The popularity of private cloud is growing, primarily driven by the need for greater data security. Across industries like education, retail and government, organizations are choosing private cloud settings to conduct business use cases involving workloads with sensitive information and to comply with data privacy and compliance needs.

In a report from Technavio (link resides outside ibm.com), the private cloud services market size is estimated to grow at a CAGR of 26.71% between 2023 and 2028, and it is forecast to increase by USD 619.08 billion.

The need for private cloud settings is also closely linked to a hybrid cloud approach—the integration of on-premises, private cloud and public cloud into a single, flexible IT infrastructure—which is an essential part of the enterprise-business digital transformation journey. According to the IBM Transformation Index: State of Cloud report, 71% of business executives surveyed agree it’s challenging to realize the full potential of a digital transformation without a solid hybrid cloud strategy. 

To determine how a private cloud can bring business value to their organization, business and IT leaders need to review its advantages and disadvantages.

Before we examine the pros and cons of a private cloud, here’s a rundown of its essential features and basic cloud architecture components.

A private cloud is a cloud computing environment where all resources are isolated and operated exclusively for one organization. It may be hosted in-house within a company’s physical location, in an off-site data center on infrastructure owned or rented by a third party, or in a public cloud service provider’s (CSP’s) infrastructure in one of their data centers.

Private cloud combines the main benefits of cloud computing—chiefly on-demand access to computing resources (e.g., cloud servers, data storage, networking capabilities, automation, software, data analytic tools)—with the security and control of on-premises IT infrastructure.

An organization can maintain sole responsibility for operating a private cloud, including its maintenance and overall management. Most companies, however, choose to outsource some or all of their private cloud management to a third-party provider like Amazon Web Services (AWS), Google Cloud, IBM Cloud or Microsoft Azure.

There are four main types of private clouds from which to choose:

1. On-premises private cloud: An on-premises private cloud is hosted within a company’s on-site data center and managed by its IT team. In an on-premises private cloud, an organization is responsible for buying and maintaining all hardware, software, security features, other infrastructure and so forth.

2. Virtual private cloud: A virtual private cloud (VPC) provides an isolated private-cloud environment within a public cloud. A VPC allows organizations to run code, host websites, and more in a secure setting with shared CSP resources.

3. Hosted private cloud (also referred to as private cloud hosting): A hosted private cloud is run off-premises on a CSP’s servers. It differs from a VPC in that it is an environment with dedicated servers (also called bare metal servers) used by a single organization. In a hosted private cloud, the cloud provider owns and manages resources like cloud storage maintenance, upgrades and security management tools.

4. Managed private cloud: A managed private cloud consists of physical hardware usually hosted in a service provider’s data center. However, CSPs also offer management services for private cloud infrastructure hosted in an enterprise’s data center. In this setting, the CSP carries out maintenance, upgrades, support and management.

In addition to private cloud computing, there are two other main cloud computing models: private cloud and hybrid cloud.

In a public cloud setting, IT infrastructure is offered as virtual resources over the internet on a pay-per-use or subscription-based pricing model. The public cloud provider owns, manages and assumes all responsibility for the data centers, hardware and infrastructure on which its customers’ workloads run, providing high-bandwidth network connectivity to ensure high performance and rapid access to applications and data.

Unlike the single-tenant architecture of a private cloud, a public cloud provides a multi-tenant setting that enables multiple clouds to efficiently share scalable computing resources (e.g., hardware, storage, networking devices) accessed through a user-friendly interface.

In a public cloud, each tenant’s data is logically separated and isolated from data related to other tenants. In comparison, private clouds offer a heightened layer of cloud security through network firewalls, access controls, data encryption and authentication methods like identity and access management (IAM) tools. 

Today, most large enterprise businesses choose a hybrid cloud approach that combines on-premises, private cloud, public cloud and edge settings. Today enterprise organizations merge hybrid cloud with multicloud—the use of services from more than one cloud provider to avoid vendor lock-in and select best-in-class offerings from different cloud vendors.

For a more in-depth look at these types of cloud deployment models, read our blog post, “Private cloud vs. public cloud vs. hybrid cloud: What’s the difference?”

Public cloud, private cloud and hybrid cloud all rely on virtualization technology, which is at the heart of cloud computing and enterprise IT architecture. 

Virtualization uses software called a hypervisor to create an abstraction layer over computer hardware, enabling the division of a single computer’s hardware components—such as processors, memory and storage—into multiple virtual machines (VMs).

In public cloud, private cloud and hybrid cloud settings, automation tools run on top of virtual environments and perform tasks like container orchestration with Kubernetes, the provisioning of resources for workload deployments and updates, performance monitoring, disaster recovery and more. Administrators control and manage their IT infrastructure using management software tools like APIs.

