Cloud or on-premise? A Dynamics 365 deployment FAQ


Clouds and sunrise representing 365 deployment options

Deciding on a new business software can be an arduous journey.

If you’ve landed on Dynamics 365 as the best option for your organization, you’ve come a long way already, but you’ve still got a major decision left to make; how to deploy it.

Dynamics 365 users have a number of choices when it comes to hosting their new solution. Initially intended to be cloud-only, Microsoft backtracked when it realized that demand for a locally hosted software was still high, and the suite is now offered via multiple means of deployment.

How you choose to host your Dynamics 365 solution can significantly impact your business, dictating factors such as the features and services that are available to you, how and when you can access your software, and who is responsible for keeping your data safe.

Over 80% of the customers who have implemented Dynamics 365 since its launch in late 2016 have opted to deploy via the cloud, but that’s by no means the only path available.

Here, we’ll take a closer look at the different ways you can host your new business software system, the benefits and shortcomings of each option, and address some of the most common questions about Dynamics 365 deployment.

What are my options?

No matter which apps you choose, whether you license them individually or as part of a plan, or how many users you have, if you decide to use Dynamics 365, you’ll have three options when it comes to how you host and access your software.

Dynamics 365 in the cloud

Option number one, and the most popular choice for Dynamics 365 users, is deploying in the cloud. Cloud-based instances of Dynamics 365 are hosted on Azure, Microsoft’s web services platform, which allows programs and services to be built, tested, deployed, and managed from a network of managed data centers located across the globe.

Hosting your software in the cloud essentially means that everything, from the program itself to your data, is stored online. Using the cloud means that you don’t physically own the software you’re using, and it’s not run from your own computer.

Rather than purchasing a copy of the software and installing it on individual devices, you access it through the internet, in the same way that you’d log in to an email service provider website, like Hotmail or Gmail, to access your inbox, and draft and send messages. With a cloud-based instance of Dynamics 365, the software “lives” on Microsoft’s servers, so all you need to use it is an internet connection and a web browser.

As the software is hosted on its own servers, Microsoft is primarily responsible for maintaining all of your software infrastructure from their end. This includes managing security measures, issuing updates, and performing data backups.

Dynamics 365 on-premise

Referred to as Local Business Data by Microsoft, on-premise is the “traditional” way to deploy software. This option allows users to host their Dynamics 365 software either on their own servers, or those of an IT partner.

Hosting on-premise means businesses keep all their data in-house; all communication with the cloud is switched off, and users are solely responsible for all upkeep and maintenance of the software.

Dynamics 365 hybrid deployment

Also known as Cloud and Edge, hybrid Dynamics 365 deployments are a little from column A, and a little from column B.

Though fully integrated with the Microsoft cloud, transactions and data are stored locally on the users’ own data center. This means users gain access to cloud-based services such as machine learning, business intelligence, and development sandboxes, but their data remains separate.

What are the benefits of Dynamics 365 in the cloud?

Using a cloud-hosted instance of Dynamics 365 opens a lot of doors to new features and services

No infrastructure to maintain

Hosting your Dynamics 365 software in the cloud means you don’t need to spend time and money managing your in-house servers and hardware. All you need to access your solution is an internet connection; there’s nothing to install on individual machines.

With cloud deployment, you don’t need to worry about hardware issues, or data loss or corruption, as the infrastructure supporting your software is all hosted off-site in a secure location.

Business intelligence and machine learning

Users who employ the SaaS model of Dynamics 365 can access expansive and continually evolving business intelligence tools. The cloud not only stores and processes your data, but it also learns from it. Microsoft has invested enormously in machine learning in recent years, and cloud users are beginning to reap the benefits.

Dynamics 365 offers a real-time, 360-degree view of performance, and can help visualize business data using intuitive, customizable reports and dashboards.

By connecting to the brainpower of the cloud, Dynamics 365 customers can engage with a wide range of intelligence tools, including PowerBI, Microsoft’s robust reporting and analytical platform, as well as data-driven next step guidance and digital assistant services.

