and experience in complex attacks and mitigation. 

Cloud vs on-premises cost—which one comes out on top? 

In today’s tech-savvy business world, the advantages and benefits of cloud typically outweigh the challenges. It’s hard to beat the flexibility and cost efficiency it provides to organizations that are constantly seeking ways to be faster to market, more innovative, and more responsive and personalized for digital-native consumers. Key advantages over on-prem infrastructure include:  

• Lower up-front costs with long-term focus on economical OpEx 

• Subscription pricing models that can fit into a wide range of budgets 

• Reduced operational complexity and data management burdens for your IT team 

• Global accessibility with the ability to scale up or down in just minutes as needed 

• High availability, resilience, and robust disaster recovery features that minimize risk of downtime 

• Staying current with the release of advanced tools and services that enhance your ability to innovate 

• Flexibility to adopt hybrid or multicloud strategies to optimize costs and performance  

Solution 

On-prem data storage isn’t going away anytime soon, largely because many highly regulated industries rely on it for specialized security and compliance reasons. But for many organizations, using cloud storage for the bulk of their data and applications is the better choice over on-prem data storage. Not only for the performance, flexibility, and scalability of the cloud, but also for the overall cost savings. 

And when it comes to making an informed decision about a cloud storage solution, Wasabi makes that easier than ever. With Wasabi Hot Cloud Storage, you get a single tier of high-performance data storage for a low, predictable subscription fee. Wasabi never charges data egress fees or for API calls and other features that can add up to an unwelcome surprise at the end of the month. 

Wasabi is affordable without sacrificing resilience and security. Our immutable cloud storage protects your data and provides a reliable way to bounce back quickly in the event of an attack, such as ransomware. In fact, our data protection and security measures can help you save even more money in the long run by preventing data loss and breaches, minimizing potential downtime after an attack, and accelerating recovery. Learn more about our cyber resilience solution.