What's the Difference Between Cloud and On-Premise ERP?
The deployment model for your ERP system fundamentally affects costs, capabilities, and operational flexibility. Understanding the differences between cloud and on-premise ERP is essential for making the right choice for your New Zealand business.
Defining the Deployment Models
Cloud ERP (SaaS - Software as a Service)
Cloud ERP runs on the vendor's servers and is accessed via web browser or mobile apps. You subscribe to the software monthly or annually, and the vendor handles all infrastructure, maintenance, updates, and security.
Examples: Oracle NetSuite, MYOB Acumatica
Key Characteristics:
- Software hosted by vendor
- Access via internet from anywhere
- Subscription-based pricing
- Automatic updates
- Vendor manages infrastructure
On-Premise ERP
On-premise ERP is installed on your company's servers in your office or data center. You own the software licenses and are responsible for all hardware, maintenance, updates, security, and IT management.
Examples: MYOB Greentree, MYOB Exo, Microsoft Dynamics (older versions), legacy ERP systems
Key Characteristics:
- Software installed on company servers
- Access typically from office network (or via VPN)
- Perpetual license purchase
- Company manages updates
- Company manages all infrastructure
Hybrid ERP
Some businesses use a hybrid model, hosting certain modules in the cloud while keeping others on-premise. This is increasingly rare as cloud capabilities mature.
Cost Comparison
Initial Investment
Cloud ERP:
- Low upfront costs
- Subscription fees begin immediately
- Implementation costs (consulting, training, data migration)
- No hardware purchases
- Minimal IT infrastructure changes
Typical Initial Investment: $30,000-100,000 for mid-market implementation
On-Premise ERP:
- High upfront costs
- Perpetual license purchase (often per user)
- Server hardware and infrastructure
- Implementation costs (typically higher than cloud)
- Network upgrades
- Disaster recovery systems
Typical Initial Investment: $100,000-500,000 for mid-market implementation
Ongoing Costs
Cloud ERP Annual Costs:
- Subscription fees ($150-200+ per user monthly)
- Annual support included in subscription
- Minimal IT overhead
- Predictable budgeting
Example: 20 users × $150/month = $36,000 annually
On-Premise ERP Annual Costs:
- Annual maintenance fees for on-premise ERP typically range from 15-22% of the initial license cost, with 20% being the industry standard.
- IT staff or consultants for system management
- Hardware replacement and upgrades
- Server maintenance and power
- Backup and disaster recovery
- Security patches and updates
- Unplanned downtime costs
Example: $100,000 initial license + $18,000 annual maintenance + $40,000 IT labor + $10,000 infrastructure = $68,000 annually (after initial investment)
5-Year Total Cost of Ownership
Cloud ERP:
- Implementation: $75,000
- Year 1-5 subscriptions: $120,000 ($24,000 × 5)
- Ongoing support: Included
- 5-Year TCO: $195,000
On-Premise ERP:
- Implementation: $150,000
- Software licenses: $100,000
- Hardware: $50,000
- Year 1-5 maintenance: $90,000 ($18,000 × 5)
- Year 1-5 IT costs: $200,000 ($40,000 × 5)
- Infrastructure: $50,000
- 5-Year TCO: $640,000
Cloud savings: $445,000 over 5 years (70% lower TCO)
These numbers vary significantly by business size and complexity, but the cost advantage of cloud ERP is substantial for most mid-market businesses.
Financial Model Differences
Cash Flow Impact
Cloud ERP:
- Operational expense (OpEx) model
- Monthly/annual subscription payments
- Preserves capital for other business needs
- Predictable budgeting
- Tax deductible as operating expense in the year incurred
On-Premise ERP:
- Capital expense (CapEx) model
- Large upfront investment
- Ties up significant capital
- Variable annual costs
- Multi-year depreciation for tax purposes
For growing businesses, preserving cash and maintaining financial flexibility often makes cloud ERP more attractive.