High availability and disaster recovery

With a financially backed, 99.9% uptime guarantee, you can also be safe in the knowledge that Microsoft have you covered should any kind of disaster recovery be necessary.

In the event your services are interrupted, Dynamics 365 includes some of the most robust disaster recovery features on the business application market. Built to help organizations bounce back from both planned and unexpected service outages, Microsoft’s recovery protocols include keeping a synchronized, duplicate copy of a company’s data on a second server, allowing users to continue their operations with minimal disruption.

This recovery procedure is executed either through network load balancing, which evenly channels traffic through multiple servers, and redistributes the load should a server be compromised. Backup servers can also be employed to ensure operations continue should the primary server fail. Dynamics 365 offers SQL mirroring, in which a copy of your database is hosted on an alternative server that can be brought online in the event of a disaster.

Data backups

Backing up data should be second nature to all businesses, but it’s one of those tasks that often gets pushed down the agenda. Cloud deployment gives users peace of mind by not only removing the need to safeguard their own servers, but also automatically backing up data, so no information will ever slip through the cracks.

Tight integration with other cloud products

The cloud’s interconnected nature allows Dynamics 365 to work closely with other cloud-based products, particularly those within Microsoft’s productivity suite.

Not only does Dynamics 365 in the cloud integrate seamlessly with PowerBI, as we mentioned earlier, but it also cooperates with other popular services such as Office 365, SharePoint, and Outlook.

Being able to connect your Word, Excel, and email data to Dynamics 365 helps build a fuller picture of your business, and increases productivity by breaking down barriers between the programs you use every day.

Dynamics 365’s tight integration means you can track emails, view contact information and history, and create new records directly from Outlook, edit Excel and Word files in the Dynamics interface, and use OneNote to take meeting notes and attach them to Dynamics records.

Access to add-ons through AppSource

If you need to integrate your Dynamics 365 system with any other programs or service you use, or want to find a way to add extra functionality not native to the solution, there’s AppSource.

AppSource is Microsoft’s online store for third-party bolt-ons and integrations. Microsoft cloud service users can visit AppSource to purchase apps that help their software do more. If you want to connect MailChimp to Dynamics 365, add maps, enable speech-to-text functions, there’s an app for that. There are currently over 500 apps and add-ons available to Dynamics 365 users, with more added every day.

These apps can be added to Dynamics 365 in an instant, with no coding or customization necessary. With AppSource, Dynamics 365 cloud users have almost limitless opportunity to modify and extend the functionality of their solution, without having to involve developers or ISVs.

Fast implementation

Like all SaaS platforms, with Dynamics 365 in the cloud, you’re consuming a service rather than installing a product. Without the need to install the software on individual machines, configuring and deploying Dynamics 365 in the cloud is much faster than a traditional implementation.

The solution utilizes point-and-click setup wizards so that users can get up and running quickly. Of course, the more businesses want to modify the service, and the further away from the turnkey, “out of the cloud” iteration they move, the more complicated implementation will become. However, deploying in the cloud is still considerably simpler than rolling out software on-premise.


Cloud users can scale the size and scope of their Dynamics 365 solution up or down at any time. With on-premise software, facilitating business growth often means investment in new servers and processors to cope with increased demand.

With cloud-based software, customers are paying for the ability to use the software, and not the computing power or space to run it, so adding or removing users, or even apps, is as simple as issuing a service request.

Dynamics 365 is as large or as small as you need it to be, and will flex to your current situation and requirements.

Always up to date

Users of Dynamics 365 in the cloud receive updates sooner, and more often, than on-premise users; in fact, many features and updates included in the cloud version are never extended to on-premise.

Platform updates are issued every three months, with application updates every six. Cloud users have the choice of whether or not to accept these updates, and can test them in their development sandbox instance to ensure compatibility before implementing them.

This little-and-often approach means users are always at the forefront of any new developments with the software, and negates the need for time-consuming installations of new product versions.


