On-Premise vs. Cloud vs. Hosted Services: Understand the Difference

On-Premise vs. Cloud vs. Hosted Services

Business leaders understand the importance of digital transformation. That’s why the global digital transformation market is projected to reach $1,009.8 billion by 2025 – up from $469.8 billion in 2020. 

If you’re a small business owner and new to digital transformation, you may be feeling overwhelmed by the range of options and technical jargon. We’ve got you covered. 

Let’s look at the three terms all decision-makers on a digital transformation journey are guaranteed to encounter:  

  • On Premise  
  • Cloud  
  • Hosted 

Knowing the difference between these hosting options for technology services (including applications and IT infrastructure components) can help you make the right choice. This will prevent you from wasting money on a solution that won’t meet all your current and future needs. 

Table of Contents 

What is an On-Premise Service?

An on-premise service is the traditional way people have bought and used software. You receive a product, that you own the licenses to, and you run it on your own server. In the past, most services were hosted on-premises because there were not many suitable alternatives. 

When you host a service on your own server, you’re in control of the: 

  • Hardware 
  • Operating system 
  • Service 
  • Associated data 
  • Configuration 
  • Security 
  • & more 

Having control can have benefits and drawbacks. It depends on your requirements and capabilities.  

For example, financial institutions that process highly sensitive data need to be in complete control of their information processing systems to maintain compliance with stringent regulations and repel the most dangerous cybersecurity threats. 

For smaller organizations with limited resources all the control associated with on-premise services can be a burden. It forces you to hire someone with the right skillset to manage them. 

There is a large upfront capital expenditure needed to deploy an on-premise service – in addition to its ongoing maintenance costs. Enterprises leverage economies of scale to justify this investment much easier than small and medium-sized businesses. 

Benefits of an on-premise service: 

  • Complete control over your IT infrastructure 
  • Doesn’t always require internet connection 
  • Customizable to meet your needs 
  • Lower long-term costs 
  • No subscription fees 

Drawbacks of an on-premise service: 

  • High upfront costs 
  • Maintenance costs 
  • Limited scalability 
  • Greater potential for data loss 
  • Needs hands-on IT staff involvement 

What is a Cloud Service?

Cloud technology is a modern approach that allows businesses to pay for a subscription to use software. The software is available online via a server that is managed by a software vendor. 

That vendor may be a major cloud provider like Microsoft – whose cloud computing service is Azure. Or Amazon – who owns Amazon Web Services. 

Cloud performance expectations are defined in a cloud service-level agreement (SLA). This is an agreement between a cloud service provider and a client. It ensures that a minimum level of service is always supplied. 

Leading providers employ skilled professionals to manage their massive data centers. This provides you with peace of mind knowing that your cloud services are in good hands. 

Cloud services are also scalable making them a great choice for businesses that deal with seasonal demands. 

Benefits of a cloud service: 

  • Enhanced security and data protection 
  • No large capital investment 
  • Lower maintenance costs 
  • Geographic redundancy 
  • Scalable 

Drawbacks of a cloud service: 

  • No control over the server hardware 
  • Potential compliance challenges 
  • Danger of vendor lock-in 

What is a Hosted Service?

Hosted services are even more convenient than cloud services because their providers handle the underlying servers and the software that runs on them. 

The software-as-a-service (SaaS) licensing and delivery model has become synonymous with hosted services. It allows end-users (both businesses and individuals) to use cloud-based apps over the internet. 

Some of the popular SaaS tools that organizations of all sizes rely on every day include:  

  • Trello 
  • Slack 
  • Hubspot 
  • Freshbooks 
  • Zoom 
  • Google Workspace 
  • Microsoft 365 
  • Salesforce

Hosted services are perfect for small businesses because they can be deployed with a few clicks. Plus, they can be used without little to no technical knowledge.  

The biggest drawback to this convenience is that not all hosted services give their users the same level of control over their data. Making it important to read over the terms of service when signing up for a SaaS tool. 

Benefits of a hosted service: 

  • Budget-friendly pricing model 
  • Little to no maintenance is needed 
  • Variety of services to choose from 
  • Can be accessed from anywhere 
  • Scalability, flexibility, security

Drawbacks of a hosted service: 

  • Danger of vendor lock-in 
  • Loss of control 
  • Limited customization 

How to Choose Between On-Premise, Hosted, or Cloud?

Let’s take a look at how you might choose the best option now that you understand the benefits and drawbacks for each. 

You’re Happy with Your Existing On-Premise Infrastructure 

If you’re happy with your existing on-premise infrastructure and confident in your ability to maintain it, then it makes sense to continue. After all, the biggest drawback of this model is the large upfront investment it requires. 

You may decide to combine on-premise services with cloud or hosted services to give your business a boost. Keep in mind that if you do, this arrangement is guaranteed to increase your defense perimeter. Supplying cybercriminals more entry points to target. 

The best on-premise infrastructures need regular upgrading to be efficient. Ensure you budget accordingly to be prepared for unexpected costs.  

You’re Not Happy with Your Existing On-Premise Infrastructure 

If you find it to be too expensive or too difficult to maintain and secure, evaluate your IT needs to figure out which alternative is better for you. 

Cloud services like Amazon Web Services or Microsoft Azure are suitable for businesses that don’t want to maintain in-house servers anymore – especially if you would still like to have as much control as possible.  

Cloud servers supply the necessary networking components and capacity to run even the most demanding business services. Plus, many Managed Service Providers (MSPs) that can help with their deployment and management. (Learn 5 more ways an MSP can help your business grow.

Hosted services, on the other hand, may work best for businesses that would like to simplify their IT infrastructure – reducing it into a handful of predictable monthly expenses. 

You Don’t Have Any Existing On-Premise Infrastructure 

If you don’t have any existing on-premise infrastructure, then you should decide which of the three options is best for you based on their advantages, disadvantages, and inherent characteristics. 

If you have never tackled a challenge like this before, partnering with an experienced IT provider will be helpful in deciding the best path. They will work with you to create a detailed assessment of your current and future needs and establish a solid strategy. 

It’s worth noting that businesses with limited IT budgets and expertise tend to gravitate toward cloud and hosted services, while larger organizations maintain on-premise capabilities. 

The Difference Between Cloud-based Hosting and In-house Hosting

The difference is in who owns and operates the hosting infrastructure. For example, cloud-based web hosting servers are owned and managed by the provider of cloud hosting services. In-house hosting servers are owned and managed by the business. 

Is Cloud Hosting the Same as Cloud Computing?

The term cloud computing refers to the delivery of all kinds of services through the public internet. Hosting is one of them. 

How is the Cloud Different from Hosted IT Services?

A hosted IT service (e.g., Gmail) is a centrally hosted software application that’s delivered over the public internet – typically on a subscription basis. The cloud is a term used to refer to the underlying IT infrastructure on which hosted IT services run. 

Is Hosting a Cloud Service?

Hosting is a service that supplies storage and computing resources for the accommodation of one or more websites. It can be a cloud-based service. 

Choose the Hosting Service That Works for You 

Ultimately, the choice between on-premise, cloud, and hosted services should be based on what will work best for your business – not someone else’s. Each of the three options has its own set of advantages and disadvantages so ensure that your choice fits your goals. 

If you’re still struggling to choose the right solution, an expert at Aligned would be happy to help. Contact us to achieve your business digital transformation goals today

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