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On-premise vs. Cloud: comparing TCO the right way

On-premise vs. Cloud: comparing TCO the right way

28 May, 2021

On-premise vs. Cloud: comparing TCO the right way

More companies are now migrating their systems and services to the cloud and it is a strategic move that can bring enormous benefits. Characterized as cost-effective, flexible, and secure, cloud applications can help organizations bring products and services to market more rapidly than ever before. For those organizations that plan aggressive expansion on a global basis, the cloud has even greater appeal because it allows you to connect with customers, partners, and other businesses anywhere with minimal effort. Forrester forecasts that the global market for cloud computing will grow from $40 billion to more than $241 billion in the next ten years.

Cloud service offerings are especially valuable for small and medium-sized businesses (SMBs) who have no strongly developed IT. Besides 80% of IT spending goes to maintenance, only 20% is geared toward new projects and initiatives, making operating expenses a big part of the TCO structure. Furthermore, comparing and evaluating the TCO of a cloud versus an on-premise application system can be challenging, as it includes costs associated with operating, maintaining, and upgrading a system over its lifetime. Gartner predicts IT costs will decrease in the next 10 years due to the use of SaaS.

Nevertheless, many organizations aren’t ready to move to the cloud because of concerns about security and regulatory compliance, together with system control. Here’s a look at the main reasons.

Security and Compliance

This is the main concern of IT managers. The organization’s cloud security strategy should be capable of protecting against the top threats to cloud security. That is why leading cloud providers offer advanced security standards across all industry levels, acquire certificates on various requirements.


To eliminate risks involved, providers can guarantee differing levels of customer control as well. This is the control over both the leased services and at adjacent levels, with the ability to manage trust, authentication, and authorization to data.

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Performance and Availability

Availability became a major point of competition among cloud service providers who are continually seeking ways to maintain it at a high level. The scale and expertise of cloud providers always demonstrate stability and great performance. The majority of cloud providers offer up to 99.9 percent in their service level agreements (SLAs) today.

Total Cost of Ownership (TCO)

Many organizations commonly error in comparing ongoing cloud subscription costs to only the initial cost of an on-premise system without accounting for the ongoing cost to maintain and upgrade a system over the application’s lifetime. According to Gartner, the annual cost to own and manage software applications can be up to four times the initial purchase cost.

TCO Estimation Framework

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Upfront Costs

The design, build and deploy phases account for the upfront costs an organization can expect before going live with a new application system, and here is a brief comment on them.


Proficiency is required to design an infrastructure that will support the business needs and the organization’s future growth. Viable design is crucial in terms of fault tolerance and further scalability.


In addition to the IT infrastructure, the engineering preparation of premises may require a significant budget. Cooling and communications security provision is where cloud providers have a big advantage due to the huge volumes.


Setup, install, test, and tune before going live can also be quite expensive. A cloud provider gives an upper hand at this stage. The speed at which a cloud provider can deploy a new application is difficult to match under a self-hosted scenario.

Recurring Costs

The ongoing maintenance and administration of the system account for the majority of the costs.


Annual costs for ongoing support and maintenance should not be underestimated either, they usually take up about 20 percent of the upfront cost. Even small IT infrastructure companies need to have at least one profiling specialist on staff together with its personnel costs. Cloud providers offset this cost to customers by offering resources dedicated to maintenance, support, and operations.


Most hardware and software have about five to seven years of useful life, following the reassessment of the core business requirements and upgrading the infrastructure hardware and software. This upgrade cost is significant. Here is why the TCO and ROI comparison of a cloud and on-premise application system should be over seven to ten years.

It is easy to see that the task is quite complex. Though not completely, it can be greatly facilitated by tools such as Miraworks , where you can compare the cost of your infrastructure in the form of on-premise with technical support and the form of the cloud.

Several intangibles should be considered, which are also the advantages of the cloud.

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True cost comparison between cloud and on-premise application systems reveals that the cloud is more cost-effective for various organization types and sizes, especially for SMBs. Cloud computing growth is expected to continue because it helps reduce upfront capital expenditures, improve ROI, reduce the investment payback period, speed up deployments, and improve application agility. In an increasingly agile business environment, cloud services accelerate the pace of innovation by shifting an organization’s resources and focus from infrastructure management to the organization’s core competencies.