For the past few years, Microsoft’s motto has been “cloud first, mobile first” and that’s unlikely to change anytime soon. When it comes to business applications, Microsoft’s focus is most definitely on Dynamics 365 in the cloud.

By getting on board with Dynamics 365 online, users put themselves in position to utilize the cutting-edge developments being worked on by the Dynamics 365 team. Cloud users will be at the front of the line when it comes to getting more from their CRM and ERP solutions, putting them at a competitive advantage in their markets.

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What are the drawbacks of Dynamics 365 in the cloud?

While there are a huge number of advantages to deploying Dynamics 365 in the cloud, no two businesses are the same, and what works for one will not necessarily work for another. Deployment in the cloud may not be an ideal option for all businesses; here are a few things to take into account when mulling over your deployment options:


With your software hosted off-site on someone else’s servers, you’re reliant on having a fast and dependable internet connection to access it. The quality of your internet connection can be dependent on many factors, from the plan and service provider to your geographic location. If you’re thinking about using Dynamics 365 in the cloud, make sure you’re connection can support it.

Data regulation restrictions

Due to regional data regulations, storing critical business and customer data in the cloud may not be viable to some companies. Though Dynamics 365 features many tools to help users meet local compliance standards, for businesses in individual countries or industries, public cloud deployment might not be an option at this time.

Storage costs

Though cloud storage is arguably more cost-effective than shelling out for new hardware when you need more space for your data, there are additional costs to consider when it comes to storage. If you’re storing your data in the cloud, you’re essentially renting space on your cloud service provider’s server. If you need additional room, you’ll need to pay for it.

What are the benefits of using Dynamics 365 on-premise?

For all advantages that come with Dynamics 365 in the cloud, some businesses may still prefer to implement on-premise.

It could be that they don’t feel that they’re ready to make a move to the cloud, or that they’ve recently invested in new hardware. Perhaps, due to the nature of their business or local data regulation, they’re not able to host their data off-site. Or maybe they just don’t have access to a stable enough internet connection to be able to utilize cloud services.

Here are a few things to take into account when mulling over your deployment options:

Use of own infrastructure

Some businesses that have already invested significantly in their infrastructure and hardware will be able to utilize these investments to run their software, rather than rendering them obsolete by using SaaS platforms.

Untethered by internet service

On-premise implementation means that businesses aren’t dependant on a reliable internet connection to be able to use their software. There are many places in the world where organizations do not have access to stable internet services, and deploying offline reassures users that they’ll still be able to access their solution should they experience connectivity issues.

Complete ownership of data

With data stored on-site, businesses have full control over how and where they store their data.

Full control over updates

Although Dynamics 365 cloud users can choose whether or not to implement product updates, certain updates will be mandatory, and users must implement them whether they want them or not. With an on-premise solution, users have greater control over whether, and when, to apply upgrades.

No data storage costs

Housing your data locally means you won’t incur increasing storage costs as your business and its database grows. However, this factor could be a double-edged sword for firms that do not already have the hardware in place to facilitate future expansion, as they will have to purchase new servers.

What are the drawbacks of using Dynamics 365 on-premise?

No access to cloud-based services and features

Certain features and services available with Dynamics 365 use the public cloud to function, and therefore are not available to on-premise users. Features that Dynamics 365 on-premise users miss out on include:

Machine learning and AI

Machine learning services help you spot patterns and predict trends by analyzing your data at a speed and depth that would be impossible for human users. By getting to grips with your business information and processes, Dynamics 365’s Azure-powered machine learning tools can offer suggestions and actionable next steps, helping you stay ahead of the curve.

Machine learning is being implemented more and more by businesses of all sizes, so organizations not utilizing AI in their processes are likely to fall behind sooner or later.


Without integration with Microsoft’s cloud services, on-premise users are not able to access business intelligence services such as PowerBI. Although Dynamics 365 does have native reporting services, users cannot utilize PowerBI’s robust and perceptive analytical tools.

