14th Jan 2021

Comparing Microsoft Dynamics 365 Online with Microsoft Dynamics 365 On-Premise

Hosting Dynamics 365: The Cloud vs On-Premises

There are two main ways to host Microsoft Dynamics 365. Either by using Microsoft Dynamics 365 Online, hosted in the cloud (Azure) or Microsoft Dynamics 365 on-premises using your own local server.

It’s worth noting that hybrid deployments are also viable whereby data is stored locally on a server running your on-premises solution whilst the system is fully integrated with the Microsoft cloud in order to access the advantageous cloud-based services e.g. machine learning, business intelligence and development sandboxes. Hybrid deployments are often set up for customers looking to migrate to the cloud from on-premises.

So, to recap, the main ways in which Dynamics 365 can be hosted is either:

  1. Online/In the cloud (fully managed by Microsoft)
  2. On-Premises (deployed locally in your own data centre)

In this blog, we explore each of these hosting types to provide you with all you need to know when considering your Dynamics deployment. Depending on your organisation’s structure and requirements, there are several aspects to consider which will help you decide on the optimal setup.

Both versions of Dynamics provide powerful features and capabilities, but each type equally has its own advantages and drawbacks so it’s important that you evaluate your options to make an informed decision on how to host the software.

Please note, we have detailed the benefits and different clearly in a suitably formatted Microsoft Dynamics 365 Online vs On Premise comparison table shown further down.

Microsoft Dynamics 365 On-Premises Hosting


If you choose to go with an on-premises deployment, existing data centre investments can be leveraged as the solution would be stored on this local infrastructure. Furthermore, you also have full control over the setup which will allow you to configure it to meet the necessary regulatory and compliance needs of your organisation. You can also comply with data sovereignty rules in regions where no Azure Data Centres exist and ensure business continuity in areas where there is restricted public, cloud infrastructure.

Managing updates

Business data would be disconnected from the cloud and therefore some connectivity is required for system management and any software updates you’d like to perform. To do this, you would need to enable these through Microsoft Dynamics Lifecycle Services (LCS), a cloud-based application lifecycle management service. Data that is related to the configuration and customisation of the application may be stored in the cloud. MORE HERE!


As aforementioned, the solution and data is yours to own and manage and therefore an amount of maintenance and management must be taken on by the customers. These responsibilities would be as follows:

  • Stand up and maintain infrastructure.
  • Configure high-availability and disaster recovery solutions.
  • Stand up and maintain sandbox/testing environments.
  • Manage and scheduling operating system updates.

The additional costs to deploy and manage these capabilities may lead to high costs and a great total cost of ownership.

Benefits of dynamics hosting

The main benefits of deploying your Dynamics 365 solution on-premises are as follows:

  • Storage options are fixed and therefore no need to worry about rising dynamics storage costs later
  • More control over your data
  • More control over your ability to comply with local legislation
  • Perpetual licenses i.e. one-off upfront cost each user rather than a subscription

Drawbacks of dynamics hosting

The main drawbacks to deploying your Dynamics 365 solution on-premises are as follows:

  • More expensive to maintain infrastructure and higher total cost of ownership
  • Cost and effort to set up is higher due to needing the local infrastructure and configuring the solution onto the on-premises server
  • Updates need to be carried out and managed internally
  • Certain features are not included e.g. advanced analytics and Azure machine learning

Microsoft Dynamics 365 Online Hosting


Cloud deployments of Dynamics 365 provide a service that is easy to scale up or down as required as well as having your business data reside in data centres that are fully managed by Microsoft (Microsoft Azure). The time spent implementing your Dynamics 365 solution can be significantly reduced as few customisations may be required and there’s no need to worry about the additional costs of hardware and infrastructure as this is included in your licence fee.

Cloud deployments provide high availability, disaster recovery mechanisms, sandbox environment, and application lifecycle management combined with cloud-based systems for intelligence, infrastructure, compute and database services. Furthermore, you will benefit from automotive feature updates, bug fixes and security patches as they are released with no additional hardware costs enabling your users to be at the very forefront of the latest technology tools.

Managing updates

Although less effort is required to manage updates when hosting Dynamics 365 online, customers should still be aware that there are regular updates to the software which needs to be considered (Dynamics 365 updates are twice a year, occurring in April and October). Microsoft will push new features into preview months before general availability which allows customers to test out the new functionality before it is forcefully turned on for all environments globally and by each data centre region. If your Dynamics environment has been heavily customised, these features should be suitably tested to ensure that your organisation is not affected when general availability push occurs.


Therefore, updates mean that organisations operating with cloud deployments need to:

  • Be aware of the Dynamics 365 release schedule and early access details
  • Turn on preview and test these new features
  • Roll the new functionality out to the users with a suitable training plan
  • Evaluate current workflows and processes to see if new technology can be leveraged to improve these.

Benefits of dynamics hosting

The main benefits of deploying your Dynamics 365 solution in the cloud are as follows:

  • High availability and disaster recovery included
  • Built-in security around data for local, national and international
  • Sandbox environments available
  • Access to advanced analytics and Azure machine learning
  • Maintenance of servers/data centres outsourced, and no necessary skills needed inhouse


The main drawbacks to deploying your Dynamics 365 solution in the cloud are as follows:

  • Less control over your data as it is hosted by Microsoft
  • Recursive licence costs which will increase gradually over time (but aligned with the software capabilities)
  • Updates automatically pushed by Microsoft meaning testing needs to be properly managed and performed in-house


Choosing between on-premises vs cloud used to be a harder decision 10 years ago, when cloud internet infrastructure was less advanced, less secure and more expensive. But since then, the technology has come much further, and the security of personal and corporate data has drastically improved and is likely much better than that of using your own, on-premises option. These factors, alongside a consistent reduction is storage costs has driven huge growth in popularity of the cloud and it has driven wide expansion of cloud infrastructure globally by the likes of tech giants such as Microsoft, Amazon, Apple and more…

As a result of this improvement, there appears to have been a shift in opinion from corporations and organisations that now certainly consider the cloud to be a perfectly feasible, and often better option than on-premises.

It now seems more logical to opt for the cloud hosting whereby total lifetime cost and effort is greatly decreased. But when considering where to host your Dynamics 365, it’s really down to your unique situation. Factors such as your geographical location, the nature of your business, the sensitivity of your business data and the legislation around the data needs to be respected and evaluated before making a decision. But in general, the majority of organisations who use Dynamics 365, will have a better experience by opting for a cloud deployment.

More security features and facts can be found here.

The table below highlights the important differences of both Microsoft Dynamics 365 Online and Microsoft Dynamics 365 On-Premise to assist you in making the correct choice for your business.

If you are interested in finding out more about Microsoft Dynamics 365 please get in touch and once of our Dynamics 365 consultants can discuss your needs and arrange a demo.

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to hear from you_

Our specialist team of consultants look forward to discussing your requirements in more detail and we have three easy ways to get in touch.

Call us: 03454504600
Complete our contact form
Live chat now: Via the pop up