Cloud Accounting Practice Management Small Business

When Is a Cloud Server Better Than an In-House Server?

Written by Randy Johnston

How big is your business? How much IT expertise does your team have? Do you frequently have power failures, storms, or other physical risks to your business? Is your business in a single location or is it a multi-location operation? These questions and so many more should be answered as you consider premise-based computing or cloud hosting. Common arguments may not be factual for your situation. For example, the common marketing buzz words to get you to consider a move include lower cost of ownership, great speed, easier access from anywhere, updates are taken care of for you, and more. You’ll find that there is no one right answer for everyone, but there is a right answer for you. The trick is how to cut through the sales pitch and make a correct decision.

Randy Johnston is a top-rated technology speaker at the annual Accountex USA conference. Randy is broadly known for his Technology Update presentation, which he updates continuously. At this year’s Accountex 2018 in Boston, Randy will be presenting on Emerging Technology. Randy has expertise in technology, security, accounting, software and computer infrastructure, and strategic planning and management.

Ask: What Am I Trying to Accomplish?

First, you should know that I’m not pro cloud or pro on-premise. I’m pro doing the best thing for your business. While there are advantages to cloud servers, there are also advantages to in-house servers.

The first thing you should do is make your own list of what you are trying to accomplish. For example:

When Is a Cloud Server Better Than an In-House Server?

  • Minimize down time.
  • Make remote access easier.
  • Improve physical security.
  • Improve cyber security.
  • Minimize cost.
  • Get maximum speed.

Note that the above example list is not your list, but merely an example. By the way, either a cloud server or in-house server could satisfy all six of these requirements. Other lists might be:

  • Don’t own server hardware.
  • Since we don’t have an office, find a secure place to store information that we control.
  • Host a proprietary, legacy application that will not be upgraded anytime in the foreseeable future.
  • Run for a week or more during a power outage.
  • Integrate seamlessly with Microsoft Active Directory and Office 365.

Note that this list is quite different than the first one, and many of these issues can be solved in a data center more readily than they can be in an on-premise (in-house) situation. In item one, you could lease hardware and not own it, but with item two, you just don’t have a place to put a server. In item three, you must have a server somewhere, and with item four one or more generators must be involved. With Office 365, you could run an AD instance at Microsoft, but it would be more difficult to integrate one or more servers.

Today’s Server Landscape

There are four primary ways to run servers today. You can choose to run on:

When Is a Cloud Server Better Than an In-House Server?

  1. In-house/on-premise servers,
  2. Your own server installed in a co-location facility,
  3. A hosting service provided by a private hosting company,
  4. Server capabilities on a public hosting facility.

Servers are primarily manufactured by HP, Dell, and IBM/Lenovo, although some still try to build servers themselves (clones or white-label) or choose other brands. These servers can be used in-house or by any of the other hosting methods. Today, the physical servers are almost always virtualized using products like VMware and remote access is simplified by using products from Citrix. Further, these servers perform better when there is high-speed SSD storage or Storage Area Networks (SANs) in use. If you only need one or a few servers, the storage will usually cost you more than the servers. In all cases, you will still have to buy and maintain premise-based firewalls, switches, cabling, and computers.

Private Hosting

Private hosting companies will usually take care of installation of applications, maintenance of the hardware and software including patches, and will frequently supply licensing. Charges are either by user (typically in the range of $125-$300/user/month)) or by server (typically in the range of $200-$500 per month). Per user charges are the most common, and contracts are frequently three to five years in length. Examples of companies in this category include: CETROM, AbacusNext, CloudRunner, Xcentric, and many more. You will have very little control over these environments, and will not need any IT personnel for server maintenance, although you may still desire some IT people for support purposes.

Public Hosting

Servers that are at public hosting facilities are installed by hosting personnel and are usually maintained by your own IT team. Charges vary widely and are based on the number of CPUs/cores needed, the amount of RAM required, the amount of communication/data transfers needed, the type and capacity of disk needed, and where the data must be located for both production and backup purposes. These parameters can be adjusted up or down easily by IT personnel during and after installation. Servers configured this way vary in price from $30-$3,000/month or more. The vendors can easily escalate pricing and it is common to be charged for excess usage. Examples of companies/products in this category include: Microsoft Azure, Amazon Web Services, Google Hosting, RackSpace, and more. Using public hosting will require more IT knowledge and can vary widely in cost.

