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 license holders run the software in their own data center—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. Utilizing the provider’s hardware is excluded in the on-premises model. This clearly dis­tin­guish­es the model from cloud computing models.

License 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 necessary 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 spe­cial­ized service providers.

License 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 unau­tho­rized 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 licensing 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 customize the software in­di­vid­u­al­ly. However, this is also as­so­ci­at­ed with sig­nif­i­cant costs for cus­tomiza­tion 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: License 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, license holders store all data within their own data centers, ensuring that no third parties have access. This setup makes it easier to comply with U.S. data privacy reg­u­la­tions such as the Cal­i­for­nia Consumer Privacy Act (CCPA) or sector-specific laws like HIPAA for health­care data, as well as with the GDPR if the business operates within the EU.

✓ One-time costs: In on-premises, license 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: License holders are in­de­pen­dent from external services and the license provider. Access to data is always guar­an­teed even without an internet con­nec­tion.

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

The dis­ad­van­tages of on-premises

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

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

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

✗ Recurring costs: Es­pe­cial­ly with cus­tomized 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 license 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 or­ga­ni­za­tions 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.