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ERP in the Cloud vs. On-Premise: It
"The dirty little secret of cloud spend is that the bill never really goes down," says J.R. Storment, executive director of the FinOps Foundation.

This quote was found in a recent ZDNet article espousing the newly created IT career of FinOps. The reason for this newly created career? Because, expanding on Storment's quote a bit, if the costs never really go down, then it gets expensive real fast.

As you know, I am a fan of either cloud and on-premise setups. This can sometimes be referred to as a "hybrid." However, that is usually the reference given when someone runs in the cloud and on-premise, not necessarily the cloud or on-premise. To choose between the cloud or on-premise, one must take into account all one's realities.

One of those major realities is cost. So let's take a look at that with a bit more detail with a real simplified example. Say you need a fairly powerful web server and database (LAMP Stack) for your internal, web-based ERP operation.

  • Dell R70 with 2.3 Ghz 16 core / 32 virtual with 64 GB of RAM and 2.0 TB of RAID 10 Data: $5,900
  • 20 GB up/down Enterprise Fiber Internet with SIP Phones: $5,000 per month
  • Watchguard Firewall: $5,500
  • Cisco 48-Port Switch: $600

While of course depreciation schedules will have you divide this by four, the true cost of ownership should be divided by seven. The on-premise solution comes to $1,714.28 per year in capital, and $60,000 per year in bandwidth. So you might say that the total on-premise operation for this server is $61,714.28. Of course, add a Network/Server admin into the equation for an all-in payroll cost of $90,000 and that brings your on-premise total to $151,714.28 per year. Pretty pricey right?

But here's the thing. You likely have a Network/Server admin on staff anyways. You likely are using that person for tier 2/3 IT support and projects. Truthfully, if that is all you are using them for, you aren't getting your money's worth.

The other pricey element: your enterprise fiber line. The issue is that you likely have chosen your internet for download speeds and SLA factors. To host a server, your primary concern is upload. And while residential service has an imbalance in download/upload speed that favors download, enterprise is usually equal. Thus your upload is there, you just aren't using it. It is in a sense: free. Also, assuming the majority of your employees are in one location, the internet is irrelevant to an on-premise solution because all the traffic would be on your internal network.

Both of these bring us to an important point: if you can't remove the position or the service by moving to the cloud, then don't charge it to on-premise.

So after that, we are down to a $1,714.28 annual charge for on-premise. How does that stack up against the cloud solution?

  • Reserved c5a.8xlarge EC2 Instance: $7,319
  • 2.0 TB of EBS: $2,400
  • I am not going to calculate AWS bandwidth charge, it likely isn't significant enough to matter, but if you know your actual annual total bandwidth you can add $1.08 per GB

This brings your annual cloud charges to $9,719 on the low end.

But say you have 10 servers you need. Yes, you probably don't need them all to be c5a.8xlarges, and maybe you rightsize the EC2s a bit. But even if you cut your EC2 charge in half, the difference is still $4,000 per server. Times 10. That's $40,000 more per year with the cloud than on-premise.

So there you have it. Now you know why Jeff Bezos is making so much money. On-premise has to be the way to go, right? Not exactly.

The other major factor one must consider is availability. While an AWS outage is not unheard of, I would never argue that if your largest primary concern is uptime outside of your local network, then no on-premise will hold a candle to AWS uptime. It just won't. And if you have a highly decentralized workforce, that's all the more reason to focus on availability.

So the general conclusion is that if availability is the most important thing, go with the cloud. Otherwise, on-premise is likely the way to go assuming you have strong enough technology management to manage it.

As an example, in another life, I ran an on-premise web solution with an IT staff of 3 and had no downtime in 6 years of operation for a very important web-based ERP system except a 36 hour period where a telephone pole caught on fire and took down our Verizon Fiber line. That was it. Now, to some, even one 36-hour period of downtime in 6 years would be a problem. For our operation, it wasn't. It was acceptable. That was still a 99.93% uptime. Also, most of our employees were located on the main campus and still had access to the system on our local network. In one way, we would have been more reliant on our fiber line with the cloud than on-premise. And those types of outages will never show up in a cloud SLA.

Cost and availability aren't the only two factors one needs to consider, but they are certainly the two most important. If you answer those honestly, you are probably 90% to your answer.

Whether you land in the cloud or on-premise, Vy Healthcare ERP is here to help. It can be installed on your on-premise solution, on your cloud solution, or hosted in our cloud solution. We are here to help you focus on what you need to focus on the most: running your business.




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