Primary Benefit of Hosting

With both private and public hosting, the primary benefit is that servers are off-site and you don’t own the physical assets. You trust the vendor to rotate in new hardware as needed and to have appropriate backup, business continuity, and disaster recovery practices. Further, you are trusting in their expertise in security. You should always have multi-factor authentication in use. Further, you have to plan that there will be outages and speed issues that are completely beyond your control. Complete outages are uncommon, but have happened to all vendors named in this article.

Weighing Business Benefits and Pricing Options

When Is a Cloud Server Better Than an In-House Server?

This sounds complicated. While most IT people can understand the options, it is harder for them to explain the business benefits and accurately price the options. For most accountants that must control IT, in-depth knowledge of hardware and software components is not your expertise, so it is hard to even understand the different options. Cloud servers are frequently chosen because there is a perception that they are cheaper or more simple, but the fact is that it is more difficult to maintain a cloud-based private or public hosting server than it is to maintain a premise-based server. The vendors just happen to have more sophisticated IT personnel that are factored into your ongoing costs.

However, if you have marginal internal or outsourced IT talent, maintaining an in-house server has become much more difficult over the last decade. The IT people must know more about Active Directory, security, Windows Server, SANs, firewalls, and many other factors than they did in the past. If you choose to maintain in-house/premise based servers, or your own servers in co-location facilities, you can overcome these deficiencies by using Managed Service Providers (MSPs) that can maintain these infrastructure components from afar.

MSPs tend to charge by the server or by the user as well. Most server-based charges are $100-$200/month, and the per user charges tend to be in the range of $75-S150/user/month. You will generally have greater control and speed when you use this approach and may have lower costs as well. You should pick an MSP that understands your vertical industry. For example, Network Management Group, Inc. (www.nmgi.com) is an example of an MSP that specializes in CPA firms and can manage in-house servers when internal IT people need more expertise.

Although it will be difficult to get accurate information on pricing, we suggest that you use a five-year period to model your costs. You should include: on-going monthly fees, upgrade charges, software licensing, initial setup fees, any hardware acquisition costs. I’m happy to provide a starting spreadsheet template if you’ll email rand[email protected]

Takeaway

It would be great if it was so simple that we could say a cloud server is better/cheaper/faster than an in-house server, but there are too many variables to say that is true. If anyone tries to claim that, understand that it is called marketing. The claim may or may not be true, but there are too many factors for this to be universally true. Your applications, IT talent, business needs, and many other factors come into play. As more applications are hosted or become SaaS, your requirements may change, too. You may have to pay for expertise just to help filter and understand the options. You have to know what you want and choose the server approach that fits your needs the best.

Note: Are you considering a migration to the cloud? Have you considered the pros and cons? If your firm needs guidance on technology, Accountex can connect you with resources to help you make the right decisions.

About the author

Randy Johnston

Randolph P. (Randy) Johnston, MCS has been a top rated speaker in the technology industry for over 40 years. He was inducted into the Accounting Hall of Fame in 2011. He was selected as a Top 25 Thought Leader in Accounting from 2011-2018. His influence throughout the accounting industry is highlighted once again this year by being a recipient of the 2017 Accounting Today Top 100 Most Influential People in Accounting award for the 14th consecutive year. Among his many other awards he holds the honor of being one of nine technology stars in the U.S. by Accounting Technology Magazine. Randy writes a monthly column for The CPA Practice Advisor, articles for the Journal of Accountancy, and creates articles for both accounting and technology publications, as well as being the author of numerous books. He has started and owns multiple businesses including K2 Enterprises in Hammond, Louisiana and Network Management Group, Inc. (NMGI) in Hutchinson, Kansas. NMGI has supported CPA firms for 30+ years and is the largest managed service provider serving the CPA profession in North America. His wife and four children enjoy many experiences together including theatre, music, travel, golf, skiing, snorkeling and model trains. Randy's experience as a college instructor, management and technology consultant, and advisor to the profession will be obvious to attendees at his conference presentations.

Leave a Comment