Microsoft 365 is based primarily on cloud services, but some of the services are also available as on-premises products. For example, an organization can use Exchange Online for email and scheduling or install its own servers and run an on-premises version of Exchange. The same is true for SharePoint and Azure Active Directory, both of which also have on-premises equivalents. As with any trade-off situation, both sides have advantages and disadvantages.
Deployment
A cloud-based service is always simpler to deploy than an on-premises server-based product because the service is provided to the subscriber in an installed and operational state. There is no need to design an infrastructure, obtain hardware, or install server software. An administrator can begin to work with the service immediately after subscribing to it, creating user objects, Exchange mailboxes, or SharePoint sites that are up and running in minutes instead of days or weeks.
Updates
One significant advantage to using the cloud-based version of any of these applications or services is that they are regularly and automatically updated with the latest software version. Administrators are relieved of the need to download, evaluate, and deploy updates as they are released. With a cloud-based solution, an organization subscribes to a service, not a software product, so the provider is responsible for maintaining and updating the service’s functionality. In many cases, the cloud-based version of a service receives new features sooner, and on-premises software products might not receive certain features at all.
For an on-premises service installation, a responsible update strategy requires testing and evaluation of new software releases and might require service downtime for the actual update deployments.
Cost
Costs—both initial and ongoing—are another decisive factor in deploying any of these services. Cloud-based services require the payment of a regular subscription fee, and sometimes there are additional fees for add-on features. A subscription allows organizations to implement a service with a minimal initial outlay because no hardware costs or server licenses are required.
Fees for cloud-based services are predictable and simplify the process of budgeting. Installing the equivalent on-premises service is a more complicated affair. An organization obviously must first purchase the server software license and the computers on which the software will run, as well as an operating system license and client access licenses for all the users. This can be a significant initial outlay.
Depending on the organization΄s requirements, there might also be additional costs. A large enterprise might require multiple servers to support different physical sites, multiplying the initial outlay cost. Backing up data and storing it also adds to the cost.
There are also fault tolerance and disaster recovery issues to consider. By default, most cloud-based services from Microsoft are supplied with a 99.9 percent service level agreement (SLA), meaning the service will experience no more than 0.1 percent of downtime in a given period. The infrastructure Microsoft uses to maintain that consistent performance is of no concern to the subscriber. Duplicating that performance level with on-premises servers will require redundant hardware and possibly even datacenters. Not every organization requires this same level of consistent performance, but even a more modest uptime guarantee will increase the expenditure for an on-premises solution.
Finally, there is the issue of the people needed to design, install, and maintain on-premises services. For example, deploying Exchange servers is not a simple matter of just installing the software and creating user accounts. Depending on the organization΄s size, multiple servers might be needed at each location, and the design and configuration process can require administrators with advanced skills. These people will be an ongoing expense throughout the life of the service.
While cloud-based services can provide a great deal of performance for the price, this is not to say that they are always cheaper than on-premises servers. In the long term, cloud-based services can reach a point where they are more expensive. Cloud service fees are ongoing and perpetual, and while expenditures for on-premises servers might begin with a large initial outlay, they can come down to a much lower level once the servers and the software have been purchased and deployed.
A comparison of the relative costs also depends on the organization΄s requirements and existing infrastructure. For a large enterprise that already maintains datacenters in multiple locations with experienced personnel, deploying a new service in-house might be relatively affordable. The initial outlay for an on-premises service might be unfeasible for a newly formed company with no existing IT infrastructure.