Cloud Server vs. Local Server: 5 Hidden Costs to Consider

With the cloud revolution well underway, countless businesses around the world are planning to migrate to the cloud in the near future if they haven’t already. Providing outstanding flexibility and scalability, most business owners are already familiar with the benefits of migrating to the cloud, but others end up being sucked in by all the hype. While the benefits of cloud computing are undisputable, it is important to consider the pros and cons of both cloud-based and local systems as well as the various hidden costs concerning both.

1. Electricity | Local servers typically need to be kept on around the clock, and the amount of processing power required by many everyday business operations is also increasing. Obviously, these greater requirements lead to higher electricity bills, although most business owners barely take the utility costs of running their hardware into consideration. Most businesses simply take electricity for granted as the invisible commodity that it is. Although servers and other systems are more energy-efficient than they used to be, today’s multiple-core processors and large RAID arrays draw a lot more power than you might think. Local IT systems can also generate a lot of heat to such an extent that the rooms housing them require constant cooling in order to maximize the lifespan of the hardware. These direct and indirect factors both increase your electrical overhead substantially. In fact, according to the US Energy Information Administration, a single server typically costs around $730 per year to run. Cloud computing is the clear winner here, since it requires minimal power-consuming on-site resources. You can also hire a remote dedicated server to enjoy the same or better performance than you would with an on-site system.
2. Bandwidth | While cloud computing presents many savings, it also introduces an entirely new problem in the form of bandwidth limitations. If your company doesn’t have enough bandwidth available to it, then your cloud computing options will be limited anyway. However, the additional bandwidth required by more intensive cloud computing tasks can quickly skyrocket to the extent that you’ll need to upgrade your Internet subscription to accommodate the increased traffic. By contrast, in-house servers are limited only by the internal network infrastructure of your company. Most of the better cloud computing services use a variety of innovative ways to handle bandwidth limitations. For example, Office 365 will download only new emails and ones that you open, and searches are handled on the remote server. While you’ll still have a local cache containing your emails, it isn’t necessary to download the entire database each time you open the program. Nonetheless, when you have an increasing number of users, it becomes harder for such systems to predict your bandwidth requirements and optimize bandwidth consumption. In-house servers definitely win over cloud computing platforms when it comes to bandwidth. Not only do higher bandwidth requirements demand additional costs – remote connections are always much slower than local ones.
3. Downtime | Downtime presents a serious issue for any modern business, since every hour that your servers are unavailable costs money. The cloud gets a great deal of publicity when it comes to downtime, with cases such as the widespread Gmail outage of September, 2013 making headlines around the world. All cloud systems are susceptible to downtime, either due to brief maintenance routines or for reasons beyond the control of the service provider, such as power outages or hardware failures. Despite the negative publicity, cloud-based systems experience, on average, significantly less downtime than in-house systems. However, what is most important is how much every hour of downtime costs your business, and this figure will be completely different from one company to the next. Nonetheless, billions of dollars are lost every month due to downtime, so it’s an important consideration for all businesses, particularly larger enterprises. Most cloud-based services guarantee an uptime of at least 99%, which is significantly higher than most local systems. In spite of the bad press that cloud services sometimes receive, service providers generally offer excellent uptime figures that can easily rival almost any in-house server. After all, they have resources such as global server farms at their disposal.
4. Upgrades | On average, organizations of all sizes tend to replace on-site hardware every four to six years. After all, it’s well known that technology is constantly evolving and, for any business that relies heavily on its IT resources, slow old hardware simply ends up costing money. As such, it’s important for the sake of optimal performance and reliability to upgrade in-house systems as regularly as possible. However, smaller companies with limited budgets often end up having to push hardware beyond its recommended lifespan in order to save money. Cloud-based services invariably use a subscription payment model, whereby you pay monthly for the services required. By contrast, on-site systems need to be maintained, upgraded, repaired and, ultimately, replaced on a fairly regular basis, often at enormous cost to the company. However, even with cloud-based services, you’ll still need reasonably modern workstations to be able to use the remotely provided services to their fullest potential. In other words, you’ll always have to rely on local hardware at least partially. Due to the time and money involved in upgrading and maintaining local servers and software licenses, cloud computing is the clear winner here. Its flexible nature allows you to pay for the resources you need, and the system will always be up to date.
5. TCO | When planning a migration to cloud-based services, many business owners are more preoccupied with comparing the recurring costs than anything else. However, the most important hidden cost of all is the total cost of ownership (TCO). This crucial figure is what ultimately decides how expensive each option is in the longer term, since it provides the most objective and accurate way to compare cloud-based systems with in-house ones. After all, it’s often easy to get seduced by low short-term costs even when you could in fact end up spending a lot more in total. On-premise systems typically cost a one-time fee by way of a lifetime license of one-off purchase. However, there is the additional cost of upgrading your systems to take into consideration as well, so the TCO will be heavily influenced by the frequency of major system upgrades. By contrast, cloud computing demands a monthly subscription fee as the only payment, although this fee may increase over time. A useful way to start is to compare the TCO between cloud-based and in-house systems over a five-, eight- and ten-year lifespan. There is not really any clear winner when it comes to TCO, since it depends heavily on the costs of maintaining in-house hardware and the frequency of upgrades. In other words, if you don’t need to upgrade very often, then in-house systems might be cheaper in the longer term.

There are few rules when it comes to choosing between cloud-based and in-house systems, and your company’s individual requirements will ultimately dictate the best option available to you. Although cloud computing systems are definitely at the forefront of innovation, larger businesses or those with very specific hardware and software requirements will generally be better off sticking primarily with in-house hardware. However, small businesses with tight budgetary constraints will likely find cloud computing to offer the most practical and affordable option.

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