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Cloud vs. On-Premises: Which is more affordable?

cloud vs on premises

Table of Contents

Introduction

There’s an intense debate on whether you should host your app on the cloud or on-premises. More importantly, which option is the most affordable? Today, we’ll delve into this topic, examining cases where cloud hosting shines and others where on-premises might be the better choice.

Find out all the details about this subject here:

The Growing Trend of Cloud Hosting

Let’s start with a brief context on the cloud and its trend. Gartner analysis shows that cloud adoption is on a steep rise from 2023 to 2025. By 2024 and 2025, the growth rate is expected to be even higher than in previous years. Major cloud providers like AWS, Microsoft, and Google are leading the market, indicating that more businesses are moving to the cloud. But why is this trend important?

Case Study: Ahrefs' On-Premises Success

Let’s explore an interesting case study of Ahrefs, a SEO SaaS company. Ahrefs chose to use on-premises hosting, a decision that they claim saved their company. According to Ahrefs, their business wouldn’t be profitable or even exist if they hosted 100% on AWS. For the price of 20 on-premises servers, they could only get two SSD storage servers on AWS. This significant cost difference allowed them to maintain a much larger infrastructure at a fraction of the cloud cost.

Cost Comparison: On-Premises vs. AWS

Ahrefs invested around $20 million in their on-premises infrastructure, covering electricity, maintenance, equipment, and cooling. When compared to the equivalent computing power and storage on AWS, the costs were staggering. Using AWS EC2 instances on demand would have cost them approximately $1.267 billion, and even with a three-year reservation, the cost would still be around $1.1 billion. The difference between these options is about $1 billion.

Why is it so expensive to host on AWS? Should we use EC2 instances instead of serverless or cloud-native solutions? It depends on your business and how you plan to scale and maintain it. For Ahrefs, a monolithic architecture made more sense financially.

The Implications of $1 Billion in Savings

To put this $1 billion savings into perspective, consider that Instagram was sold to Facebook for the same amount. With this money, you could buy a private island or launch a space mission. If Ahrefs had to bear the additional $1 billion cost, they might not exist today, or they would have had to pass the cost onto their users, making their services much more expensive.

Making the Right Choice: Cloud or On-Premises?

So, how do you decide between cloud and on-premises? Here are some key points to consider:

When to Use Cloud

1. Unpredictable Customer Base: If you expect fluctuating user loads, the cloud offers the flexibility to scale up or down as needed.
2. Starting Out: For startups, cloud hosting allows you to pay as you go without a significant upfront investment.

Benefits of Cloud Apps

– Increased flexibility and scalability
– No upfront costs
– Reduced overhead for staff and infrastructure
– Access to state-of-the-art technology and solutions

When to Use On-Premises

1. Predictable Customer Base: If your user load is consistent, investing in on-premises infrastructure can be more cost-effective in the long run.
2. Sensitive Data: For sensitive information, on-premises hosting offers better control and security.

Benefits of On-Premises Apps

– Full control over data and security
– Potential for cost savings at scale
– Predictable costs

Key Considerations for Decision-Making

When deciding, it’s crucial to make your own calculations and not just follow trends. Here’s a quick guide:
 
1. Startups: Use the cloud for flexibility and minimal upfront costs.
2. Sensitive Data: Consider on-premises for enhanced security and control.
3. Lump Sum of Money: If you have substantial upfront capital, investing in on-premises infrastructure can lower costs over time.
4. Internal Apps: Use on-premises if you already have the infrastructure and the app usage is predictable.
5. Government and Financial Apps: On-premises is generally preferred due to the sensitive nature of the data involved.

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