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  • On-premise servers out perform their cloud counterparts in many areas include storage and lifetime costs
  • When compared to a similarly spec'd cloud server, the break-even time for an on-premise server is often less than 3 years
  • Companies with substantial server needs might find that a mix of on-premise and cloud servers to be their best option


Recent research has shown that over 90 percent of companies surveyed will use some kind of cloud service to manage or store their digital assets. With numbers like that, it can be easy to assume that cloud taken over, and there’s little justification for physical, on-premise servers in today’s connected world. While there’s no doubt that the cloud computing and server market is growing incredibly fast, is it always the best, or even most cost-effective option for a businesses in 2020?

In this article, we’ll compare on-premise vs. cloud servers, and take an honest, objective look at the pros and cons of each for a variety of use-cases and situations and help guide you to the right buying decision for your business and it’s long-term needs.

What We're Comparing & Common Server Uses

There’s no shortage of on and off-site environments for server management these days. From private clouds to public clouds and from on-premise to co-location data centers, virtualization and other similar technologies have allowed for a huge variety of options for business, and we could easily write an entire article on the features and benefits of each of these unique setups. For this article however, we want to compare and contrast 2 distinct environments for operating servers:

On-premise: Sometimes referred to as on-site or physical, this entails owning physical server equipment. The equipment can come in a variety of forms (i.e. a tower that looks like a common desktop PC, or a rack that can stacked vertically in a housing and is probably what you think of when you imagine large data center warehouses. Form factor notwithstanding, the important concept here is that the business purchases and owns the physical hardware and stores it somewhere they have access to. The business does not rent all, or a portion of (via virtualization) of a server that is owned and operated by a third-party cloud provider.

Cloud: For this, we are referring to publicly available clouds services that allow you rent all or a small portion of a physical server that the cloud provider owns and operates. This does not include private clouds, or colocation centers or any hybrids of those models. There are many cloud providers out there, but by far the largest at the time of this publication are Amazon Web Services (AWS), Microsoft Azure and Google Cloud. There are also a handful of more developer-focused cloud providers that remove most of the UX/UI bloat found on the aforementioned big guys, and pride themselves on ease of use. Examples of these providers are Digital Ocean and Linode, just to name a few.

Lastly, before we dive into the specific differences between on-premise and cloud servers, lets first take a moment to recap some the many ways a server can be used to operate a business:

Websites: Without question one of the most frequently used server capabilities is to host websites. All websites live on a server, or in the case of content delivery networks (CDNs), a collection of multiple servers. When you type a URL into your browser, or click on a link, your browser makes a request to the server that the website is hosted on. That hosting server, which holds all of the template files, media and content that comprise the site, then processes the request and returns HTML that can be rendered by the browser.

Data Storage: Regardless if the data is personal or business-related, the content on your devices is often stored and/or backed up on servers.  Servers can store any matter of digital files, from photos to documents, and can even be configured to backup entire computer operating systems and every single file contained on them. The actual data is stored in what’s known as hard drives or SSD’s, and the storage capacity associated with those are often measures in Gigabytes (GB), but modern configurations today can store vastly more data and be measured in Terabytes (TB).

Email, Database, Printer Server: As the name would imply, servers can be setup and configured to serve various types and forms of data. While there’s usually no screen or keyword, and the ports will undoubtedly be different, the physical components (i.e. hardware) of a server is no different than that of  your personal computer. Each server has a CPU, RAM, and a hard drive to store data. It’s the operating system and applications that are downloaded onto and configured on servers that facilitate their primary function. In the case of a server,  that primary function is to listen for, and respond to requests from the web.

Intranet: Almost every single medium to large company (and many smaller companies these days) have some manner of intranet setup for their employees. An intranet is a completely private internet, or in other words, a private network of tools, software and other digital systems that allow for company collaboration that are not publicly available across the web. Simply knowing the URL won’t get you into these private intranets, as most companies lock them down based on the IP address of the requesting computer, or they’ll require individual usernames and passwords to access the content.

