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Cloud? On-premise? What SMEs should ask is not 'which is cheaper'

shin2

In my 36 years at an IT company,

I have received this question

from people at many companies.

'Which is cheaper, cloud or on-premise?'

Certainly,

'cost' is important.

However,

companies asking this question are overlooking what is truly important.

'Which is cheaper'

is not the point; rather,

'which is better suited for our company'

is the real question.

Today,

drawing on my 36 years of IT experience,

I will talk about the essence of 'cloud vs. on-premise'.

I will discuss this.

A common question: 'Which is cheaper?'

The decision-making process for SMEs

When I am consulted on system selection by SMEs,

I am often asked this.

'Which is cheaper, cloud or on-premise?'

And,

'If cloud is cheaper, then cloud'

'If on-premise is cheaper, then on-premise'

Judging by 'cheapness'.

But that is a mistake

This criterion for judgment is incorrect.

Because,

'Cheapness' is,

merely one option.

What you should really be asking,

is something else.

The pitfall of judging by 'cheapness'

Pitfall 1: Confusing 'initial investment' with 'running costs'

'Cloud has low initial investment'

Certainly, that is true.

But,

what about 'running costs'?

Cloud costs money every month.

On-premise has a large initial investment, but

Subsequent running costs may sometimes be lower than the cloud.

Judging based on 'initial investment only' is dangerous.

Pitfall 2: 'Visible costs' and 'invisible costs'

The judgment of 'cheap'

only looks at 'visible costs'.

But in reality,

there are many 'invisible costs'.

  • Time required for implementation

  • Employee training costs

  • Time for troubleshooting

  • Effort for data migration

  • Risk during service outages

These are not expressed in terms of 'cheapness'.

Pitfall 3: 'Current cheapness' and 'cheapness in 5 years'

'The cloud is cheap right now'

But,

what about in 5 years?

  • Could there be cloud price hikes?

  • Could there be a drop in on-premises prices?

  • Could there be technological advancements?

It is dangerous to judge based only on the 'now'.

The essential difference between cloud and on-premise

What is the cloud?

The cloud is,

basically 'renting an external server'

  • not managing servers in-house

  • entrusting management to a vendor

  • paying a monthly usage fee

Pros:

  • low initial investment

  • no management hassle

  • easy scaling

  • accessible from anywhere

Cons:

  • ongoing running costs

  • dependency on the vendor

  • limits on customization

  • dependency on communication speed

What is on-premise?

On-premise is,

"Owning your own servers"

  • Purchasing servers in-house

  • Managing and operating in-house

  • Large initial investment

Pros:

  • Complete in-house control

  • Freedom to customize

  • Cost-effective in the long run

  • High data security

Cons:

  • Large initial investment

  • Time-consuming management

  • Scaling takes time

  • Operational management requires expertise

What SMEs should really be asking

Question 1: "Where are the management resources?"

SMEs have:

Limited management resources.

  • Do you have IT personnel?

  • How much is the IT budget?

  • Can you allocate personnel to IT management?

Does your company have the personnel and budget to manage servers?

If not, choose cloud.

If so, consider on-premise as well.

Question 2: 'What level of security is required?'

Depending on the company,

the level of security required varies.

  • Is financial institution-level security necessary?

  • Is general security sufficient?

  • How much do you need to protect customer data?

The options change depending on the security level.

Question 3: 'What is the speed of business growth?'

For rapidly growing companies,

cloud, which is easy to scale, is advantageous.

For stable companies,

on-premise is fine.

Question 4: 'Which is cheaper from a long-term perspective?'

Not 'now', but

look at '5 or 10 years from now'.

  • How much will the data volume increase?

  • How much security is necessary?

  • Will the business model change?

Calculate the 'long-term costs'.

Learning from case studies

Case 1: 'A company that chose the cloud based solely on low cost'

Company A.

'The cloud is cheaper'

They chose the cloud for this reason alone.

As a result,

  • The monthly cloud fees increased every year

  • There are concerns about data security

  • Customization is not possible

They regretted it three years later.

Case 2: 'A company that chose on-premise considering management resources'

Company B.