Functionality and Features
Updates and Innovation
Cloud ERP:
- Automatic updates (typically 2-4 major releases annually)
- Always running the latest version
- New features available immediately
- No disruption for updates
- Consistent experience across all customers
On-Premise ERP:
- Manual upgrade process
- Often skip versions due to complexity and cost
- Major upgrades can cost $5,000 - $8,000
- May run outdated versions for years
- Risk of running unsupported software
Customisation
Cloud ERP:
- Configuration-based customisation preferred
- Extension frameworks for custom development
- Customisations may need adjustment with updates
- API-based integrations
- Generally discourages heavy customisation
On-Premise ERP:
- Deep customisation possible
- Direct code changes
- Customisations complicate upgrades
- More control but higher maintenance burden
- Risk of "trapped" on old version due to customisations
2026 Reality: Modern cloud ERP platforms offer extensive configuration capabilities that meet most business needs without custom code, while maintaining upgrade compatibility.
Accessibility and Mobility
Remote Access
Cloud ERP:
- Access from any device with internet
- Native mobile apps
- No VPN required
- Consistent experience across devices
- Real-time access for remote teams
On-Premise ERP:
- Typically requires VPN for remote access
- Limited mobile capabilities
- Security complexities for remote access
- Performance issues over VPN
- Difficult for distributed teams
Business Continuity
Cloud ERP:
- Access from anywhere if office is unavailable
- No single point of failure
- Vendor manages redundancy and backups
- Disaster recovery built-in
- Minimal business disruption
On-Premise ERP:
- Inaccessible if office or data center affected
- Company responsible for disaster recovery
- Single point of failure risk
- Requires robust backup procedures
- Potential for extended downtime
New Zealand Context: Cloud ERP proved invaluable during COVID-19 lockdowns and continues to support flexible work arrangements increasingly expected by employees.
Performance and Reliability
Uptime and Availability
Cloud ERP:
- Vendor committed to uptime SLAs (typically 99.5-99.9%)
- Redundant infrastructure across data centers
- Professional monitoring 24/7
- Fast issue resolution
- Transparent status pages
On-Premise ERP:
- Uptime depends on internal IT capabilities
- No formal SLA
- Limited after-hours support
- Relies on company infrastructure quality
- Company responsible for monitoring and resolution
Scalability
Cloud ERP:
- Instant scalability for users and data
- No hardware constraints
- Pay for what you use
- Handles traffic spikes automatically
- Easy to scale globally
On-Premise ERP:
- Hardware limitations
- Expensive to add capacity
- Over-provision or risk capacity constraints
- Scaling requires capital investment and planning
- Limited geographic expansion flexibility
Security and Compliance
Data Security
Cloud ERP:
- Enterprise-grade security (often better than most companies can provide)
- Security teams monitor threats 24/7
- Automatic security patches
- Regular penetration testing
- Encrypted data transmission and storage
On-Premise ERP:
- Security depends on internal capabilities
- Company responsible for all security
- Patching delays create vulnerabilities
- Requires dedicated security resources
- Risk of insufficient security practices
Common Concern: "Is my data safe in the cloud?"
Cloud ERP security has matured significantly. In a 2023 IDC survey, 88% of businesses stated that cloud ERP systems provided better security features than on-premise alternatives, with automatic updates ensuring protection from emerging threats (Cloud4Partners.)
The data on breach frequency requires context. Earlier research showed 70% of breaches occurred in on-premise environments versus 24% in cloud (Verizon), but as cloud adoption has increased, 82% of 2023 breaches involved cloud-stored data (StationX)—not because cloud is less secure, but because more data now resides there.
What matters more than location is configuration. Research shows 82% of cloud security breaches stem from human error and misconfiguration, not inherent platform vulnerabilities (SentinelOneStationX). When properly managed, 61% of security professionals believe cloud environments present equal or lower breach risk than on-premise systems (Continuitycentral).
Financial impact data supports cloud's security advantage when properly implemented: Hybrid cloud breaches in 2025 cost an average of $3.80 million—$440,000 less than private cloud incidents and below the $4.01 million average for on-premise breaches (Bright Defense).
Major cloud ERP vendors invest millions in security infrastructure, offering enterprise-grade protection including 24/7 monitoring, automatic security patches, regular penetration testing, and encrypted data transmission—capabilities that exceed what most mid-market businesses can implement internally.