Comparison: Location

The first, and most obvious, difference between a physical (on-premise) server and a cloud server is the location of the server itself. An on-site server is physically located somewhere on the premises of the business. The IT administrators, or third-party service providers will always have access to the physical hardware, which allows you 100% control over the maintenance, troubleshooting and scaling of the server and all of it’s components.

A cloud server on the other hand, is hosted in a large data center that is owned, operated and serviced exclusively by the cloud provider. Unless you’re a very large company with incredibly high resource needs and a special contract with the cloud provider (think Netflix), no one from your company will likely ever have physical access to the actual physical server that your data or website is hosted on. While many of largest and most well-known cloud service providers now offer their users the ability to chose the location(s) of their of their data centers during setup, some still do not, which means you’re at the mercy of wherever their data centers happen to be located.

Winner – Location: Tie
Bottom line: On-premise and cloud servers accomplish the same things so the importance of proximity depends on how you use them. Cloud is great for backups and multi-device access, whereas as on-premise is ideal for intranets, storing highly-secure documents, or controlling peripheral devices.

Comparison: Configuration

When you purchase a physical server, whether it’s brand new from the original equipment manufacturer (OEM) like Dell or HP, or refurbished from an authorized reseller like SourceTech, you’re able to customize every single aspect of that server’s hardware. From the server’s form-factor, which can be a traditional PC-like tower or a stackable rackmount, to it’s CPU / clock-speed / cores,  memory and hard drive – you can build out your physical server to exact specifications that is required to run your business.

When you build a server in the cloud, what you’re actually doing is creating an instance of a virtual private server (VPS). A VPS allows companies like Amazon and Microsoft to partition, or split up, one single server so that dozens and dozens of separate, unrelated companies can utilize the same physical resources. These VPS instances run on sophisticated software that’s often proprietary to the cloud provider. Many cloud providers now offer dedicated virtual servers that are not shared with other companies, however they are far more expensive than their shared counterpart.

Firmware / Control Panel OpenManage, EMCYesNo
Operating System Linux, WindowsOSYesYes
Hardware Specifications CPU, Memory, Disk SpaceYesYes
Digital Access Limit by IP addressYesYes
Physical Access Connect directly to deviceYesNo
Dedicated Equipment One user per serverYesNo
Winner – Configuration: On-premise
Bottom line: If you know your way around their interface, which is no small feat, cloud servers are relatively easy to configure and deploy, but if you want complete control of the specs, nothing is going to match owning a physical server.

Comparison: Installation & Maintenance

For on-premise servers, once you take ownership of the equipment you’ll need to have someone physically setup and configure the hardware as well as install the operating system and applications that will be running on the server. Most medium to large companies have scores of dedicated  IT and systems administration professionals who are well-versed in this type of work. For smaller companies without those in-house resources, there’s a nation-wide network of IT professionals who will come to your location and setup  your equipment for you and ensure it’s configured properly and accessible.

For cloud servers, there’s no hardware to physically setup or configure as you’ll simply be renting space on an existing piece of hardware in the cloud providers data center. However, that doesn’t necessarily mean that setup is easy or straight-forward. AWS and other large providers have a grown so fast, and expanded the scope of their service offering so greatly, that in recent years their web interfaces have become incredibly complex and difficult to navigate. At the time of this publication, Amazon Web Services had over 100 distinct cloud services in which to chose from. That being said, if you know your way around their interface, the creation of VPS is a relatively quick and simple process.

Winner – Installation & Maintenance: Cloud
Bottom line: On-premise servers require an on-site IT professional to setup and configure whereas cloud does not. That said, setting up a cloud VPS it does require intimate knowledge of some of the webs most complex and ever changing user-interfaces like AWS or Google Cloud.

