Cloud Vs.On-Prem Guide

Cloud vs. On-Prem According to Stage and Size of Company

Share

When it comes to choosing between using cloud infrastructure or hosting on-premises, the decision can vary greatly depending on the size and stage of a company. Here, we'll explore how the decision may differ for companies starting out, mid-size companies, and mature companies with at least $3 million in annual recurring revenue (ARR).

Cloud vs. On-Prem for Small Companies Starting Out:

For companies that are just starting out, using fully managed cloud services like Heroku or Render can be a good option because they simplify the process and allow you to postpone building an operations team until later. 

If you're literally just starting, I do believe that some of these cloud services - especially the fully managed ones like Heroku or Render etc- can actually allow you to postpone building an entire operations team until a later stage because it does simplify things. - DHH speaking on the ReWork Podcast

When mentioning this in the ReWork podcast, however, DHH also pointed out that although these services are also very expensive they are still worth it when starting out as you have a very low load.

The benefits of the cloud outweigh the cost.

Renaud Visage, co-founder and former CTO of Eventbrite, said that if he bootstrapped Eventbrite in 2023, he would consider serverless technologies, which do not require handling hardware.

[On-Premise hardware when starting to bootstrap a company] is definitely a dependency you don’t need - a concern that weighs on you and prevents you from scaling.Renaud Visage (co-founder and former CTO of Eventbrite) on the alphalist CTO podcast episode #67.

As Renaud Visage, co-founder and former CTO at Eventbrite, notes in an interview on the alphalist CTO podcast, starting with serverless technologies can reduce complexity and remove the need for hardware management, which is especially appealing for developers who don't enjoy dealing with hardware. 

We should think about “how can I go as long as possible with as little infrastructure as possible and still be able to handle scale much easier more easily than if I had control over the entire setup” Renaud Visage (co-founder and former CTO of Eventbrite) on the alphalist CTO podcast episode #67.

However, this won’t work for all domains. Some applications require either specific hardware while in AI, complex algorithms will cost a lot if you do it serverless way.



Cloud vs. On-Prem for Middle-Sized Companies

Medium size companies do not benefit from the low-load or high investment of start-ups (which would favor the cloud). Nor do they benefit from the huge discounts large companies like Netflix can get on their cloud. For some mature companies with between $3M and $100M ARR, if they know their needs and want to optimize on costs, they might want to consider the on-prem route like Basecamp did..

If you're like a normal [medium-sized] B2B/B2C SaaS (which is this huge industry), your load is probably not that variable. Even if it is variable, it is variable within double. You will want to be prepared for a double load (37Signals are prepared for double). It's not like you only buy exactly what you need. We have two data centers. They run live, and each data center essentially has the capacity to run everything plus quite a lot more. And even when you do that, it is still dramatically cheaper. “- DHH speaking on the ReWork Podcast

But for medium-sized companies, the decision is not so clear cut. If you are the CTO of a medium size company, you will want to read the whole guide and take into account all the factors before making a decision. 

Cloud vs. On-Prem for Large Companies with $100M+ ARR:

For mature companies with $100 million or more in ARR, the decision to use cloud or on-premises infrastructure may depend on the scale of the company and the cost of computation as a percentage of revenue. 

I think when you get to a massive scale and the cost of your computation becomes a much greater percentage of your revenue, then it makes sense - I think - potentially to go back to[on-prem] at all. [But with the] understanding that you'll have to offset that saving with many more people internally to manage all that. Renaud Visage, on the alphalist CTO podcast episode #67.

According to Renaud Visage, it may make sense for companies with over $100 million in revenue to consider on-premises hosting in order to save on the cost of computation. However, as Tobias Schlottke notes in the same interview, it's important to be realistic about the total cost of ownership when making this decision, as this decision may require more people to manage the infrastructure internally.(We discuss this at length in the Workforce section of this guide).

Conclusion

In summary, the decision to use cloud infrastructure or host on-premises varies greatly depending on the size and stage of a company. While fully managed cloud services can be a good option for startups, mid-size companies may need to weigh the costs and benefits of both options, and mature companies with significant revenue may want to consider on-premises hosting for cost-saving purposes.

Cloud vs. On-Prem

What aspect of cloud vs. on-prem would you like to explore next?

Cloud Vs. On-Prem

Overview

Cloud Vs. On-Prem

Flexibility

Cloud Vs. On-Prem

Workforce

Cloud Vs. On-Prem

Maintenance and Management

Cloud Vs. On-Prem

Cost

Cloud Vs. On-Prem

Availability

Cloud Vs. On-Prem

Security and Compliance

Cloud Vs. On-Prem

Decentralisation

Cloud Vs. On-Prem

The Hybrid Set Up

Featured image designed by Pikisuperstar - Freepik.com