'We have IT personnel'

'Security is important'

They chose on-premise for these reasons.

As a result,

  • Complete control in-house

  • Ensure security

  • The 10-year operating cost was lower than the cloud

In the end, they made the right decision.

Correct decision criteria

Step 1: 'Understand your company's situation'

Before deciding between cloud or on-premises,

accurately understand your company's situation.

  • Do you have IT personnel?

  • What is your IT budget?

  • How much security is required?

  • What is your growth speed?

Step 2: 'Understand the essence of cloud and on-premises'

Not just 'cheap', but

understand the essential differences.

  • Management effort

  • Security

  • Customizability

  • Long-term costs

  • Vendor lock-in

Step 3: 'Compare multiple options'

"Cloud or on-premise?"

It's not a binary choice,

compare multiple options.

  • Full cloud

  • Full on-premise

  • Hybrid (cloud + on-premise)

Step 4: "Calculate long-term costs"

Not just for "now",

calculate costs for 5 or 10 years from now.

  • Initial investment

  • Running costs

  • Maintenance costs

  • Personnel costs

Judge based on "total cost."

Not "which is cheaper," but "which is the right fit"

"Cheapness" is just one of the criteria for judgment

Certainly, "cheapness" is also important.

A business cannot function without money.

However,

that is not the only criterion for judgment.

  • Is it right for our company?

  • Is the security sufficient?

  • Can it adapt to future business needs?

  • Is the vendor reliable?

You need to make a comprehensive judgment.

SMEs, in particular, should think strategically

In fact,

SMEs, in particular,

should choose systems strategically.

Large companies

have more money and personnel compared to SMEs.

Therefore, they can sometimes manage with this advantage.

But SMEs,

need to use their limited management resources effectively.

That is why,

instead of 'which is cheaper,' you should think about 'which is more suitable'

instead.

The perspective I propose to SMEs

Judge by 'effectiveness,' not 'cheapness'

Not 'which is cheaper,' but

'Which is more effective?'

is how they decide.

  • The balance between initial investment and running costs

  • The balance between management effort and efficiency

  • The balance between security and convenience

Look at the 'balance'.

Decide by looking '5 years ahead'

Not 'now', but

decide by looking '5 years ahead'.

  • Will the data volume increase?

  • Will the business model change?

  • Will security requirements change?

Predict the 'future' and choose.

'Hybrid' is also an option

Instead of a binary choice of

cloud or on-premise,

'Hybrid' is also an option.

  • Keep important data on-premise

  • Use cloud for the rest

Create the optimal configuration.

[Profile]

  • 36 years of experience at an IT company (Network Engineer)

  • 4 years as an IT instructor at a vocational school

  • Certifications: Network Specialist, IT Coordinator, Career Consultant

  • Karate black belt (Started at 35, still practicing after 29 years)

  • Completed the Shikoku pilgrimage at age 60

  • 6 years of road biking experience (Still riding on weekends)

  • Became a freelancer in April 2026

[What I want to offer in the future]

  • IT talent development training (for companies/public training)
    → Fostering not just technical skills, but the 'ability to learn'

  • In-house IT promoter development (individual mentoring)
    → Fostering self-sufficient talent

  • Training programs to acquire 'truly necessary skills'

Please feel free to contact me via the comments section or by message.

[Editor's Note] I have seen many companies fail by prioritizing 'cheapness'

In my 36 years of experience at an IT company,

I have seen many companies fail

by making decisions based solely on 'cheapness'.

They chose equipment and vendors solely for reasons like 'cheap SE costs' or 'cheap equipment',

and three years later,

faced issues such as 'poor usability,' 'performance problems,' or 'lack of scalability'.

Companies that have realized many harmful effects.

It is not a cloud project, but

it is a typical example of failing due to the exact same mindset.

Later on,

"We didn't think about the medium to long term"

is what companies realize.

Therefore,

judging solely by "cheapness" is dangerous.

What is truly important is,

"whether it fits our company"

this one point.

"Cheapness" is, after all,

nothing more than one of the criteria for judgment.

I can say this with conviction.

Re-asking "which is a better fit" instead of "which is cheaper"

is what

realizes correct IT investment for SMEs.

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