Flow and PowerApps

Other cloud-integrated services that on-premise users miss out on include PowerApps, a drag-and-drop app builder which Citizen Developers can use to create mobile solutions, and Flow, a workflow creator that integrates apps and services with Dynamics 365 to automate repetitive tasks.

Web portals

Dynamics 365 in the cloud natively includes the ability to build and manage self-service web portals. These portals, which can be made available to customers, partners, or employees for a wide range of purposes, are not included in the cost of Dynamics 365 on-premise, and must be purchased separately.

Learning Paths

Cloud users can build guided learning paths, to help users navigate the Dynamics 365 system. These routes can be customized depending on the role of the user, and can massively boost user adoption and productivity. Learning paths are not available to offline users.

Voice of the Customer surveys

This integrated survey platform allows users to create and distribute questionnaires to customers, collect and analyze customer opinions and ratings, and helps businesses offer better service. Voice of the Customer surveys is not available on-premise.


Dynamics 365’s gamification service allows organizations to set up fantasy sport-style games and competitions, analyze performance, and reward individuals and teams based on pre-defined KPIs. Gamification can help increase engagement, encourage solution adoption, and motivate employees to be more productive.

No access to data support

Running Dynamics 365 on internal servers means that the customer is exclusively responsible for its upkeep, and must have their own security, backup, and disaster recovery procedures in place to protect their data and operations.

Back of the line for new developments

Due to the frequent updates made to Dynamics 365 in the cloud, online users will always receive the latest features, fixes, and updates long before they are applied to on-premise versions, if they are made available offline at all.

Investing in outdated technology

Microsoft has made it clear that the future of their business applications is in the cloud. If users want to be able to keep up with developments and remain competitive, a move to the cloud is inevitable. Implementing Dynamics 365 on-premise ultimately puts organizations at a disadvantage when it comes to the tools they can access, and the services they can offer their customers.

The upside to this, however, is that Microsoft has processes in place to make migrating to the cloud fast and straightforward when customers are ready to make the switch.

What are the benefits of using Dynamics 365 hybrid deployment?

If neither online or offline deployment ticks all the boxes, businesses can consider hybrid deployment, which in theory encompasses the advantages of both cloud and on-premise implementation.

Cloud services included

Cloud and Edge deployment isn’t exactly a 50/50 split between online and offline implementation, and is run mainly from the cloud. This means that hybrid users can enjoy all of the benefits and services offered by Dynamics 365 cloud deployment.

Locally stored data

With Cloud and Edge, transactions are supported by local application services, and business data is hosted in-house, with the option to sync it to the cloud. For this reason, Cloud and Edge deployment is an option for those businesses who need to have full, localized their business data for compliance purposes, but still want to be able to utilize all that the cloud provides.

Business continuity

The ability to use the system offline can be useful to industries in which business continuity is especially important, such as retail or manufacturing. Cloud and Edge deployment allows customers to run their Point of Sale operations regardless of connectivity, so that users can capture data and perform transactions whatever their internet status. Any data obtained offline can later be synced to the cloud for business intelligence or reporting purposes at a later date.

Shared data trusteeship

In the hybrid deployment scenario, both Microsoft and the customer are responsible for safeguarding Dynamics 365 data, meaning users can take advantage of the strong security and disaster recovery services on offer to cloud users.

What are the drawbacks of using Dynamics 365 hybrid deployment?

Both Microsoft and the customer being joint-data trustees can be a hindrance as well as a help. With cloud data syncing left to the user’s discretion, any data hosted locally on internal servers, and not backed up, can be vulnerable to loss or corruption.

If I deploy in the cloud, can I still customize Dynamics 365?

You can still customize a cloud-based version of Dynamics 365. Many aspects of the interface can be tailored to specific user needs, including forms, fields, views, dashboards, and processes, as well as colors and branding.

In addition to being able to expand and modify functionality with add-ons and extensions, users can also create their own tailored apps and workflows with PowerApps and Microsoft Flow.

How does storage work with cloud deployment?