Data Sovereignty
For New Zealand Businesses:
Cloud ERP Considerations:
- Data location matters for some regulated industries
- Many cloud vendors offer Australia/NZ data centers
- GDPR and Privacy Act compliance built-in
- Clear data processing agreements
- Transparent data handling policies
On-Premise ERP:
- Complete control over data location
- No third-party data processing concerns
- Company responsible for compliance
- More complex for international operations
2026 Reality: Most regulatory concerns about cloud data have been addressed. Industries with strict data sovereignty requirements (government, defense, some healthcare) may still prefer on-premise, but commercial businesses rarely have legitimate data location concerns.
IT Resource Requirements
Internal IT Needs
Cloud ERP:
- Minimal IT infrastructure management
- Focus on business processes and user support
- No server administration
- No database management
- Less technical depth required
Staffing: 1 business systems analyst can manage cloud ERP for 50-100 users
On-Premise ERP:
- Dedicated server and database administrators
- Network infrastructure management
- Security management
- Backup and recovery management
- Significant technical expertise required
Staffing: Typically requires 2-4 full-time IT staff for 50-100 users
Disaster Recovery
Cloud ERP:
- Included in subscription
- Automatic backups
- Geographic redundancy
- Fast recovery time objectives (RTO)
- Tested recovery procedures
On-Premise ERP:
- Company must design and implement
- Requires duplicate infrastructure
- Regular testing needed
- Complex and expensive
- Often inadequate or untested
Cost Difference: Cloud disaster recovery is included; there is a cost to implement disaster recovery for on-premise.
Integration Capabilities
Connecting to Other Systems
Cloud ERP:
- Modern APIs for easy integration
- Pre-built connectors for popular applications
- Integration platforms (iPaaS) support
- Webhook capabilities for real-time updates
- Regular API improvements
On-Premise ERP:
- Often limited or dated integration capabilities
- Custom integration development required
- Point-to-point integrations
- Maintenance burden for integrations
- Firewall and VPN complexity
Implementation Differences
Time to Value
Cloud ERP:
- Faster implementation (typically 3-6 months)
- No infrastructure deployment
- Pre-configured best practices
- Cloud-based training and testing environments
- Quicker user adoption
On-Premise ERP:
- Longer implementation (typically 6-18 months)
- Hardware procurement and setup
- More complex environment setup
- Infrastructure delays
- Extended testing requirements
Implementation Risks
Cloud ERP:
- Lower technical risk
- Vendor-managed infrastructure eliminates deployment issues
- Focus on business configuration
- Predictable costs
On-Premise ERP:
- Higher technical risk
- Infrastructure problems can delay projects
- More complex with greater dependencies
- Cost overruns more common
When Does On-Premise Still Make Sense?
Legitimate Use Cases for On-Premise ERP
Highly Customised Requirements If you've built significant competitive advantage through custom processes that cannot be replicated in cloud platforms, on-premise may be justified.
Regulatory or Security Restrictions Certain government, defense, or highly regulated industries may have legitimate requirements for on-premise deployment.
Very High Transaction Volumes Extremely high transaction volumes (millions daily) may perform better on-premise with dedicated hardware, though cloud platforms are increasingly capable.
Specific Integration Needs Legacy systems or specialised manufacturing equipment that require direct server-level integration.
Remote Location Connectivity Areas with unreliable internet where cloud access would be problematic (increasingly rare in NZ).
Declining Use Cases
Arguments that no longer justify on-premise:
- "Cloud is less secure" - Cloud vendors typically provide better security
- "We lose control" - You gain professional management
- "Internet outages prevent work" - Modern systems have offline modes
- "Cloud is more expensive" - TCO analysis consistently shows cloud is cheaper
- "We can't customise cloud" - Modern cloud platforms are highly configurable
The Cloud Migration Trend
Industry Statistics
By 2025, cloud-based ERP deployments represent 70% of all new implementations (Cargoson), marking a dramatic shift from a decade ago when most systems were installed on-premise. The ERP software market reached $66 billion in 2024, growing 11.3%, with cloud ERP driving this expansion (Gartner).
