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Microsoft Dynamics 365 ERP Cloud or On-premise comparison

It is a great decision to choose Microsoft Dynamics 365 Finance & Supply Chain management ERP system for any business. However, decisions don‘t end with the choice of the right ERP system. Sequentially, the second big question always pops-up. Which one to choose: MS Dynamics 365 Finance & Supply Chain Management cloud or on-premise? We shortlisted the key advantages and drawbacks of both choices to help you to make a confident decision.  So, let‘s dive in!


First of all, the biggest difference of the cloud version is that there is no infrastructure to maintain. Advantageously, you don‘t need huge initial capital for in-house servers and other hardware. All data is stored and secured in the Microsoft Azure datacenter.

There is no need to separately prepare individual machines for the Dynamics 365 cloud implementation. Hence, the rollout process can be done way faster than on-premise. It also results in impressive scalability. For instance, you can increase or decrease the number of nodes and resources anytime depending on changing business needs.

Noteworthy, you can access your Dynamics 365 cloud system anytime anywhere using whatever device you have. All you need is an internet connection. Such accessibility is an essential feature for every modern business nowadays.

For cloud users, Microsoft ensures high-security standards and guarantees disaster recovery. Your business data is stored in Microsoft Azure data centers. To note, these centers are ISO-27001, Cloud Security Alliance (CSA) and Cloud Computing Matrix (CCM) certified. All your data is encrypted, automatically backed-up. Moreover, it has anti-malware protection, data wiping and much more to ensure that nothing slips through the cracks.

Relieving to know, Microsoft is taking over the updates. So, no customer’s manual work is left to do regarding this topic. In most cases, you will only need to click one button.

Furthermore, Microsoft offers a wide variety of cloud products. You can easily integrate any of them with Dynamics 365 cloud – Power BI, Microsoft 365, SharePoint, Outlook, etc. Cloud users can also visit Microsoft AppSource for system improvements and customized functionalities. AppSource now has hundreds of third-party applications that can be implemented easily.


Internet connection is vital to access Dynamics 365 cloud environment. So, you must make sure to have a good internet provider. Moreover, you have to foresee alternative if unexpected failure happens on the internet provider‘s side.

There is no access to the SQL server. So, this may be disappointing for the companies which desire to control their application data more independently.  

The fact, that data is stored in Microsoft‘s data center, could be a drawback for some companies with strict data regulations. Also, storing critical business and customer data in the cloud may not be viable in some countries.


Often, companies see no need to choose cloud solutions if they have recently invested a lot in their own infrastructure and hardware. So, the on-premise version is a fine solution to employ your investments.

On-premise is a great choice for those willing to have full control over their customers and operations data. As mentioned, some companies follow strict data regulations prohibiting to store data outside the company.

Using the on-premise version, customers can modify and adapt their database tiers for their specific needs. It is particularly advantageous for companies running unusual and unique operations. 

More to that, on-premise users have more control over updates. Upgrades and update rollups are installed by customers administrator.


On-premise deployment requires a huge initial investment. To run this system, customers must build an infrastructure of more than 40 VM servers. Later, it requires a lot of maintenance. Hence, the costs increase.

To add, the bigger the company, the longer the implementation process. That’s because the software deployment will require a lot of manual work and configuration afterward.  Even more, considering this choice is crucial if the company aims to grow internationally. On-premise system rollouts are a lot more exhausting than the cloud ones. 

Moreover, the inability to reach the system online and easily via different devices is a huge drawback nowadays.

Noteworthy, the on-premise system has fewer functionalities than the cloud version. See the full functionality comparison here. Also, integrations with other products are more complicated or even unavailable.


Microsoft highlights that the future of their business applications is in the cloud. Customers shouldn‘t be surprised that Microsoft will be continuously investing more in the development of cloud and less in on-premise.   So probably, the decision to choose on-premise would be a quiet step back.  However, there are some cases when certain companies have no other option just stick to the on-premise version.

We feel glad that we have experience working with a wide variety of different companies. As a seasoned partner, we find it easy to point out the best solutions for anyone – just by looking into their situation. So, if you don‘t feel confident about your choice yet, contact us. We will be glad to help you out.

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