What is on-premises? Licensing model for server-based software

On-premises refers to IT in­fra­struc­ture, software, or data that is operated and managed directly on-site within the company itself, rather than through external cloud services. In this setup, the company is re­spons­ible for hardware, main­ten­ance, security, and updates.

What is on-premises?

The term on-premises refers to the use of a company’s own servers and IT in­fra­struc­ture. In this model, customers purchase or lease server-based software that is installed on their own or rented servers. Because the licence holders run the software in their own data centre—using personal or leased hardware—it is also known as an ‘in-house’ solution.

In contrast to cloud computing, customers using on-premises gain full control over their data and also take on all the as­so­ci­ated risks them­selves. Using the provider’s hardware is excluded in the on-premises model. This clearly dis­tin­guishes the model from cloud computing models.

Licence holders not only assume full re­spons­ib­il­ity for the software but also bear all as­so­ci­ated costs. These typically include main­ten­ance fees as well as expenses for operating the required software and hardware. In the case of open-source solutions, a dedicated community often handles ongoing de­vel­op­ment and bug fixes. The drawback, however, is that there is no warranty. If needed, users can purchase pro­fes­sion­al support or software updates from spe­cial­ised service providers.

Licence holders access the software through a desktop ap­plic­a­tion or a web-based user interface. Companies that manage sensitive data typically choose the desktop-based ap­plic­a­tion to prevent potential security vul­ner­ab­il­it­ies and un­au­thor­ised access to the system.

Ad­vant­ages and dis­ad­vant­ages of the on-premises model

Before the rise of cloud computing, well-known products such as Microsoft Office, Adobe Creative Suite, and SAP were es­tab­lished examples of on-premises software. Even today, the server-based licence model remains a preferred al­tern­at­ive for many companies compared to more modern SaaS solutions. The key reasons are stronger data pro­tec­tion and full control over data and access.

Another advantage compared to cloud-based al­tern­at­ives is the ability to customise the software in­di­vidu­ally. However, this is also as­so­ci­ated with sig­ni­fic­ant costs for cus­tom­isa­tion or increased licensing fees. Ad­di­tion­ally, necessary updates at a later stage can be more complex and costly than with standard software.

The ad­vant­ages of on-premises

✓ Control: Licence holders have full control over their data and can determine exactly who has access to it. They are also re­spons­ible for managing internal resources and operating the software within their own in­fra­struc­ture.

✓ Data pro­tec­tion: In the in-house model, licence holders store all data within their own data centres, ensuring that no third parties have access. This setup makes it easier to comply with the GDPR.

✓ One-time costs: In on-premises, licence holders pay a one-time price for the purchase and in­def­in­ite use of the software. However, the in­vest­ment costs are ac­cord­ingly higher than those of sub­scrip­tion models.

✓ In­de­pend­ence: Licence holders are in­de­pend­ent from external services and the licence provider. Access to data is always guar­an­teed even without an internet con­nec­tion.

✓ In­teg­ra­tion: The licence-based software can be more deeply in­teg­rated into your own in­fra­struc­ture and connected with other programs.

The dis­ad­vant­ages of on-premises

✗ Hardware: Licence holders must have the necessary hardware that is com­pat­ible with the software, and they are also re­spons­ible for its ongoing main­ten­ance.

✗ Effort: Licence holders must install and execute updates, upgrades, and backups to ensure stability and address issues.

✗ Licence costs: In many cases, a licence is limited to a specific number of work­sta­tions. For companies with many employees, this may result in high costs.

✗ Recurring costs: Es­pe­cially with cus­tom­ised software, there are con­tinu­ally high costs for ad­apt­a­tions and updates to perform necessary upgrades and fix errors.

✗ Lack of support: In most cases, the software de­vel­op­ment by the man­u­fac­turer will even­tu­ally be dis­con­tin­ued. This also leads to the end of support.

✗ Resources: While licence holders have complete control over software usage, they also tie up their own resources.

Where is on-premises used?

Even though the sig­ni­fic­ance of cloud computing continues to grow, on-premises is often still the better choice for companies and or­gan­isa­tions today. In sectors like finance or health­care, companies are subject to es­pe­cially high data pro­tec­tion re­quire­ments. Sensitive data can be sig­ni­fic­antly better protected from third-party access with on-premises due to the internal man­age­ment of data and processes. Each company in­di­vidu­ally defines how many and which people have access to the data.