Private, public and hybrid clouds can all run the following cloud computing services:

IaaS, or Infrastructure-as-a-Service, is on-demand access to cloud-hosted IT infrastructure for running applications and workloads in the cloud. IaaS allows organizations to scale and shrink infrastructure resources as needed, providing the capacity to handle spiky workloads. 

PaaS, or Platform-as-a-Service, is on-demand access to a full-service cloud platform for developing, running and managing applications without the cost, complexity and inflexibility that often come with building and maintaining that platform on-premises.

SaaS, or Software-as-a-Service, is on-demand access to ready-to-use software apps (e.g., Adobe Creative Suite, Slack). SaaS offloads all software development and infrastructure management to the cloud service provider, including maintaining the server hardware and software, managing user access and security, storing and managing data, implementing upgrades and more.

A private cloud offers organizations a range of business advantages, including the following:

1. Control: A private cloud offers an organization full control over its environment, including choices regarding hardware, software apps and different levels of security, while also providing many benefits of cloud computing (e.g., on-demand access to cloud resources, elasticity, scalability and ease of service delivery).
2. Greater control and visibility: A private cloud offers organizations greater control and visibility by storing data and workloads behind private firewalls. 
3. Customization: Private clouds allow businesses to customize their hardware and software as needed. For instance, IT teams can tailor specific data storage and backup needs, boosting overall efficiency and cost-effectiveness.
4. Enhanced security: In general, private clouds are designed with more significant layers of security than public clouds. For instance, private clouds are highly sought after by companies in industries like government and finance where sensitive data like personally identifiable information (PII) must be protected from unauthorized users or bad actors. Private cloud security measures include firewall configurations, virtual private networks (VPNs), data encryption, authorization mechanisms and more to help reduce data breaches or cyberattacks. Private clouds also typically include enhanced physical security measures like surveillance cameras and security personnel.
5. Regulatory compliance: Businesses can tailor a private cloud to meet compliance requirements and regulatory standards. This capability is crucial for highly regulated businesses, as they must adhere to data privacy and data sovereignty laws like the General Data Protection Regulation (GDPR) for companies operating in the EU and the Health Insurance Portability and Accountability Act (HIPAA) (link resides outside ibm.com) for healthcare in the US.
6. Predictable, stable costs: Private cloud costs are generally steady and predictable since resources are allocated to meet specific needs, which can translate into cost savings. This is in comparison to public cloud costs, which can be unpredictable based on usage, new services, data egress fees and more.
7. Improved performance: When resources are in high demand, problems like outages, downtime or bottlenecks can occur. A private cloud can optimize performance by isolating workloads on dedicated servers. This capability eliminates “noisy neighbor” issues like latency and other performance interference that can occur in multi-tenant public cloud environments. 
8. Modernizing legacy applications: The control provided by a private cloud enables more seamless integration of existing systems. For instance, a private cloud supports application modernization, the transformation of monolithic legacy applications into cloud applications built on microservices architecture, which supports DevOps methodologies.

While private cloud has many advantages, particularly for organizations that seek heightened control and security measures, it does have some disadvantages that are important to consider:

1. High initial costs and setup: Private clouds come with high startup (initial Capex) expenses related to building, operating and managing on-premises hardware and infrastructure. Moreover, private cloud deployments require high levels of technical expertise. This disadvantage requires organizations to train or hire more IT staff for building, operating and managing private cloud infrastructure.
2. Complex, ongoing maintenance: A private cloud can be difficult for organizations to maintain on its own due to tasks like performance monitoring, software patching and planning updates. Thus, many organizations opt for a certain level of private cloud-managed services from a CSP to carry out smooth operational maintenance and reduce maintenance costs.
3. Lower scalability: Because private clouds are restricted by a limited amount of on-premises resources, they are usually less scalable than public clouds, which offer practically unlimited scalability. Scaling up in a private cloud requires the purchase of more and more hardware and software. However, this disadvantage can be overcome in a hybrid cloud setting through cloud bursting—the scaling of public cloud resources to run workloads when on-premises or private cloud data resources reach peak capacity. 
4. Limited mobile access: Because of its multiple security features, a private cloud can limit mobile user access, which can be a drawback for organizations seeking this capability.

As a leader in hybrid multicloud solutions, IBM is helping clients optimize private cloud solutions to meet their business needs, whether that means leveraging technologies like generative AI to help automate IT, modernizing applications for improved ROI, or building cloud-native applications and managing them at scale.

IBM Power Private Cloud Edition provides cost-effective bundles of compelling software offerings that enable seamless deployment and management of private clouds, simplify security and compliance management, and ensure high availability.