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June 14, 2017

Hosted vs On-Premises Solution: Deciding on the best fit for an organization

How do you know if a hosted solution is the right approach?

When evaluating strategic IT solutions for your organization, one of the more vexing decisions is whether to purchase and deploy on-premises or subscribe to a hosted, web-based offering. Each approach has its advantages and disadvantages – there is no right or wrong answer. What makes the most sense for your organization depends on a number of factors which I will try to detail here:

  • Cost of Ownership
  • Security
  • Deployment
  • User Access
  • Performance
  • Payment Flexibility



Cost of Ownership

The typical model for an on-premises solution is purchase (as opposed to the far less frequent lease approach). When comparing costs between on-premises and hosted solutions, you need to take into account the hidden costs associated with an on-premises deployment.
On-Premises vs Hosted Solutions: Hidden Costs
When deploying a solution on-premises, you must account for various costs including, but not limited to:

  • Hardware
  • Software
  • Software Maintenance (recurring)
  • Installation
  • Networking
  • On-site Support
  • Backup
  • Disaster Recovery

On the hosted solution side, the model is subscription-based. Typically this fee is incurred monthly, with or without a length-of-term commitment and licensed on a per-user or per-site basis. This recurring fee is all-inclusive – the organization does not have to purchase/allocate hardware or software nor do they have to pay a network access fee. Depending on the resources required however, there may be additional recurring fees to accommodate specific storage needs. Because there is no large up-front cost, hosted solutions are classified as an operating expense (OpEx) rather than a capital expense (CapEx) thereby usually avoiding protracted approval processes. While on-premises solutions do have a large up-front cost, their long-term costs are often less as no recurring fees (other than software maintenance) are incurred. Since each organization is unique however, a costing model should be developed that calculates the internal costs associated with infrastructure, licensing, and support in order to compare with the cost of external hosting in the cloud. The efficiencies of your IT organization may suggest that moving to the cloud is not be the right answer.


Security is becoming less of a concern with major cloud providers as they have the ability to invest significantly more in security than a typical enterprise. However, the risk profile of every company and particular application is different. Create a security risk profile of your applications and know the risk tolerance of your company. Most commercial data centers used by hosted solution vendors have a very high degree of security “baked in” to their environments. In addition to both hardware and software mechanisms in place to safeguard your data, commercial data centers typically present a high level of physical security as well, restricting those who can venture on-site. While individual organizations can implement the same level of security within their own premises, the costs associated with doing so can be quite steep as these costs are not spread across several client organizations.


When deploying solutions on-premises, various factors come into play which can affect the amount of time it takes for a new application to “go live” – allocation of new hardware and supporting software, physical computing space, power, networking and hardware cooling – all affect on-premises deployment time.  With hosted offerings however, the solution is already installed and configured. This reduces the time spent in installation and configuration, and can reduce the issues that can get in the way of the software deployment.

User Access

Hosted solutions are designed to be accessed from anywhere at anytime by communicating with the server over http. This means mobile users, partners – even customers (if applicable) – can reap the benefits of the solution regardless of where they are located. For this to be possible however, internet connectivity must be present. On-premises solutions on the other hand, can be accessed without internet connectivity although this typically means users must be physically connected to an organization’s local area network (LAN).


It’s a basic fact of life – hosted solutions require internet connectivity. Not only must you have internet access to communicate with the hosting server, the perceived performance of the solution may be subject to the amount of bandwidth available. For transaction-based solutions where the bulk of the work is performed on the backend, this may not be a factor. For solutions that require large amounts of data to travel “across the wire” however, this may be an issue. Typical data transfer speeds for users on a local LAN can range from 100 Mbps up to 10 Gbps whereas data transfer speeds for internet users can vary widely – from a only few Mbps up to 1 Gbps or more. Across the US, the broadband access landscape is ever-changing (and, finger-crossed, ever-improving). In the near future, the availability of high-speed broadband access may make this issue moot but for now, it is a factor to consider when weighing your solution options.

Payment Flexibility

Many factors in your company’s financial situation can affect the decisions made about software purchases. With ever-tightening IT budgets, lower up-front costs are often a consideration for the purchasing organization. If this is your situation, a subscription-based, hosted solution is right for you. Hosted solution providers often offer flexible payment options with discounts available for longer term commitments. In some cases, a CapEx approach is preferable over a recurring OpEx so as to “lock in” annual budget. Regardless of whether or not a hosted solution is best, successful organizations should seek out a vendor who offers flexible payment options that work out now and in the future and who is easy to work with.


For most of us, the benefits of cloud computing seem to outweigh its risks. When weighing the decision as to whether a hosted solution approach makes sense for your organization, it is imperative that you carefully examine how the proposed solution fits within your specific operating environment as no two organizations are exactly alike.

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