The IBM i cloud hosting decision has always been complicated by the difficulty of comparing like with like. On-premises costs are spread across multiple budget lines — hardware capital, maintenance contracts, power and cooling, facilities, and staff time — in ways that make the true cost easy to understate. Cloud hosting presents as a single monthly line item that feels expensive by comparison.
We’ve done detailed TCO modeling across 12 client environments over the past two years. The results are consistent enough to be useful as benchmarks, with the important caveat that every environment is different.
The Full On-Premises Cost Model
A complete on-premises TCO for IBM i over a five-year horizon needs to include:
- Hardware acquisition or refresh — Power10 server pricing starts around $80,000 for entry-level configurations; fully-specced midrange systems run $250,000–$500,000+
- Annual hardware maintenance — typically 10–15% of hardware list price per year after warranty expiration
- OS and software licensing — IBM i license fees vary by processor tier and activated feature set
- Storage — SAN or internal storage with appropriate redundancy adds $20,000–$80,000 depending on capacity
- Power and cooling — fully-loaded Power servers consume 3–8 kW; at average commercial rates, that’s $3,000–$8,000 annually
- Disaster recovery — achieving enterprise-grade DR on-premises (4-hour RTO, 1-hour RPO) requires a secondary system that nearly doubles the hardware investment
- Staff time — someone manages the hardware, applies PTFs, monitors the system, and responds to incidents. For most mid-market shops, this is 0.3–0.5 FTE of IBM i administrator time
The number most companies get wrong: The DR cost. Most on-premises environments have inadequate DR — a tape backup with a 24–48 hour RTO. Achieving genuine enterprise-grade DR on-premises requires a secondary system that is rarely budgeted accurately at the outset.
What Managed Cloud Hosting Includes
A well-structured IBM i managed hosting contract from a provider like Paragon typically includes: dedicated IBM Power partition sized to your workload, IBM i OS licensing, enterprise SAN storage with redundant paths, 24/7 infrastructure monitoring and incident response, OS PTF management on a defined schedule, offsite backup with defined retention, and network connectivity with defined SLAs. Optional HA/DR with defined RTO/RPO is available at a modest premium over base hosting.
What the Numbers Show
Across the 12 environments we analyzed, the five-year TCO comparison showed consistent patterns:
- Shops running Power8 hardware (due for replacement): cloud hosting TCO ran 28–35% lower than a like-for-like on-premises refresh, primarily because capital avoidance is large relative to total cost
- Shops running Power9 hardware (mid-lifecycle): cloud hosting TCO ran 12–22% lower, with the gap driven primarily by DR cost and staff time savings
- Shops running Power10 hardware (recently refreshed): cloud hosting TCO was roughly equivalent, with the decision driven by operational preferences and risk tolerance rather than pure cost
The hidden costs on the on-premises side — particularly DR and staff time — consistently make cloud hosting look more competitive than the sticker price comparison suggests.
Beyond Cost: The Operational Case
Hardware Generation Access
Cloud hosting providers refresh hardware on a regular cycle. Clients on managed hosting typically run on a newer hardware generation than they would if making independent capital decisions — which means better performance and longer OS support windows.
Incident Response Coverage
When a disk fails or a network issue emerges at 2am, a hosting provider with 24/7 NOC coverage responds in minutes. An internal team responds when someone answers their phone. For operations with overnight batch processing or around-the-clock EDI activity, that difference is material.
Capacity Flexibility
On-premises hardware is sized for peak load with headroom. Cloud partitions can be resized — often with a phone call — when workload requirements change. That flexibility has real value in environments with seasonal peaks or significant growth plans.
When On-Premises Still Wins
The case for keeping IBM i on-premises remains strongest when you have recently refreshed to Power10 with a long depreciation horizon, when data handling requirements create genuine barriers to third-party hosting, or when your internal IBM i expertise is deep and staff cost is already allocated to other value-adding work. Outside these scenarios, managed cloud hosting is consistently the more economical choice over a five-year horizon.
Ready to Model Your Own TCO?
Share your current environment details — hardware model, core count, storage, and DR requirements — and Paragon will build a detailed side-by-side comparison for your specific situation.
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