Data warehouses (DWHs) are critical components of business intelligence and analytics operations. But there's still fierce debate about the best place to host your DWH. Ask around, and you'll find passionate advocates on both sides of the on-prem vs. cloud debate. 

Like so many things, the truth is that there is no one-size-fits-all solution. Every business is different, and there are advantages and disadvantages in both approaches. Cloud solutions offer scalability and relatively low upfront investment costs. However,  there’s the security and flexibility that only an on-premise solution can offer.

Should you deploy your data warehouse in the cloud or maintain it on-premise? This article contains our take on factors to consider as you make this decision.

Table of Contents

  1. What Does 'On-Premise' Mean?
  2. What is a Cloud System?
  3. Cloud vs. On-Premise Data Warehouse: Key Differences to Consider
  4. What About a 'Hybrid Cloud' Solution? 
  5. Deciding Between On-Premise vs. Cloud Data Storage

Before we get deep into an on-prem vs. cloud comparison, let's look at both approaches. 

What Does 'On-Premise' Mean?

On-prem solutions sit on your local network, which means a high upfront cost, as you must invest in hardware and the appropriate software licenses. Also, you need the right skills, which may involve hiring a consultant to assist with installation and ongoing support. The advantage of on-premise is that you control every aspect of the repository. You also control when and how data leaves your network. 

What is a Cloud System?  

Cloud solutions are highly cost-effective with minimal upfront costs. Simply set up an account with a cloud host and you’re ready to go. Many cloud environments are effectively plug-and-play, especially if you use a cloud-based ETL. Ongoing costs are typically a monthly or annual subscription, with flexible pricing depending on your data storage needs. There's also the advantage of off-site data backups, which are vital in disaster recovery. 

Using a cloud solution may raise some security concerns, as you'll be transmitting sensitive information to a third party. But many cloud partners offer reassuringly strong encryption and high-level physical security. 

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Cloud vs. On-Premise Data Warehouse: Key Differences to Consider

Both of these approaches suit different use cases, so how do you decide which one is for you? When considering on-prem vs. cloud pros and cons, there are six main areas to consider:

  • Scalability
  • Cost
  • Speed
  • Connectivity
  • Reliability
  • Security 

Let's look at each in detail. 

Scalability

Data warehouses grow quite quickly over time, which means you'll need to expand your available storage regularly. 

With on-premise data warehouses, you'll need to add storage space to your data warehouse. This means purchasing and configuring additional storage hardware. If you need to scale down for some reason, you may end up with unwanted hard drives. 

In cloud data warehouses, you can scale up by changing your subscription tier. Your service provider can allocate as much space as you need. There's generally no need to make any configuration changes, although your annual cost will increase. Cloud providers often allow you to scale down just as easily. 

Cost

Cloud-based data warehousing eliminates most up-front costs. Also, you only pay for the resources that you use, which improves operational efficiency. 

It's no wonder that more and more enterprises are moving their DWHs to the Cloud. A survey of 750 IT professionals for the 2020 Cloud Computing Trends Report revealed that 93% of respondents have adopted a multi-cloud strategy, while 87% implement a hybrid cloud approach.

However, there is an ongoing annual outlay on DWH costs when using a cloud service. Over time, this may exceed the cost of an in-house solution. 

Speed

Cloud solutions can add a degree of latency to your transactions. Your DWH is sitting outside your local network, so request happens at the same speed as other internet transactions. If your entire organization is in a single location, then an on-premise DWH is always going to be faster. 

However, if you have a multi-site organization, you may find that cloud services improve overall speeds. The Cloud exists on servers in multiple locations across the country and around the world. SMart routing systems optimized your queries, so everything travels via the fastest server in your area. 

As we move towards remote working and people need to access data on the go, Cloud services may turn out to be the fastest option. 5G technology will speed things up further, with higher transfer speeds and almost zero latency. 

Connectivity

Data warehouses ingest data from other systems. They require frictionless connections to those systems, either directly or via an ETL process.  

With a cloud-based DWH, it's easy to connect to other cloud services. Many services make it easier to digest the data, store it in file systems, and access it. For example, cloud ETL tools allow you to integrate a massive variety of data sources based on ready-made "connectors" and transform and manipulate the data easily for analytics.

An on-premise DWH enables the organization to have absolute control over security, how and when applications interact, and other connectivity or access issues. In sectors where these kinds of restrictions are critical, such as banking or government, on-premise DWH is the more common choice.

