Comparing Costs: Cloud, Colocation or On-Premises Data Center

Choosing the right data infrastructure is a long-term decision that requires organizations to consider multiple factors. Although budget is always a consideration, other factors such as data security, the ability to manage the site internally, operational use cases and scalability to meet changing requirements are essential to weigh. 

Whether you're just beginning your research into deploying a data center or your organization already manages complex enterprise services or large datasets, your choice between cloud, on-premises and colocation data center solutions will significantly impact your budget and long-term strategy. 

This guide from PCX aims to help your organization better understand the true costs of cloud, on-premises and colocation data center solutions so you can make the best decision for your needs.

Cloud Computing: Flexible But Ongoing Costs

Cloud computing allows businesses to host their data and applications on third-party servers managed by providers such as Amazon Web Services (AWS), Microsoft Azure or Google Cloud Platform.

Costs

💰Requires low upfront investment with pay-as-you-go pricing models
💰Involves monthly charges for storage, computing power and bandwidth usage
💰Comes with possible additional fees for data transfers, API calls and premium services such as dedicated support or advanced analytics

Pros

✅Has no need for in-house physical hardware or infrastructure
✅Makes it easy to scale services up or down based on demand and changes in requirements
✅Comes with built-in security, support and compliance features

Cons

❌Involves potential increases in monthly costs as usage increases
❌Does not allow for direct control over infrastructure

❌Makes it harder to switch to a different cloud provider later

For businesses seeking rapid deployment and elasticity without significant upfront capital investment, cloud computing offers convenience—but with a recurring price tag.

Colocation: Balance Between Control and Cost

Colocation provides a middle ground between on-premises and cloud models. It allows companies to own their servers while renting physical space in a third-party data center. 

This setup is ideal for businesses that want more control over hardware without the burden of building their own facility and maintaining infrastructure.

Costs

💰Requires significant upfront investment in server and networking equipment
💰 Includes ongoing fees for rack space, power, cooling and network bandwidth
💰 Comes with additional expenses related to IT staff travel and remote management

Pros

✅Provides greater control over hardware and configurations compared to the cloud model
✅Offers better reliability and uptime compared to on-premises setups
✅Comes with lower ongoing infrastructure costs than fully in-house models (e.g., rack maintenance, power and cooling)

Cons

❌ Requires internal IT resources for management and maintenance
❌ Involves purchasing and installing more physical hardware to scale

Colocation is usually favored by growing businesses that need more control than the cloud offers but aren’t ready to invest in an on-premises setup.

On-Premises: Full Control, High Responsibility

An on-premises data center means your organization owns and operates all elements of the data center, including the hardware, cooling, power supplies and facilities.  

This option provides the highest level of control but can come with significant responsibilities and costs.

Costs

💰Requires high upfront capital costs for facilities, servers and networking gear compared to cloud or colocation data centers
💰Involves ongoing operational costs for electricity, cooling, physical security and IT staffing
💰Comes with hidden expenses from compliance audits, potential downtime and periodic hardware upgrades

Pros

✅Provides total control over infrastructure, configurations and data policies
✅Ensures predictable long-term costs after initial investment
✅Meets strict regulatory and security requirements

Cons

❌Is expensive to build and maintain
❌Requires deep in-house IT expertise available around the clock
❌Makes it difficult and time-consuming to scale

This model suits large enterprises with specific compliance requirements like those in the healthcare industry or workloads that demand high levels of performance and control.

Cost Comparison Table

Here is a summary of the various considerations for cloud, on-premises and colocation data center solutions:

Choosing the Right Model

There are no one-size-fits-all solutions. The best solution depends on your organization’s size, growth stage, compliance needs, in-house capabilities and industry requirements.

For example:

• Startups and small and medium-sized businesses can benefit from the cloud’s low entry cost and flexibility.
• Growing businesses often prefer colocation data centers to have more control of their services without completely managing the related infrastructure.
• Large enterprises and regulated industries typically choose on-premises data centers for more security, compliance and control.
• Hybrid approaches are increasingly common, combining cloud services for agility with on-premises or colocation for core systems and sensitive data.

Bringing It All Together

Each data infrastructure model comes with trade-offs.

Cloud data centers offer flexibility with ongoing costs, colocation data centers provide a better balance between control and affordability, and on-premises data centers allow for the most control but require significant investment and resources.

Your choice should be based on your business’s current needs, security and compliance requirements and future growth projections. 

The experts at PCX have decades of combined experience helping organizations assess their requirements and long-term costs to select the best IT infrastructures for their operations.