Cloud vs hardware: What’s right for your business?

by Neroli Baird

Cloud vs hardware: What’s right for your business?

by Neroli Baird

by Neroli Baird

Article sponsored by ThinkFWD –

This article first appeared on ThinkFWD


The cloud is touted as a technology that, along with mobile and analytics, will usher in a new age of limitless, on-demand computing for everyone. According to a Telesyte study,1 total market value for public cloud services is tipped to reach $775 million by 2019, with infrastructure-as-a-service (IaaS) enjoying the biggest spending increase in 2015.

But is the cloud always the right choice for the small to medium business (SMB)? There are a few important deciding factors to consider when choosing between cloud services and on-site server hardware.


A major selling point of the cloud is its flexibility. Typically, businesses will purchase a monthly plan that includes a bundle of features that meet their needs. As the business grows or changes, it can move between plans. For example, you might choose to start with a basic data storage, CRM and email management plan, and move to one that includes advanced data analytics later.

Your business model will be the deciding factor. Are your employees working from a static location, or remotely? If it’s the latter, there can be less chance of data loss or duplication with the cloud. Are you unsure where you’re going, or confident that things will remain fairly static? If you don’t expect to scale quickly, it may be more cost-effective to purchase your own entry-level server outright. Choosing a solution that’s easily upgraded will mean you’re well placed for future growth.


For a small business with 10 employees, we compared the price of a Microsoft Azure cloud solution with a comprehensive on-site server option.* With everything taken into account – including two virtual machines for network storage and applications – the cloud solution could certainly be more cost-effective upfront, but over time the subscription costs begin to add up. Over three years, an on-premises server could save you more than 50% compared to a cloud solution. According to IDC business data, the optimal server replacement cycle is three and a half years.2

Although there are ongoing costs associated with hardware – such as upgrades, power and troubleshooting – the cost of a physical server over such a period rarely adds up to the cost of cloud services. This is despite the cloud appearing cheap on a month-to-month basis compared to the higher initial costs of physical hardware.

In general, the flexibility and scalability of cloud may make it attractive for larger companies – but smaller businesses are unlikely to use the full range of cloud features they are paying for in their monthly fees. It’s also worth noting that your own hardware may be counted as a business asset, which has tax benefits.


Some of the risk of using cloud relates to data security and privacy. In Australia, it’s important that SMB cloud users are aware of their rights in relation to the Privacy Act (1988),3 which states that cloud providers must take “reasonable steps” to protect personal data from unauthorised disclosure, misuse or archiving. Australian Consumer Law also applies to cloud providers, although penalties can be difficult to enforce if they are based overseas.

When comparing cloud providers, find out whether they offer personalised encryption and data backup that protects your information if there is a breach or hardware failure. Also be sure to ask where they store their data, as privacy laws vary by country.

A physical in-house server will typically keep you protected from all but natural disaster and physical interference. Like all ICT systems, it’s a matter of weighing up the benefits while managing the risks.

Physical location and data bandwidth

To varying degrees, all cloud services will be subject to the congestion and unpredictable latencies of the public internet. This can be more of a problem for rural businesses that lack the reliable internet connection and bandwidth needed to consistently run cloud applications.

Another important factor to consider is data transfer limits. Cloud services usually allow you to upload an unlimited amount of data to the server (on your own bandwidth dime), but are less generous when it comes to downloads – services like Amazon EC2, for example, are capped at 1GB free outbound data per month.

The cloud can still be viable for SMBs that have a highly mobile workforce, want the freedom to scale up and down quickly, and can accept the risks of having their data handled by a third party. There is also the hybrid option, where non-critical business data is stored and processed using low-cost or free cloud plans. For many SMBs, however, maintaining their own on-site servers remains a more cost-effective and secure strategy.






*Azure configuration

  • D1 VM, single core, 3.5GB RAM, 50GB storage.
  • D2 VM, dual-core, 7GB RAM, 100GB storage.
  • VPN Gateway, incl. 100GB each inbound/outbound traffic per month.
  • 1TB file storage.
  • Costs based on pricing from Azure as at 21/11/2016.

On-site configuration

  • Lenovo TS450 tower server with 3 years 24/7 4-Hour Response Warranty, Intel Xeon E3-1245 v5 CPU, 32GB RAM, redundant 450W power supply.
  • Tape backup drive with 5 x 1TB cartridges.
  • Windows Server 2012 R2 Standard Multi-Language.
  • Windows Server 2012 User CALS.
  • 1.5kVA UPS.