Cloud ERP v/s On-Premise ERP

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.

Cloud-based ERP systems have become much more popular in recent years—especially among small to midsize businesses. But there are many reasons why a firm might choose a traditional, on-premise system.

This article provides a breakdown of the advantages and disadvantages of each type of ERP system, and how you can determine which is best for your organization.

Deployment and Pricing of Cloud ERP vs On-Premise ERP

The biggest difference between these two systems is how they are deployed.

>>Cloud-based software is hosted on the vendor’s servers and accessed through a Web browser.

>>On-premise software is installed locally, on a company’s own computers and servers.

Some vendors also offer “hybrid” deployments, in which cloud software is hosted on an organization’s private servers (more on this later).

Another key difference between cloud and on-premise solutions is how they are priced. While there are many exceptions to this rule, in general, cloud software is priced under a monthly or annual subscription basis, with additional recurring fees for support, training and updates.

On-premise software is generally priced under a one-time perpetual license fee(usually based on the size of the organization or the number of concurrent users). There are recurring fees for support, training and updates.

Thus, on-premise systems are generally considered a capital expenditure (one large investment up front). Cloud-based systems, on the other hand, are typically considered an operating expenditure (an additional overhead cost the organization will continue to pay).

The low entry cost of cloud-based software—compared with hefty, upfront perpetual license fees—has contributed to its widespread adoption. According to one study, 69 percent of enterprises were using cloud-based software or system architecture in 2014.

However, it should be noted that over time, system costs tend to converge. Below is a chart showing total costs of ownership (TCO) for both cloud-based and on-premise software.

Cloud ERP Is Cheaper Up Front, Stable and Easy to Use

Here’s a breakdown of the advantages and disadvantages of cloud-based ERP systems:

	Advantages	Disadvantages
Cost	• Predictable costs over time • Cheaper upfront investment • No additional hardware investments (e.g., server infrastructure)	• May end up spending more money over the course of the system’s life cycle
Security	• Data security is in the hands of the vendor	• Data security is in the hands of the vendor. While vendors pledge strict data security standards, some organizations might not have total peace of mind with this arrangement.
Customization	• Offer greater stability and continuous updates from vendor as a result of less customization • Organizations can work with vendors to see what changes can be made	• Generally less customization are carried out.
Implementation	• Typically take less time to implement	• Shorter implementation times are largely a result of less customization