When selecting a new enterprise resource planning (ERP) system, one of the most critical factors in your decision will be whether you choose cloud ERP vs on premise ERP. Even a more complex decision is whether you stay with your current on premise ERP and follow the cloud path of your vendor, or do you start over with a new robust ERP product.
Cloud-based ERP systems have become much more popular in recent years—especially among small to midsize businesses. According to one recent study, cloud infrastructure spending reached $37.1 billion in 2016, growing at 15.5%. However, traditional IT spending still accounts for the majority — 63.4% or $64.3 billion. Companies are moving more resources offsite every year, the on premises vs. cloud debate is still raging.
Cloud-based software is hosted on the vendor’s servers (or hosted on company’s private cloud – hybrid) and accessed through a Web browser. Where On-premise software is installed locally, on a company’s own computers and servers.
Another key difference between cloud and on premise solutions is how they are priced. Cloud software is priced under a monthly or annual subscription basis (operating expense. On-premise software is generally priced under a one-time perpetual license fee (capital expense). On premise also comes with additional cost to maintain its own infrastructure and skilled resources. The low entry cost of cloud-based software—compared with hefty, upfront perpetual license fees—has contributed to its widespread adoption.
Here’s a breakdown of the advantages and disadvantages of cloud-based vs on premise ERP systems:
Trend in modern IT is to maintain a network and system that can be accessed from anywhere and anytime from a mobile platform. Cloud ERP and SaaS solution is following that trend and it requires a lot of additional work to keep up with this demand using an on premise enterprise. Cloud ERP also provide robust and easy to use reporting and analytics capabilities that is in high demand by the executives and sales team.
While most vendors have gravitated towards subscription-based cloud software, some vendors still offer on premise or hybrid solutions. In general, the more your organization is willing to spend, the more likely a vendor will be able to accommodate a customized hybrid or on premise deployment.
ERP Vendor Comparison: Cloud, On-Premise and Hybrid Deployments