On-Prem vs Cloud – Which is the Lowest Cost?

Cloud providers claim to save money. On-prem providers claim the cloud is crazily expensive. Which is correct? 

To further confuse matters, there are plenty of horror stories of organisations moving to the cloud and costs significantly increasing. 

Of course, every situation is different, but as a rule, we find that simply moving from on-premise to the cloud (with no changes) results in the same costs or a small increase, but modernising the service results in a significant cost saving.  

How can the cloud deliver savings? 

On-premise data centres are typically costed as a large capital spend and then lower ongoing costs to pay for power/cooling and for engineers to manage the service.  Cloud services don’t have any initial costs but are charged based on usage, throughout their life.  Some people think you can simply draw both costs on a graph and see when on-premise becomes cheaper – but it's much more complex than that. 

To achieve cost savings from cloud services, you need to design your services for the cloud.  Savings could be in many areas including Microsoft licensing, but the large area is typically in overall usage.  Most on-premise systems have the same capacity regardless of the time of day, e.g. the same processing power at 3am as 3pm.  This same design in the cloud is expensive, but it is very simple to scale up and down. 

For example, if you had full capacity for your service from 8am to 8pm in the cloud, but turn it off outside of those hours, you immediately halve the cost of the service.  When you take into account weekends, public holidays etc, the savings further increase.  In reality, you probably only need the peak capacity for a few hours a week (often Monday mornings), and lower capacity at other times.  You may have some particularly busy times of year – with a need for additional power.  Many organisations need services available 24/7 but with very low usage levels outside of working hours.  All of these variables impact the cost. 

How can the cloud cost more? 

There are two main reasons for cloud services costing more than on-premise. The first is when an organisation simply “lifts and shifts”, i.e. they run an infrastructure designed for a premise-based data centre in the cloud. This is likely to have all the cost disadvantages of on-premise, but without any of the benefits of the cloud. 

The second area is poorly managed cloud services. With the cloud, it is extremely easy to just let the costs grow over time – old services are seldom turned off, capacity is increased but never reduced, and saving opportunities are not implemented. The usual challenges of reducing IT costs apply:

• People are scared of changing something in case it impacts service, or
• Saving money is dull and there are always more important projects to be worked on

Both of these areas are simple, fast and low-cost to resolve. 

How else the cloud saves money

Other cost savings are almost endless but very much depend on the circumstances. For example, VMware users can easily save licensing fees. Microsoft users can save from license consolidation and rightsizing.   

Storage costs can be radically reduced with cloud-based archiving, the cost saving of a large data store, which is seldom accessed can be very significant. The storage itself is automatically managed, so there is no need to change software or implement new processes. 

Using cloud-native services such as databases, back-up, security and DR, all offer significant cost savings.   

How do I find out? 

We offer a complimentary Cloud Viability Assessment to fully calculate the potential cost savings. Learn more & redeem your complementary CVA: