On Premise vs Cloud Software
  • Jan 13, 2023
  • 9 min read

Cloud vs On-Premise Software: What to Choose for Your Business

Software Re-engineering

Vitalii Samofal

CTO at Softkit

Liudmyla Petrova

Market Researcher


Cloud software and services are more popular than ever. Latest stats reveal that around 50% of corporate data is already kept and managed in the cloud. Moreover, it is expected that by 2025, half of all world data will be in the cloud, amounting to about 100 zettabytes. However, for many companies, on-premises software remains a better choice.

In this article, we will explore the pros and cons of cloud vs. on-premise software, discuss which situations warrant their usage, and examine the hybrid approach as a third option.

Cloud-based software definition

Cloud-based software is any software that runs in the cloud. If you need the internet to access an app – it is cloud-based. Examples of widely used cloud software include Gmail, Google Docs, Slack, Salesforce, Zoho Cliq, Zoom, and Trello. More than 90% of organizations worldwide already use some form of cloud solutions.

The rapid cloud-based software adoption is widely attributed to the COVID-19 pandemic. Under pressure to embrace the remote-first approach, companies turn to various cloud-based communication and productivity software solutions. Other reasons for adopting cloud technologies include increased flexibility, scalability, and potential cost-efficiency.

On-premise software definition

On-premises software is the one that runs on personal computers on company servers. Examples of popular on-premises software include Microsoft Word, PowerPoint, VLC media player, and 7-Zip.

The sales of on-premises software are growing too. This statement was affirmed by 92% of survey participants, encompassing 405 commercial software development companies from 5 continents. About 80% of these companies create separate versions of their apps for cloud and on-premises deployment. Moreover, the predicament of choosing between cloud vs. on-premise is particularly relevant to any custom-built corporate software.

While cloud software is more or less omnipresent across all industries, on-premises software is most relevant for the BFSI (banking, financial services, and insurance) sector, healthcare, engineering, cybersecurity, and government agencies. Reasons include security concerns and the need for substantial storage and processing capacities that could otherwise incur large cloud bills.

8 key differences between cloud and on-premise software

With both options being increasingly popular, it begs the question – what is the underlying difference between cloud and on-premise software? Our team distinguished 8 key points of differentiation between the two:


As mentioned, on-premises software is created for company servers and PCs. In contrast, cloud software runs in the cloud, meaning that a third-party provider, like AWS or Microsoft Azure, provides access to their dedicated hardware. Typically, software built for on-premises usage can still be used in the cloud but not vice versa.


While some cloud software can be used with limited functionality offline, an internet connection is required for proper performance, particularly real-time collaboration, data upload, and download.

In contrast, to use on-premises software, one needs physical access to the hardware where it is installed – a PC or an office network. Company management can enable internet access to on-premise applications. However, due to security concerns, they might forego this.


To compare cloud vs. on-premise costs, let us analyze the two components of the software's TCO (total cost of ownership):

3.1 Initial purchase price

The term refers to the overall price a company has to pay to start using the software. If the software is deployed on-premises, it can include the license cost, the price of hardware required to run the software, and the cost of training personnel to use a new app. The initial purchase price is typically higher for on-premises software.

3.2 Operating costs

Operating or ongoing costs are the price a business regularly pays for using the software. In the case of on-premises apps, this includes hardware maintenance costs such as repair costs, energy bills, and personnel salary.

In the case of ready-made cloud apps, businesses purchase time-based subscription licenses or metered licenses. The latter means that a company pays for a certain amount of services. For example, providers of speech-to-text conversion software often charge per hour of video/audio processing.

To run custom-made software in the cloud, businesses need to acquire cloud storage and computing capacities. The service providers handle all the hardware updates and maintenance, making it a more cost-efficient option for many businesses due to the economies of scale. It is particularly noticeable for smaller companies – with cloud services, your local bakery doesn't need to maintain a server room to have a functioning website or off-site access to their CRM.

On the other hand, cloud services are notoriously hard to set up right – to have enough capacity without paying for what you don't need. Companies worldwide spend an average of 36% more on cloud services than they need. The good news is that overspending is not inherent to the cloud and can be avoided. When setting up cloud services, hiring a development company with an excellent track record of dealing with cloud infrastructure is advisable. At Softkit, we have helped multiple clients decrease their cloud costs by 20 to 40%. Read more about our experience below.


Companies often cite security as one of the main reasons they choose on-premises software. If the software runs on servers not connected to the internet, it cannot be hacked via the internet. All that remains is to closely guard the facility so that no one can sneak in and physically access the servers.

Nonetheless, cloud software is highly secure too. Even NASA heavily utilizes the cloud for its operations.

Organizations that use the cloud for their software but need higher security can opt for private clouds instead of public. Private clouds are cloud environments dedicated to a single customer. They are more secure and customizable than public clouds but less scalable and cost-efficient. When choosing between on-premise vs. private cloud, consider whether your team can ensure proper security of on-premises software.

Maintenance and control

With on-premises software, your team has complete control over your systems. You decide whether you need any upgrades, where to back up data, what operating system to use, etc. Notably, most of such control settings are also available for users of private clouds.

As for maintenance, companies are responsible for their on-premises software. On the other hand, cloud software maintenance is done by third-party vendors.

Environmental impact

In the face of the unfolding climate catastrophe, many businesses and corporations have vowed to take action against climate change. Comparing cloud computing vs. on-premise solutions, the former tends to be more energy efficient. Therefore, usually, it is a better option for the environment. However, experts warn that preference should be given to cloud service providers that use renewable energy to power their facilities.

On-premise software is a better choice energy-wise if renewables power your facilities.

Hardware needs

Undoubtedly, hardware needs for on-premise software are significant – servers and everything needed to maintain them would be on your buying list. However, one would be remiss not to mention that heavily using cloud software requires hardware supporting stable and reliable internet connection and high bandwidth, including modems, routers, switches, and high-speed fiber optic cables.


Latency is the amount of time between a person requesting and receiving information from a physical or virtual server. The lower latency, the better. With on-premises software, latency is typically lower due to the proximity of computing resources. Companies that need to process data fast to make quick business decisions often prefer on-premises software.

On the other hand, when comparing cloud storage vs. on-premise, the former offers exciting opportunities for content distribution, allowing content makers like Netflix and Thomson Reuters to decrease latency for their end users.

8 key differences between cloud and on-premise software

8 key differences between cloud and on-premise software

Primary benefits of cloud software

The benefits of cloud vs. on-premise software include the following:

Flexibility and scalability

Increasing or decreasing the processing capacities of cloud-based software is a matter of minutes. Most cloud providers offer various autoscaling tools to adjust your capacities for optimal efficiency. Autoscaling solutions are cost-efficient. By implementing the AWS Autoscaling tool, our team has decreased the cloud spending of our client, SOLD.com, by 23.5%.

Cloud flexibility is particularly beneficial for companies with high seasonality or various spikes in processing needs.


If set up right, cloud software can be much more cost-efficient than on-premises solutions. Without the need to buy and maintain costly hardware, companies take advantage of economies of scale.

Moreover, cloud software is typically a better option for small companies and enterprises with high seasonality.


Cloud data centers tend to be more energy-efficient, further decreasing computing costs and contributing to the development of a low-carbon economy.


Among the advantages of cloud vs. on-premise software is higher accessibility, meaning that cloud software can be accessed from any place with an internet connection.

Advantages of on-premise software

According to surveys, the top four reasons why companies choose on-premises software are the following:


With ransomware and other cyber attacks on the rise, many are reluctant to entrust cloud providers with their security. If strict security protocols are set and followed, on-premises applications can be better protected.

Data protection

The need to keep sensitive data secret is another reason. Examples of closely guarded data include trade secrets, like Coca-Cola's signature drink recipe, KFC's blend of spices and herbs, or Google search algorithm. Other data types with high-security requirements are personal healthcare and financial information.

Increased availability

When comparing on-premise vs. cloud computing, the former usually offers higher availability and faster disaster recovery. Availability refers to the percentage of time when the software is working correctly and available for use. Software with high availability should have at least 99.999% uptime, meaning its downtime shouldn't exceed 5.26 minutes yearly. Disaster recovery is typically faster for on-premises software due to lower latency – downloading data via a local area network (LAN) is speedier than over the internet.

However, it is also possible to achieve high availability using cloud solutions. Read our Volvo case study to learn how our team ensured 99.9999999% uptime for the company's vehicle connectivity project.

Compliance requirements

Depending on the industry, businesses must comply with various local regulations, which often restrict data storage and processing options. Examples include:

  • Local storage requirement – the data cannot be transferred outside the country's borders unless its copy remains. For example, under the Swedish Bookkeeping Act, certain documents, like businesses' annual financial reports, must be stored in Sweden for 7 years;
  • Local processing requirements – requirements to process certain types of data within country borders;
  • Bans on data transfer – neither data nor its copy can leave the country. For example, Australia requires all personal electronic health data of its citizens to be stored and processed within its borders. Similarly, Canada's provinces of British Columbia and Nova Scotia require personal information acquired by public institutions, like hospitals, schools, universities and governmental agencies, to remain in Canada.
  • Conditional data transfer – the data transfer is forbidden unless certain conditions are met. Thus, the EU prohibits personal data transfer unless an adequate level of its protection is ensured. Other terms apply.

The notion of data being subject to the laws of the country where it originates is called data sovereignty.

What is a hybrid cloud solution?

You do not necessarily have to choose either cloud or on-premise.

A hybrid cloud can combine the capacities of public and private clouds with on-premise infrastructure. Thus a company can keep its sensitive data securely on premises but use the cloud's scalability to process non-critical data during periods of high traffic.

Among the latest hybrid cloud development trends is the focus on workload portability – the ability to move various workloads across cloud and on-premises environments. Microservice infrastructure is often used to ensure high portability. Read our 1800 Flowers case study to learn how we developed a comprehensive microservice infrastructure for the US's leading gift retailer and distribution company.

What is cloud migration?

Cloud migration is the process of moving data and software into the cloud. If you decide that the advantages of cloud vs. on-premise prevail for your company, Softkit will be happy to assist you with cloud migration. Our team will ensure that this process will introduce as little disturbance in your working processes as possible.

Softkit Will Help Your Business to Find The Best Solution

Softkit has extensive experience working with various on-premises, cloud, and hybrid solutions. Let us provide you with several examples.

As a part of the Volvo vehicle connectivity project, our team has:

  • Ensured 99.9999999% software uptime by using several types of horizontal scaling, like AWS Managed Services, server scaling, and DevOps automation;
  • Wrote a script for CI/CD deployment to enable developers to see the future costs of deploying and running new software;
  • Ensured 500 msec request processing time using geographic load balancing, multi-region deployment, and dynamic DNS.

For our client, 1800 Flowers, we:

  • Set up data transfer from all its subsidiaries to Akeneo PIM software;
  • Developed microservice architecture, solving a variety of challenges from creating statistical reports to data filtering;
  • Optimized the company's use of the Google Cloud Platform, saving them an average of 40% on infrastructure costs!

When working on the SOLD.com project, our team has:

  • Implemented AWS autoscaling – this single feature saved SOLD.com an average of 23.5% on its AWS expenses;
  • Synchronized the company's platform and database with Salesforce and used Amazon SQS to ensure no data loss;
  • Set up marketing and business analytics by connecting data from marketing channels to Amazon Redshift, where it is processed by custom Python scripts. Hopefully, this cloud vs. on-premise comparison article was helpful for you. If you have any further questions, we will happily answer them.


Cloud vs. on-premise: what does my company need?

Choosing on-premise or cloud depends on your company's goals. Learn 8 key differences between cloud and on-premise software.

Why do many companies rely on a cloud vs. on-premise?

The advantages of cloud vs. on-premise software include increased flexibility, scalability, and cost-efficiency. Learn more in the "4 primary benefits of cloud software" section.

Why do many companies choose on-premise vs. cloud software?

The benefits of on-premises software comprise better security and data protection, increased software availability, lower latency and the ability to comply with various local regulations regarding data sovereignty. Learn more in the "4 primary benefits of cloud software" section.

How do cloud-managed security vs. on-premise security differ?

When comparing cloud-based software vs. on-premise software, the former is widely considered to be less secure. However, companies must implement and follow strict security measures for adequate protection of on-premises applications.