Why Businesses Choose Cloud
- Financial management improvements cited by 30% of businesses as their primary implementation driver (Retaininternational)
- Supporting business growth identified by 30% as the top reason for ERP adoption (Retaininternational)
- Infrastructure cost reduction with companies reporting 70% lower infrastructure costs after moving to cloud (Cloud4Partners)
- Enhanced security with 88% of businesses in a 2023 IDC survey stating cloud ERP provided better security features (Cloud4Partners)
- Scalability needs cited by 65% of businesses as a key factor in their cloud decision (Cloud4Partners)
- Remote access capabilities with 82% reporting improved accessibility for distributed teams (Cloud4Partners)
On-Premise to Cloud Migration
Many businesses with on-premise ERP are migrating to cloud as:
- Hardware reaches end of life
- Systems require major version upgrades
- Support contracts expire
- Remote work becomes essential
- IT costs become prohibitive
Making Your Decision
Key Decision Factors
Choose Cloud ERP if:
- You want lower upfront costs
- Remote/mobile access is important
- You prefer predictable monthly costs
- You have limited IT resources
- You need fast implementation
- You want automatic updates
- Your business is growing or scaling
Consider On-Premise ERP if:
- You have very specific customisation needs
- You have legitimate data sovereignty requirements
- You have existing infrastructure and IT team
- You can afford large capital investment
- You have specialised integration requirements
Questions to Ask Yourself
- Do we have the IT resources to manage on-premise ERP?
- Can we afford the upfront investment?
- How important is remote access for our team?
- How quickly do we need to implement?
- What are our disaster recovery requirements?
- How will we handle system updates and maintenance?
- What does our 5-year TCO look like for each option?
Future Trends
The Direction of ERP
Cloud is the future: Major vendors are focusing development on cloud platforms. On-premise versions receive minimal innovation and may eventually be discontinued.
Modern capabilities built for cloud:
- Artificial intelligence and machine learning
- Real-time analytics and business intelligence
- Mobile-first user experiences
- API-driven architectures
- Embedded collaboration tools
These capabilities are difficult or impossible to replicate in on-premise environments.
Conclusion for New Zealand Businesses
For most New Zealand mid-market businesses, cloud ERP is the clear choice in 2026. Lower costs, faster deployment, reduced IT burden, better security, and automatic innovation make cloud ERP the obvious selection.
On-premise ERP remains viable only for organisations with specific requirements that genuinely cannot be met by cloud platforms. Before choosing on-premise, rigorously challenge assumptions and ensure your reasons are legitimate rather than based on outdated concerns.
The question for most businesses is not "cloud or on-premise?" but rather "which cloud ERP platform is right for our needs?"
Verde Group helps New Zealand businesses evaluate cloud vs on-premise options objectively and select the deployment model that aligns with their requirements, budget, and growth plans.
Contact Verde Group for a deployment model assessment and discover whether cloud ERP is right for your business.
Sources:
- Gartner, "Market Share Analysis: ERP Software, Worldwide, 2024" (June 2025)
- DocuClipper, "ERP Statistics 2025: Adoption Trends, Market Size, And Automation Insights" (May 2025)
- Cargoson, "How Big is the ERP Market? (2025)" (October 2025)
- Panorama Consulting, ERP Implementation Surveys (2022-2024)
- IDC and IDG Research, Cloud ERP Adoption Studies (2023)
- Flexera, Cloud Computing Trends Survey (2022)
- Verizon, Data Breach Investigations Report (2020, 2025)
- IBM and Ponemon Institute, "Cost of a Data Breach Report" (2025)
- Nominet, Cloud Security Research (2023)
- SentinelOne, "Cloud Security Statistics" (2025)
- 180 Systems, "How Much Does an ERP Software Cost?" (May 2025)
- AdCirrus ERP, "How Much Does ERP Really Cost? The Complete Budget Guide" (June 2025)
- Folio3 Dynamics, "ERP Cost in 2025: ERP Software Price, Implementation Cost & Budget Guide" (September 2025)
