Cloud Versus On-Site Hosting: Consider the Pros and Cons of Each Before Moving Company Data

Cloud-based servers can be an effective alternative to purchasing on-site servers for certain businesses, but it’s not always the best option. The size and complexity of a company as well as any regulatory restrictions that may apply to it will help dictate which hosting method is the simplest and most efficient solution.

Three server-hosting setups are currently available:

  • On-site servers
  • Cloud-based servers
  • Hybrid on-site and cloud-based servers

Think of the difference between cloud-based and on-site hosting like the difference between leasing and owning a car. There’s buy-to-own—the on-site option—that requires a large one-time upfront payment. It also necessitates the storage and maintenance of equipment. The leasing—or cloud-based option—allows you to pay a monthly fee to use the equipment while having a third-party provider manage everything.

Hybrid on-site and cloud-based servers host data privately on the cloud and on-site for redundancy. This is usually implemented in environments requiring maximal resource utilization for specific applications or that need quick access to data in the event of an on-site disaster. Hybrid hosting also allows organizations to control and manage data stored on the cloud without third-party assistance. In contrast to strictly cloud-based services, a company leasing a hybrid server is allowed to make some customizations during the lease period.

Each hosting option has benefits and downfalls, and the right choice depends on a company’s particular situation, security concerns and growth strategy.

Find the Right Fit

In general, smaller companies with simpler business functions will derive the most benefit from hosting some, if not all of their data on the cloud.

For example, if a rapidly growing company has less than 100 employees and doesn’t need much server space, then paying a monthly fee for a cloud-based server allows it to expand its server space without needing to buy, set up, store, and maintain additional equipment on-site. The company would pay a higher monthly fee for more storage space when and if it needs it.

Bigger and more established companies, meanwhile, are sometimes better off investing in additional on-site servers or moving only a portion of their data to the cloud. This primarily occurs for two main reasons:

  • Compatibility. Cloud-based servers might not necessarily sync with a company’s internal systems, depending on how complex they are.
  • Cost. Cloud-hosting providers charge for data transfers—presently one cent to 10 cents per gigabyte. If a company has large amounts of preexisting data stored on its on-site servers, it’s often simpler and more cost-effective for it to use a hybrid on-site and cloud-based server option that only moves a portion of its data to the cloud—its email or customer relationship management (CRM) system, for example.

Industry-Specific Challenges

Before migrating any internal systems to the cloud, it’s important to consider any industry-specific challenges. The health care industry and financial institutions in particular have specific regulatory hurdles, and the consequences can be significant if data isn’t protected according to regulations.

Health Care

The Health Insurance Portability and Accountability Act (HIPPA) demands certain technical, physical, and administrative safeguards to protect clients’ personal information. Some cloud-based servers currently don’t meet all of these requirements.

Financial Institutions

A similar but entirely different set of regulatory road blocks are encountered by financial institutions when switching to the cloud. These include federal requirements surrounding IT outsourcing, risk assessment, service provider selection, third-party contracts, and ongoing performance monitoring.

A consultant with expertise in the industry and legal counsel can help navigate these industry-specific complexities and mitigate compliance risk before migrating any data to the cloud.

Cloud Benefits

While switching company data to the cloud isn’t the best option for every business, it does offer some notable benefits to most, including:

  • Improved cash flow. The financial cost of migrating to the cloud often ends up being comparable to using on-site servers in the long-run, but switching to cloud hosting turns that cost into an operating expense rather than a capital one. Deferring hosting expenses into smaller monthly payments can be a notable benefit to many companies because it frees up capital for other investments.
  • Flexibility. Cloud servers take minutes to set up as opposed to the weeks it often takes to order and install additional on-site servers. This flexibility allows companies to only pay for the server space they need, while providing the option to quickly increase it if necessary.
  • Access. An employee only needs an internet connection to access a company’s internal systems when they’re hosted on cloud-based servers. This makes cloud-based servers a great option for companies with remote employees and off-site contractors.
  • Security risk. While switching to the cloud doesn’t eliminate security risks entirely, it does outsource the management of those risk to a large, third-party organization that specializes in mitigating those risks. This allows a company to have a lower employee head count and to focus its time and energy in other areas of its business. Additionally, cloud servers may have the ability to recover older versions of files, which can help prevent the need to pay a ransom in the event of a ransomware attack—such as the WannaCry attack in May 2017—to have files restored.
  • Disaster recovery.  When a company has production servers on site, it’s responsible for disaster recovery solutions to protect data if the main system goes down. This requires investing in and maintaining two separate servers. With cloud-based servers, disaster recovery is included in the package. Because of this, many companies choose to maintain their primary production servers on-site while keeping backups on the cloud.
  • Competitive Advantage. Organizations that have implemented cloud-based servers appear to customers as more innovative and efficient when compared to their competitors. Customers assume the organization is forward thinking, more service oriented and assures business resumption in the event of a service disruption.

Cloud Drawbacks

If a company’s data isn’t suited for migrating to the cloud, it’s usually for one of these reasons:

  • Internet reliance. If a company hosts all of its data in the cloud and its internet connection goes down, that data can no longer be accessed. This puts a heavy burden on the reliability and speed of the internet connection, and can create a problem if a company is handling a high volume of large files.
  • Data security. Keeping servers on-site allows a company to keep their data on a private network and under its control, which is a significant benefit when handling sensitive information. With cloud-based servers, a company could theoretically host its data on a third-party’s server and that third-party would be able to access it.
  • Incompatibility. Cloud-based servers are incompatible with certain proprietary internal systems. Unless a company plans on migrating all of its systems over to the cloud, it’s important to figure out which internal systems will interact with the cloud servers and which ones won’t.
  • Regulatory compliance. As mentioned earlier, certain industries like health care and financial institutions need to adhere to specific technical, physical, and administrative requirements that aren’t met by some cloud-hosting providers. This creates challenges when migrating systems to the cloud while still remaining compliant to industry regulations. IT consulting services can help organizations assess compliance requirements and assist in implementing controls to meet compliance.
  • Loss of control. When issues occur, organizations can’t control the outcome and are forced to shift this risk and the ability to resolve issues to the cloud provider. Similar to on-site servers, unrestored cloud services or data unavailability can negatively impact an organization’s critical operations and services to their clients.

Overcoming Challenges

Prior to migrating to the cloud, organizations can conduct service provider due diligence by assessing the provider’s performance, services, incident and disaster response, customer support, and information security. In some cases, it’s best for organizations to also ask their industry regulators for guidance concerning cloud storage of personally identifiable information and sensitive data. It’s also critical for organizations to collaborate with their selected cloud provider to ensure safeguards are in place for separation of duties, access restrictions, data encryption, and data retention.

No matter what challenges you face, a knowledgeable IT consultant can help you identify gaps in your organization’s IT environment and provide recommendations based on industry best practices for mitigating risk when moving to the cloud.

We're Here to Help

If you’d like to learn more about how switching to the cloud might benefit your organization, or if you want assistance assessing the security of your existing IT environment, contact your Moss Adams professional.