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On-Prem vs Hosted Software — What’s The Difference?

Written by: Guillaume Bergeron

Understanding the Difference And Choosing The Right One For Your Business

The rise of the internet fundamentally changed our lives and how we do business. Where we once needed to buy physical CDs for software licenses, nearly all companies now use some form of hosted or cloud-based software.

Hosted and cloud-based solutions are becoming increasingly crucial for businesses to improve efficiency. However, on-premise systems still have a place in specific business contexts.

This article will discuss the key differences between on-premise and hosted software and what you need to consider.


In ‘hosting’ or ‘‘hosted’ solutions, third-party vendors manage and house physical IT infrastructure off-site. This includes servers, data storage, networking, backups, updates, etc.


Hosted software is any software that is stored and managed offsite and accessed through an internet connection.


Similarly, cloud computing or cloud software are types of hosted services. IT infrastructure is hosted on a cloud rather than on physical servers in this scenario.

Common terms you may hear as part of cloud computing are:

  • Software as a Service SaaS - Software licensed on a subscription basis. SaaS is typically web-based and accessed through a browser rather than installed on the computer.

  • Public Cloud/ Hosted Public Cloud - A cloud environment where IT infrastructure is hosted over the public internet and shared by different customers.

  • Hosted Private Cloud / Private Cloud / Premise Cloud - A cloud environment where the IT infrastructure is hosted on the internet but accessible to only one customer and can be managed either by a third party or on-premise.

Popular examples of hosted/cloud software include:

  • Email Hosting - Gmail, Microsoft Exchange Server

  • Cloud Storage - DropBox, Google Drive, MS One Drive

  • Website Hosting - GoDaddy, Shopify

  • Payment Processing - Stripe, PayPal

  • CRM Platforms (Customer Relationship Management) - HubSpot


On-premise or on-prem refers to when an organization's IT infrastructure (storage, servers, backups, etc.) and resources (software, hardware, platforms, etc.) are managed and located at the physical site of the organization.

Examples of on-premise software include

  • PBX- Public Branch Exchanges - Traditional Bell, Mitel

  • Local Storage - locally hosted servers, inaccessible outside of the local network.

  • Payment Processing - Toast, TouchBistroy, AccuPOS

  • ERP System: Microsoft Dynamics GP On-Premise, Acumatica On-Premise


When keeping data and systems on-premise or switching to a hosted solution provider, there are critical factors to consider which can significantly impact your business capabilities.

Here are some pros and cons and things to consider:

1. Accessibility & Connectivity

  • Hosted: Hosted and cloud solutions provide a massive advantage for the increasing number of remote, hybrid, and globally dispersed workforces. Hosted solutions allow workers to access data and systems to work anywhere, anytime. For example, our company’s business phone solution enables remote workers to carry their office numbers wherever they go.

  • On-Premise: Employees cannot remotely access data and systems. This option will work when your business operations require you to be at your office, like with an on-premise POS system. It may also be possible to access the system without an internet connection in some cases.

Related: How To Get The Best Call Quality Off Your Home Internet

2. Operating Costs

  • Hosted: With hosted applications and software, your provider covers associated costs like hardware, upgrades, maintenance, security, and support. You can realize significant cost savings upfront. Keep in mind that the resources you use often come with contracts and fixed or monthly fees.

  • On-Premise: Alternatively, upfront costs are significant for on-premise systems as you have to invest in hardware, software, maintenance, updates, personnel, and everything else to support your infrastructure. However, you could save on monthly expenditures, which could amount to cost savings in the long run.

Related: 10 Things You Need To Know About Contract Renewals

Related: VoIP vs. Landline: A Cost Analysis Breakdown

3. Business scalability

  • Hosted: If your business requires flexibility due to seasonal demands, growth or downsizing, hosted solutions let you adapt your service. You can easily add or remove storage, services, features, users, and more.

  • On-Premise: Scaling may require adding more hardware on-site, or more software features, both of which can be costly if third-party support is needed. Consider your long-term plans when implementing an on-premise system, and ensure that it can support your expected growth.

4. Disaster Recovery

  • Hosted: In the event of a disaster, your data is not compromised because it is stored on a third party's network with security, backups, and redundant servers. Floods, fires, outages, and other natural disasters can happen, but you can continue operating and earning revenue because your data is hosted off-site.

  • On-Premise: When your servers, hardware, and data centers are all on-site, the risk of damage is higher. It is critical to have a solid disaster recovery plan with enough capital available for equipment, personnel, and maintenance required to build a recovery site.

Related: Family Health Clinic Recovers From Fire, Improves Operations

5. Data Security & Reliability

  • Hosted: You’ll have less control over security policies, but a third-party provider's security can still be more robust. Third-party providers typically have the resources for 24/7 security monitoring, encrypted data, updated security protection, built-in firewalls, and redundancy that many on-premise systems don’t.

  • On-Premise: In highly regulated industries such as banking and government that require strict security measures, on-premise systems are often the only option. Organizations implementing on-premises systems can control security measures to safeguard assets and data and ensure compliance.

Related: Is my Business PCI compliant?

6. Control Over Infrastructure and Customization

  • Hosted: While cloud-based or hosted solutions permit some customization, you will have fewer options than if you had a dedicated IT team to handle the process. Assess your needs and find a provider whose offering and customization options meet your needs.

  • On-Premise: With on-premise systems, your IT team controls how data is stored and updated, plus the system can be configured specifically to meet business needs. On-premise is the right option when control over infrastructure is a priority, and you can afford the IT involvement required.

7. Support & IT Personnel

  • Hosted: Depending on your provider, most cloud and hosted solutions come with varying levels of support, eliminating the need for extensive in-house IT teams. You can instead rely on your provider for support.

  • On-Premise: With an on-premise system, your organization is fully responsible for the operations, server maintenance, licenses, backups, etc. This scenario is appropriate if your organization has the capital and specialized IT department to handle maintenance and support.

8. Integrations

  • Hosted - WIth hosted solutions, you can easily connect cloud-based 3rd party applications to your existing system to increase system capabilities and improve business processes.

  • On-Premise - Typically, managing integrations between on-premise systems and separate networks require a custom-built solution, but different options now exist as innovations become available.

Related: net2phone’s Zapier Integrations


While there are many parameters to consider when choosing on-premise vs. hosted tools, the deciding factor often lies in the ability to control resources and infrastructure.

Hosted solutions are a vital part of the digital transformation, offering companies flexibility, cost-saving, and increased capabilities, but they are not suitable for every industry. Organizations operating in high-security and highly regulated industries like government, banking, and defense are unlikely to store data outside of local servers.

Assess your organization's needs, priorities, and financial resources before choosing new applications and systems. You may find that some combination of on-premise and hosted solutions is the sweet spot.

Cloud-based VoIP is becoming the phone solution of choice for Canadian businesses, and choosing the right solution is easy with our Step by Step guide. Ask the right questions, evaluate your options, and consider frequently overlooked criteria. Download your guide here.

About the Author

Guillaume Bergeron | Manager of Onboarding

Guillaume loses himself in compelling narratives through books, TV shows, movies and anything that tells a story. His organizational skills propel our team to new heights, while he strives to provide the utmost care to new and existing net2phone Canada clients. After all, his team-oriented attitude contributes to the premier level of customer service we are known for.