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4 Hidden Costs of On-Premises Software

4 Hidden Costs of On-Premises Software

Cloud vs On Premises Hidden CostsWhen people try to compare the cloud to on-premises software, many fail to recognize the hidden costs that come with the software. Taking a one directional approach, those selling the product will take into consideration the single dimensions in pricing (Cloud: Subscription Costs; On-Premises: Licensing, Servers, On-Site IT, etc.), but fail to remember the differences not originally stated in the sales process.

With this, the considerations and the arguments surrounding them are flawed. Making the decision to choose the right product should be more than one dimensional, shouldn’t the pricing considerations? With this, we would like to share with you the hidden costs that come with on-premises software.

Electricity Bills

When was the last time that you even blinked an eye towards getting a grasp on how much your on-premises servers cost to run 24/7? It’s okay, because you’re not alone. Most of us don’t think about energy as a cost tied directly to IT operations. It’s that invisible commodity that just happens, and regardless of any computers being in an office, we need it anyway.

Business can’t operate without electricity. But even though today’s servers are more energy efficient than they ever were in the past twenty years, this doesn’t mean their electrical consumption needs should be ignored.

Unlike standard computers or laptops, the average solid server has a mixture of

  • Multiple socketed processors
  • Dual (or more) power supplies
  • Multiple sets of hard drives in RAID arrays

All of this is among numerous other components that regular computers don’t need because the key to a server’s namesake is uptime and availability. This availability doesn’t happen without all the wonderful doodads that support such a stable system.

But with that stellar uptime comes our first hidden cost: electrical overhead. And not just the power needed to keep servers humming. All that magic spits out higher than average levels of warm air, which in turn also needs to be cooled, unless you prefer replacing your servers more often than every five years or so.

The “5-Year Rule”

Want to run a server for 24 hours, 7 days a week, 365 days per year? How long will you expect it to last? This little known term, which our author would like to call the “5-Year Rule,” promotes that few businesses consider that servers will run for 5 years before they become riskier and riskier to store data.

For those of you pushing servers past that lifespan, this discussion also applies, but your rule may be closer to that of a seven or eight year one — as bad practice as that may be.

Why is this a bad practice? Think of it. When you stretch a server lifespan so far, you’re usually entailing risk of unexpected failure during the migration to a new system, or increasing the risk of paying for more costly migration fees because your software dove into a much further obsolescence than it would have otherwise had at a decent five year timespan.

The 5 year rule is something that many decision makers don’t take into account because they see the cost as being too far off to consider now. Yet, when looking at cloud vs on-premises, it’s super important to consider your TCO (which I will touch on at #1 since it is the most important hidden cost). Part of that TCO entails your upgrade costs that hit every xx number of years when it comes time to retire old on-premises servers.

Yes, while you are usually paying a slight premium to keep your needs up in someone else’s datacenter, their economies of scale are offsetting what it will otherwise cost you around that nasty “5 year” mark.


Even in the wake of highly promoted ‘cloud outages,’ compared to on-premises systems, the public and private clouds still see much better reliability and uptime. The numbers prove it, as you’ll see shortly.

InformationWeek shed light on a 2011 study done by CA Technologies which tried to provide an idea of what downtime costs businesses on a broad scale. This survey found that a total of $26.5 Billion USD is lost each year due to IT downtime. That’s an average of about $55,000 in lost revenue for smaller enterprises, $91,000 for midsize organizations, and a whopping $1 million+ for large companies.

At the study’s number of 14 average hours of downtime per year per company, and using the above $55,000 in lost revenue for smaller enterprises, it’s fairly safe to say that an hour of downtime for this crowd equals roughly $3929 in lost revenues per hour.

At the large enterprise level, this comes down to about $71,429 in lost revenue for each hour of downtime.

This study averages 14 Hours of Downtime per business per year. 1.16 Hours per month, roughly a 99.84% (99.840289% for the truly numbers driven).

What if, however, the company averaged 99.988% over the past operating year (5 Minutes 15.6 Seconds monthly, 1 hour, 3 minutes yearly—less than the monthly outages on a server) and will pay you if it doesn’t meet 99.8% monthly? This company is Intacct, and you can view its status here.

The True Total Cost of Ownership

Total Cost of Ownership is the most accurate, objective way to place on-premises and cloud solutions on an apples to apples comparison table. This is because of the innate disparity between the two paths when viewed in the traditional lens. Recurring monthly costs always take precedence over initial hardware CAPEX costs, and the nasty “5 Year Rule” spike, which is why TCO puts all of these into perspective in the same paradigm.

Software Advice provides a fair TCO Calculator that offers a deeper view of the total cost of ownership based on installation and upgrade fees.

Consider this: If you spend $10,000 for the first year and $3,000 for each following year for a subscription-based model, in 10 years you will have a TCO of $40,000.

Related: The Economics of Cloud Computing

Now, if you were to take the installation (and associated costs, increased implementation time, training) of on-premises software, and the 5-year new server rule, along with the standard yearly fees; you double, if not triple your costs compared to that of cloud-based software.

Move to the Cloud

Just in implementation, training, and cost savings alone, the cloud is easier and cheaper. But when you consider these hidden costs, the move to the cloud is the obvious choice. Brittenford Systems, as a provider of cloud computing software that makes your job easier and your business smarter, is pleased to share the hidden costs of on premises, and invites you to learn more about our products, services, and upcoming events.

Ready to make the move? Contact us for more details.


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