Date:
29 Jan 2025
Author:
PREO AG
On-Premise vs. Cloud
These reasons will continue to support the use of local software solutions in the future.
Cloud computing remains a key driver of digital transformation. This was confirmed by a study published in the summer of 2024 by the German industry association Bitkom. According to the study, 81 percent of surveyed companies already use cloud services, 14 percent are planning to adopt them, and only 5 percent still do not consider cloud solutions relevant. Moreover, most companies that have already implemented cloud solutions intend to increase their usage. The long-standing trend towards cloud adoption shows no signs of slowing down.
Nevertheless, demand for perpetual licenses for on-premise operations has remained consistently high over the years. While this may seem surprising at first, it can be attributed to several significant factors. These include well-known risks associated with the cloud, such as data security and availability, dependency on providers, unpredictable cost developments, and skepticism regarding the widely touted sustainability benefits. Ultimately, supply is still driven by demand—and demand for perpetual licenses, especially for widely used standard software, remains strong. This simple economic reality likely explains why Microsoft has introduced its new version, Office LTSC 2024, not only as a cloud-based subscription but also as a perpetual license for on-premise use.
In this blog post, we explore these reasons and demonstrate how companies and public administrations can benefit from using pre-owned software in on-premise operations with alternative licensing options.
Data Security and Availability
You may remember: In the summer of 2024, a massive IT outage caused significant global disruptions and highlighted how dependent our economy has become on a functioning IT infrastructure. The international air traffic, parts of the financial sector, healthcare, and the media and communications industry were all severely impacted. The cause of the global IT outage was a flaw in the security software "Falcon Sensor" from Crowdstrike, used by over 23,000 large companies worldwide. This led to Blue Screens of Death (BSOD) on Windows PCs, preventing affected computers from booting up to the login screen. The widespread use of Microsoft 365 cloud services and a handful of cybersecurity providers by large organizations worldwide was a factor in the global spread of this single error. It took several days for the issues to be resolved through an update.
In addition, physical causes, such as severed data cables, occasionally result in limitations on data availability. Furthermore, certain industries are subject to particularly strict data security and sovereignty requirements and compliance regulations. This includes the banking and insurance sectors, as well as energy suppliers, transport companies, waste management, operators of clinics and healthcare facilities, and public administrations.
Although most providers have integrated advanced security features such as data encryption, multi-factor authentication, and zero-trust security into their cloud services, using cloud software still presents a significantly higher risk of attacks and outages compared to local software solutions in on-premise operations.
A difficult-to-calculate cost risk
For large medium-sized companies or corporations with a four- or even five-digit number of workstations, software licensing is a significant, competition-relevant cost factor. The impact of price increases by large cloud providers, which can seem arbitrary and opaque, is all the more severe. For example, Microsoft implemented an average price increase of eleven percent across Europe in the spring of 2023. This led many companies not only to reconsider their existing "Cloud first" strategies but, in some cases, to initiate an "unclouding" process and fully return to on-premise operations with their own data centers.
Other difficult-to-calculate cost factors, particularly in companies with decentralized organizational structures and unclear procurement processes, include phenomena like cloud sprawl and shadow clouds, which pose both cost and security risks.
In contrast, while the initial acquisition costs of perpetual licenses are higher, they are more predictable and often prove to be cheaper over time. Especially for widely used standard software, it’s worth exploring the used software market. Depending on the version and age, purchasing used licenses can lead to savings of up to 70 percent or more.
Good to know: In 2012, the CJEU gave its first top-level approval for the trade in used software.
Over 10 years ago, the CJEU and the German Federal Court (BGH) established a clear legal foundation for the trade in used software, which has since proven effective across Europe. The legal situation is similar in Switzerland, where the so-called "exhaustion principle" also applies, forming the basis of the landmark rulings. More information about the rulings can be found here.
Hybrid cloud combines the best of two worlds
As many IT managers do not want to do without the advantages of on-premise operation or cloud services, hybrid IT architectures are becoming increasingly popular. Despite often complex requirements in terms of security, interface and licence management, it is usually worth combining the best of both worlds. In such a hybrid scenario, for example, a clever combination of cloud software with used volume licences can achieve high cost benefits without sacrificing functionality and productivity, as the following example of a specialist machine manufacturer with 10 IT locations worldwide and 2,200 seats shows:
This involved the needs-based procurement of Microsoft licences. Among other things, the solution combined an Office 365 E1 plan with used licences for Office 2016 and Windows 2016 Server CAL. This resulted in the functionality of an E3 plan, but without Office ProPlus. The result: the company achieved licence cost savings in the upper six-figure range without sacrificing productivity. The investment was amortised in the second year. You can find the entire customer case here.
Hybrid cloud solution - we calculate your savings potential free of charge
Without concrete numerical examples, it is of course difficult to bring about or make decisions within a company. The PREO licensing experts will be happy to support you and use various scenarios to calculate the approximate savings you can make by integrating used software licences into an existing cloud structure.
Example of public administration in Italy: used software in on-premise operation instead of cloud
The Union of Municipalities of Romagna Forlivese (UCRF) was looking for a solution to cover its software licence needs for a VMWare cluster and to plan for future requirements without exceeding its limited budget. UCRF opted for the legally compliant and audit-proof purchase of pre-owned software licences from PREO, which offered significant financial benefits as well as the desired compliance and flexibility. Most importantly, the purchase of the used software for on-prem operation saved around 50 per cent of the licence costs compared to the respective new version, which was crucial as it involves the careful and efficient management of public funds. You can find the entire customer case here.
The Union of Municipalities of Romagna Forlivese (UCRF) was created in 2014 through the merger of the three associations Unione Montana Acquacheta - Romagna Toscana, Comunità Montana dell'Appennino Forlivese and Associazione di Comuni della Pianura Forlivese. Today, the association comprises a total of 14 municipalities with over 67,000 inhabitants.
With PREO, you are relying on an experienced and reputable B2B provider
As one of the pioneers in the European market for used software, PREO offers businesses, organisations, and public administrations a wide selection of used licenses for on-premise operations at any time, particularly current and older versions of software from leading manufacturers like Microsoft and Adobe. Whatever the need, with PREO, customers have all the advantages on their side and benefit from:
- Significant savings on ongoing license costs of up to 70% compared to the respective new version.
- 100% legally and audit-secure license acquisition with maximum transparency in all transaction steps, including complete documentation in the PREO License Portal “Easy Compliance”.
- Personal advice on all matters related to license transactions or the integration of used software licenses into traditional network structures or hybrid cloud models.
- Existing capacities for software license management in large IT infrastructure projects with thousands of workstations and cross-border locations.
- Greater sustainability in IT through the promotion of an active circular economy and reduction of the corporate carbon footprint. By the way, PREO is the only dealer for used software with a current scorecard at EcoVadis, the world’s largest provider of sustainability ratings.
- Expertise from numerous reference projects that PREO has successfully implemented for renowned companies from various industries and sectors.
