On-premises computing vs. cloud-based computing services: Service quality, sustainability, and cost efficiency for small- and medium-scale enterprises in Ethiopia

Abstract

This study investigates the decision-making challenges faced by Ethiopian small and medium-sized enterprises (SMEs) when selecting between on-premises and cloud-based computing solutions, focusing on the trade-offs among service quality, environmental sustainability, and cost efficiency. A multi-method research design was employed, integrating a survey of 184 Ethiopian SMEs, analysis of secondary data, and energy consumption simulations using the CloudSim toolkit. The results indicate that cloud computing substantially improves energy performance, reducing power consumption by approximately 76%–88% across server configurations while providing enhanced scalability, flexibility, and cost predictability. However, the environmental benefits of cloud adoption depend critically on data centre operational practices and the degree of renewable energy integration. Cost analysis shows that cloud services significantly lower initial capital expenditure (CAPEx), whereas on-premises deployments may remain more economical in stable-demand contexts in which infrastructure is already available. The study further identifies key barriers influencing SME IT infrastructure choices, including affordability constraints (90% report high costs for licensed software and hardware), maintenance challenges (78%), noncompliance with energy efficiency standards (83%), inadequate security capabilities (71%), and insufficient infrastructure performance (70%). This study recommends a strategic hybrid IT infrastructure model to balance operational requirements with sustainability and cost objectives. The primary contribution is a contextualized, evidence-based decision framework that supports Ethiopian SMEs in selecting cost-effective and environmentally sustainable computing architectures that are aligned with local constraints and opportunities.