Written by Robert Kluin

The Difference Between Cloud and On-Premise Software Solutions

This is part 2 of a 4-part series called Demystifying the Cloud. This blog series explores the differences between cloud-based solutions and traditional on-premise solutions, and the potential that the right cloud solution has to impact manufacturing organizations.

In the traditional approach, on-premises software licenses are installed directly on end-user devices. With the advent of cloud computing, organizations now have the option to integrate Software as a Service (SaaS) applications instead. Although organizations are comfortable leveraging SaaS solutions for low security workflows, such as word processing, they have been slow to update from on-device licenses for more intensive or higher-security needs. The comfort of the on-device solutions can trap organizations in outdated processes, add costs, and limit scalability. 

In some cases, on-premises software may indeed be the ideal solution. However, organizations must look beyond traditional, legacy approaches to their solutions and consider all their options before making a business decision. To truly get the maximum ROI, a company must closely analyze the differences between on-premises licensing and cloud-based SaaS solutions.



According to a study by IBM, 53 percent of executives indicate that cost is the most important criteria for deciding which workloads should be migrated to the cloud. For the purposes of this blog, cost includes upfront payment and long-term return on investment (ROI).

SaaS, Platform-as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS) require much different payment structures than on-premises software solutions. SaaS solutions are typically billed on a “pay-as-you-go” system, generally a monthly or annual payment for the duration of use. In contrast, a traditional operating model for software is “one and done” with annual payments for support and software updates.

PaaS and IaaS subscription models allow for a consistent payment schedule in smaller installments. Payments are based on how much resource the organization uses. When pursuing a PaaS or IaaS cloud solution, it’s critical that organizations monitor their environment and resources to understand how services are used.

Upfront cost is only one piece to overall investment. The same IBM study mentioned above shows that 80 percent of executives believe ROI is a key influence when choosing to adopt a cloud strategy. In a traditional software solution, there are three additional investments to consider in ROI beyond initial software investment:

  • Investment in on-site storage, servers, and other hardware solutions.
  • Maintenance and management of all hardware, environmental factors, and required networking. Not only do these consume the IT team’s time, but it also impacts HVAC, building requirements, and uptime of the entire organization.
  • Annual upgrades to the hardware and software to stay current.

SaaS, PaaS, and IaaS solutions provide greater ROI than traditional solutions. Take an IaaS solution, for example. Organizations access resources ad-hoc without needing to invest in or support on-site hardware. The subscription service provider maintains the hardware, freeing up company resources to pursue other business-critical activities. I explore this topic more in the next section, but the takeaway here is that there is less burden on the IT team to manage an organization’s hardware and software components with a cloud-based solution.

Ultimately, organizations have three factors to consider when deciding between a cloud-based or traditional software solution in terms of upfront cost and ROI:

  • A one-time upfront cost or a long-term payment plan.
  • How, when, and how often users access the software program.
  • Whether the organization has the capacity, resources, or desire to manage on-site hardware and software responsibilities.


As discussed in the previous section, on-premises software applications require various responsibilities from the users themselves. Perpetual licenses may be the user’s forever, but they require constant updates and patches to continue providing optimal capabilities. 

Maintaining appropriate compliance goes hand-in-hand with software updates. Traditional software providers tend to release one update annually which requires a long installation time and additional cost. As a result, perpetual licenses can have a shorter lifecycle without the ability to upgrade to newer versions rapidly. They run the risk of becoming obsolete. 

On the other hand, SaaS service providers automatically update the software solution. A cloud solution thrives on being up-to-date, and most providers will release upgrades and new features in real-time without additional cost. In both cases, traditional and cloud solutions have the ability to update. However, the timing and responsibility of updates can impact an organization’s access to the most up-to-date software version.

SaaS, IaaS, and PaaS solutions alleviate resource drain and responsibility from the IT team. However, there is a catch-22. In the event of downtime, disruptions, or failure, there isn’t anything the IT team can do to resolve the issue. They are entirely reliant on the cloud provider to restore productivity as indicated by the service level agreements (SLA’s). 

To account for this, organizations must closely review the provider’s SLA, contracts, key performance indicator (KPI) reports, and other metrics to understand how the provider will ensure consistently performing service. Understanding how the service provider manages unexpected downtime provides key insight into risk evaluation.

In summary, when it comes to understanding IT resources and user responsibilities, a company must consider:

  • Time spent updating software applications, managing patches, and maintaining various hardware components. Understand what the saved time would be worth when outsourcing to a service provider.
  • Internal metrics and how they compare to a service provider’s SLA’s and KPI’s.
  • Plans for redundancy, backup, and productivity restoration in the event of downtime, both internally and compared to a service provider.


Scalability is the very backbone of the subscription paradigm. Cloud computing enables organizations to allocate resources as they are needed, easily scaling up or down when more compute, storage, or instances of software is needed. Software designed for the cloud can leverage this flexibility to significantly reduce processing times while also decreasing capital expenditure. This allows for manufacturers to increase their ability to work on larger projects at a faster pace, which leads to greater outcomes for their business.

In the traditional on-premises paradigm, scalability is certainly not impossible. However as an organization scales, it must invest in permanent hardware resources, infrastructure maintenance, support staff, and additional licensing. Cloud certainly has the upper hand in scalability, as it becomes the cloud provider’s responsibilities to manage the aforementioned. If an organization is static and has the ability to manage any small-scale scalability needs on-site, a traditional IT infrastructure may be acceptable.

To truly understand scalability needs, an organization must analyze its:

  • Roadmap for future growth, traffic, and compute requirements.
  • Capital expenditure and budgeting needs for adding hardware and software resources.


Business workflows depend on team collaboration across an enterprise. However, the traditional method of storing content and accessing software creates obstacles to successful collaboration. For example, users must create multiple versions of content to track changes, leading to confusion or orphaned data. When it’s time to collaborate, the user shares only what they want to share, perhaps via email or through a manual check-in on another platform. Furthermore, the user is limited to the available space on a machine or local server. If you’ve ever experienced the error message “Not Enough Free Disk Space” when trying to save your work, you understand this pain well.

Sharing and storing becomes much easier with a cloud solution. The cloud offers the ability to easily collaborate with people by giving a central place for both internal and external stakeholders to access information. 

Collaboration with the same data and seeing real-time changes allows responsive and tight feedback loops. This can apply to CAD files, simulation data, BOM data, and text documents – I wrote this blog on one such collaborative platform. 

Collaboration and version control available in cloud solutions also adds a level of transparency, accountability, and redundancy to communications along the workflow. Ultimately, if an organization collaborates frequently and needs access to previous versions (and what enterprise today doesn’t?), then cloud solutions are far and away superior to traditional software solutions.


Widespread cloud adoption is here to stay. Gartner predicts that by 2020, all new entrants and 80 percent of historical vendors will offer subscription-based business models. According to Laurie Wurster, Gartner’s research director, “What began as a trickle a few years ago has become a stampede of vendors wanting to make a move to a subscription business model.”

Whenever I converse with potential cloud adopters who may be hesitant to make the switch, I frequently ask them one poignant question: “What is your core business?” Your business activities don’t focus on installing and maintaining software and infrastructure solutions. Valuable time, energy, and resources must always be directed at your mission-critical operations. A SaaS vendor’s core business is solely about maintaining, operating, and supporting the product.

To take advantage of this best-of-both-worlds approach, many organizations are transitioning to cloud-based solutions sooner rather than later. In the manufacturing and engineering fields, cloud-based CAD, simulation, and PLM solutions all promise to reduce product development time and accelerate time-to-market. Yet, many manufacturing organizations hesitate to make the switch. To help organizations evaluate and understand cloud offerings, I will debunk some misconceptions about the cloud and discuss how an organization can best implement a cloud-based solution.


About Robert Kluin

Robert Kluin is managing partner at Real Kinetic, where he specializes in helping companies leverage the cloud and scale their business. Robert is an experienced technology executive and entrepreneur who is passionate about helping companies develop engineering organizations that reliably deliver business value. Previously, Robert led the operations engineering, infrastructure engineering, reliability engineering, and support engineering groups at Workiva to ensure 24×7 operations and deliver systems to meet product engineering needs. He is a Google Cloud Platform Developers Expert and is an expert in Amazon Web Services.