Comparison: Security

While not all-encompassing, the 2 primary security concerns as it relates to servers are access security and configuration security. Configuration security deals with how the operating system and/or system applications on your server are configured and maintained. Just like with your home computer, server operating systems and applications often need to be updated when vulnerabilities are identified, and the process for connecting to the server and making those updates (often via the command-line) can be handled equally well on both on-premise and cloud servers. Access security on the other hand, can be thought of in 2 ways:

  1. Physical access concerns (i.e. who can walk-up and directly access your server by plugging in and connecting to it)
  2. Digital access concerns (i.e. what other servers/computers can communicate with your server and potentially try and exploit it’s vulnerabilities)
Winner – Security: On-premise
While both on-premise and cloud servers can be configured to limit digital access, by default a cloud server will be available globally and the infrastructure used to manage the data center will almost certainly be available globally. Furthermore, only those companies with on-premise servers can strictly control who has physical access to them.

Comparison: Cost

When comparing the cost of owning a physical server with that of operating a VPS on the cloud, we need to consider 2 things:

  1. What are our configuration (CPU, Ram, Hard Drive) requirements?
  2. How long do we plan on having this server or VPS in operation?

To try and compare these disparate items in as fair a manner as possible, we will compare an entry-level Dell tower model with Microsoft Azure and a ultra-performance Dell rack server with Amazon AWS.

Entry cost comparison:  Dell PowerEdge T640 Tower vs. Microsoft Azure

For the entry-level comparison, we’ve chosen the Dell PowerEdge T640 tower series as our on-premise server. This can be purchased directly from Dell for $1,459 and comes with a single-processor, 8GB RAM and 1TB of storage. To make it more comparable with the offerings from Microsoft Azure, we’ve added a second processor, which brings the total cost to $1,766.

We will compare that to a virtual instance from the rapidly growing Microsoft Azure. It’s difficult to make a perfect apples-to-apples comparison as the configurations don’t match exactly, but at the time of the article’s publication, we were able to configure a two CPUs, 8GB RAM, and 100GB of storage VPS for $185/month. Mind you that while this instance has similar computing power to the Dell tower, it only has 1/10 of the storage capacity. Take a look at the table below for the one-year ownership costs of each:

MonthsDell T640 Tower On-premiseMicrosoft Azure Cloud

Conclusion: The base Dell Tower server has 10x more storage and pays for itself in only 10 months when compared to Azure.

Performance cost comparison: Dell PowerEdge R740 Rack vs. Amazon AWS

For the performance-level comparison, we’ve chosen the Dell PowerEdge 740 Rack Server as our on-premise server. This can be purchased directly from Dell for $8,629 and we’ve configured it as follows:

  • 2 Intel 4216 Xeon® Silver 16 Core (32 Core)
  • 4x 16GB of RAM (64GB)
  • 6x 4TB HDD (24TB)
  • Purchase price: $8,629

We will compare the Dell R740 to custom-built virtual instance from Amazon Web Services (AWS) that has similar specs. As with the previous example, we can’t make a perfect comparison, but our on-demand AWS instance is configured as follows:

  • Service type: EC2
  • Instance: m6g.8xlarge (32 vCPUs, 128 GB RAM)
  • 16 TB storage on Cold HDD
  • Monthly cost: $800.59

MonthsDell PowerEdge R740On-premiseAWS m6g.8xlargeCloud

Conclusion: The break-even time for the high-performance model is only 1 additional month than the entry-level model.

Winner – Cost: On-premise
The price of owning a physical server is upfront and transparent. It’s based solely on the specifications like CPU, Ram, hard drive. The more high-end your configuration, the longer the break-even when compared to cloud providers, but in most instances it will happen in under 3 years.

Overall Winner & Conclusion

Without question there are many instances were a virtual private server on a cloud network makes sense. These instances are usually on the fringe, or in other words, when the server instance is very small or very, very large (think how many servers Netflix would have to own and manage to run it’s business). For most businesses that have more common use-cases however, owning a physical, on-premise server makes a lot of sense. Not only are you able to control everything from configuration and scalability to access and location, you also stand to save a lot of money over the life of the server.

If you think that a physical server might be right for your business, chat with one of our server experts today, and see if we can help you find the perfect equipment for your growing business. We offer a the latest models of Dell PowerEdge and HP Proliant servers. All are factory refurbished, which means you get the same great server for way less than it would be new, and each server we sell comes with a 24-month warranty standard at no extra charge.