Dynamics 365 Cloud or On-premise? Know which is better for your business

Data security is paramount. But what about control? When implementing a CRM solution, the biggest early decision you make is choosing the right deployment option for your business, i.e., Cloud or on-premise. Nearly 90% of new Dynamics 365 customers opt for the cloud. But is the cloud right for you? Dynamics 365 offers deployment flexibility, catering to both cloud-first businesses and those seeking on-premise control.

This blog post explores the advantages and disadvantages of each approach, helping you navigate this crucial crossroads and select the Dynamics 365 cloud or on-premise solution that aligns perfectly with your business needs.

What is the difference between Cloud and On-premise?

Cloud deployment for increased agility and scalability

Dynamics 365 deployments leverage the power of remote servers managed by a cloud provider such as Microsoft Azure. This approach streamlines your operations by freeing your IT team from infrastructure management and software updates. Cloud-based Dynamics 365 also boasts superior scalability, effortlessly adapting to your business growth without upfront hardware investments.

Furthermore, your team can access Dynamics 365 data and functionality from any internet-connected device, fostering remote work and collaboration. Another benefit is reduced IT overhead, as cloud deployment eliminates the need for on-premise hardware and associated maintenance costs. Cloud providers prioritize data security through automatic backups and robust disaster recovery plans, minimizing downtime and data loss.

To understand the complete spectrum of advantages and explore detailed migration strategies, read our in-depth guide on Dynamics 365 on the cloud—features and benefits of cloud migration, which covers migration methodologies, implementation best practices, and how to maximize your cloud investment.

On-Premise Deployment for maintaining control and customization

On-premise deployment offers high control for businesses seeking to tailor Dynamics 365 to their specific needs. Customization flexibility allows for in-depth adjustments to workflows and processes. Data physically resides on your servers, potentially increasing your confidence in your security measures.

However, this control comes with responsibility. On-premise deployment requires a dedicated IT team to handle hardware maintenance, software updates, and ongoing system administration. Scaling up can also be complex and expensive, as additional hardware investments are necessary to accommodate growth. Finally, accessibility might be limited to your physical location or require VPN connections for remote work.

According to Forrester Research, companies that moved from on-premise to cloud have experienced a 7% TCO reduction and a 63% ROI, clearly making the cloud a viable option. Real-world success stories validate these statistics—for instance, a preconstruction software company migrated from Dynamics GP to Business Central cloud and achieved complete financial process control, workflow automation, and actionable business insights across two companies.

But how secure is the cloud? Isn’t the cloud more expensive than on-premises? What about the annual maintenance? How much should a business shed money to manage and maintaining the IT infrastructure? There are more questions, and we’ve got some of them answered below.

Pricing

The differentiating factor between on-premise and cloud is cost. Despite offering ample benefits, the cloud’s edge is greater in the long term.

When you choose a cloud service, you will typically be billed monthly or annually. But with on-premises, the initial investment is high. Given that you do not have any existing IT infrastructure, you will need to purchase a server to host your systems. Hardware, power backups, air conditioning, and space occupancy are overhead costs even before you get started with your on-premises deployment.

However, after several years of using on-premises systems, you will reach a break-even point where your initial cost of on-premises servers and running them will be lower than the monthly rental you pay to a hosting provider for the cloud. By the time your on-premises systems reach a break-even point, the likelihood of obsolescence is high. So, you need another big investment to upgrade your hardware systems to keep your systems up and running.

That’s true. So, if you are told that having an on-premises, locally hosted system is a one-time investment, you know where the hidden costs are coming from and how painstaking it is to maintain and upgrade your hardware.

Security

It is a major concern for businesses of all sizes. With news of data breaches, cyberattacks, and data scandals, businesses have become increasingly concerned about the security of their information.

Some businesses want their data stored on-premises because it gives them assurance about where it is. Industries such as healthcare require data to be stored locally for compliance purposes. This gives them free-hand access to data whenever they need it.

But when you deploy on the cloud, your data is stored in a data center somewhere around the world, giving you access to information through internet-connected devices. It is completely safe, as Microsoft Dynamics 365 provides features such as multi-factor authentication to ensure the security of your business data. All client connections and external data servers are fully encrypted.

Maintenance

When you opt for the cloud, your vendor handles maintenance. The maintenance price is included in your monthly/annual package. But when you host your systems on-premises, the onus is on you to maintain them, which adds to overhead costs. But again, depending on business needs and the compliance factor, businesses are skeptical about what it takes to be on-premises or in the cloud.

Here’s the comparison table that highlights the key capabilities, helping you understand both cloud and on-premises options and decide which suits your business requirements.