Reliability

Reliability and service availability are major concerns in IT infrastructure/ Cloud-based DWHs offer a Service Level Agreement that guarantees a certain amount of availability. 

For example, Amazon promises a minimum uptime of 99.99% availability for its EC2 DWH service. Google promises a monthly uptime percentage of 99.9% for Cloud Storage and BigQuery. Google, Amazon, and other cloud DWH providers will replicate your data across multiple clusters to ensure maximum reliability.

For on-prem data warehouses, uptime is your responsibility. You'll need to invest in reliable hardware and a support team that can resolve issues day or night. 

Security

In most cases, cloud solutions are more secure than on-premise solutions in most use cases

This may seem counterintuitive, as cloud solutions send sensitive data to a third party, while on-premise solutions keep everything within the company's network. However, in practice, data rarely stay within the building. You may need to transmit information to partners such as accountants or legal consultants, or you may need to provide a copy of data to auditors. 

But the most common data risk is your staff. Employees will often breach data policy by copying sensitive data to their laptop or a USB drive so they can continue to work at home. If they lose one of these devices, you could face a potential data breach. 

Cloud solutions take a security-first approach to external data transactions. For example, Google BigQuery and Amazon Redshift both have swaths of security features to guarantee the safety of your data at every point in its journey. Employees can remotely access data via an approved channel. For example, you can configure a web-based BI tool to connect directly to your DWH. 

On-premise data warehouses are the most secure option when supported by a rigid data access policy. But cloud storage offers flexible security that keeps your data safe in the majority of real-world situations.  

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What About a 'Hybrid Cloud' Solution? 

On-prem vs. Cloud doesn't have to be an either-or proposition. Many organizations blend data services with their local IT infrastructure, an approach known as the hybrid Cloud. 

In a hybrid strategy, you use cloud repositories for day-to-day storage, with specialist on-premise data warehousing for:

  • Sensitive data that you don't want to travel off-network
  • Personally Identifiable Information (PII) that you may not be able to transmit for compliance reasons
  • Data related to low-latency processes

This approach can help to resolve specific security, compliance, or performance issues that may arise when using the Cloud, while still offering the Cloud's flexibility. You’ve also got more scalability options, as you can expand the on-premise system or amend your cloud subscription depending on your needs.

Hybrid Cloud has an upfront cost, as you need to install and configure the on-premise DWH. You'll also need sophisticated support to help you categorize and segment your data and ensure that everything ends up in the right place. 

Reintegrating the data can be a challenge, although this is easier if you use a cloud-based ETL. The ETL platform can perform transformation tasks, like obfuscating PII. It can then securely extract data from your on-premise systems and integrate it with the cloud repository. This gives your analytics team secure access to everything they need. 

Total costs for this model include the maintenance costs and operating expenses of the on-premise system. You'll also have to pay the subscription cost of the cloud service. 

Public vs. Private Cloud Software

In our on-prem vs. cloud comparison, we've focused on the public Cloud. This describes services like AWS, BigQuery, and Microsoft Azure. Essentially, these companies use their hardware to offer cloud data warehousing to multiple organizations. Your data is safe, but it will sit side-by-side with other data. 

Private Cloud is an alternative that offers the advantages of Cloud with greater security. Essentially, you either invest in hosting your Cloud, or you pay a third party to host a cloud exclusively for you. Either way, this involves dedicated hardware that you don't share with anyone else. 

Implementing a private cloud does involve substantial up-front and maintenance costs. However, private Cloud can provide the security of on-premise and the scalability of the Cloud, which is an excellent infrastructure for the future. 

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Deciding Between On-Premise vs. Cloud Data Storage

Most companies will benefit greatly by deploying a cloud-based data warehouse, as it is cost-effective, quick to set up, instantly scalable, accessible, easy to use, and secure. Delegating the maintenance and management of a data warehouse to a third party will free up valuable time and resources that can be used for analytics or other activities critical to your business.

Related Reading: The Guide to Data Warehouse Design

Still, companies that require total control, flexibility, accessibility, and predictability might find that an on-prem solution is a better fit for their needs.

If you are still unsure which one is the right solution to suit your company's needs, you could also opt for a hybrid approach, storing your data in an on-prem data center and using the cloud for data processing and analytics. Alternatively, store your data in a cloud data warehouse and perform analytics on-prem.

Contact us to learn more about how your business could benefit from Xplenty’s simplified data integration service.