With cloud deployment, no data is stored on your local business hardware; all your business information is housed on off-site servers. If you’re deploying entirely in the cloud, then your data will be stored either in one of Microsoft’s data centers, or if you opt to use a private cloud,  on the servers of your chosen Microsoft partner.

Though ostensibly cheaper than purchasing and maintaining your own servers, hosting your data in the cloud isn’t free. You’re effectively hiring out someone else’s server, and naturally, cloud service providers will charge you for the privilege.

Luckily for Dynamics 365 users, Microsoft’s cloud storage allowances are some of the most generous of all the major CSPs. Each Dynamics 365 license includes 10GB of cloud storage, with an additional 5GB added for every 20 licenses purchased. For example, if you bought 80 licenses, you’d have 820GB (800GB + an extra 20GB) of storage at your disposal. There is no cap on the amount of additional per-user storage.

If you find yourself outgrowing your storage quota, you can acquire extra space at a cost of $50 per month for every additional 10GB.

Where will my cloud data be stored?

Microsoft owns and operates data centers around the world. Users can use an interactive map to determine where their data will be stored depending on which services they’re using, and where their business is located.

For example, a business based in the United States using Dynamics 365 for Project Service Automation would have their data stored in either Microsoft’s San Jose, CA, or Boydton, VA data centers.

Dynamics 365 users in Europe will have their data stored in data centers in Ireland, and the Netherlands. Microsoft’s data centers are regulated by EU data protection law.

If it becomes necessary for Microsoft to expand or relocate data outside of your geographical region, system administrators will be notified one month in advance of the move.

Will my data be safe in the cloud?

There are still a lot of common misconceptions surrounding cloud security, but the reality is that your data is almost certainly safer in the hands of a leading tech company, which invests over $1 billion every year in security and privacy measures, than on your own servers.

Dynamics 365 employs multiple security features to ensure the safety of your business data. All connections made between users and data centers are encrypted. Public endpoints are secured with Transport Layer Security.

Any unauthorized traffic attempting to access Dynamics 365 is blocked at the data centers, which are tested, validated, and updated continuously to ensure there are no cracks through which suspicious users can access your software. Microsoft’s high-end anti-malware software detects and protects against cyber threats or intrusions.

At the users’ side, role-based security is in place to manage access and activity within the software, with users granted only permissions that are necessary for their particular job role. This guarantees that users are not able to access any data or processes that the administration has not deemed essential to carrying out their duties, and restricts the viewing of critical business data to those with the appropriate clearance.

Will I still have control over my Dynamics 365 data in the cloud?

No matter where your data is stored, you remain the sole owner of your data. If you choose to deploy in the cloud, Microsoft will be the data trustee, tasked with safeguarding your information, but that data is still yours.

Microsoft does not mine your data or use it for anything other maintaining and providing your Dynamics 365 service. If you choose to terminate your Dynamics 365 subscription, you can take your data with you. Legacy data is available for 90 days after a subscription is canceled. During that time, users can either download their data to their own servers, or transfer it to a new cloud service provider.

During that time, users can either download their data to their own servers, or transfer it to a new cloud service provider. Dynamics 365 automatically backs up your data on a daily basis. These backups are kept for three days, unless you choose to save them. You can also request a physical backup of your Dynamics 365 data from Microsoft if you require it.

Which browsers can I use to access Dynamics 365?

Dynamics 365’s native HTML5 browser-based user interface can run on any device, including PCs, tablets, and phones, and on both Windows and Mac.

The platform supports a number of the most popular browsers. Including Internet Explorer, Edge, Chrome, Safari, and Firefox. It should be noted however that full copy and paste functions are not yet supported in Firefox and Chrome.

For an improved user experience when accessing the system on mobile or tablet, Dynamics 365 apps are available for iPad and Windows 8.

What are the hardware requirements for implementing Dynamics 365 on-premise?

Microsoft recommends that your hardware meets the following requirements to run Dynamics 365 on-premise efficiently:

Processor — x64 architecture or compatible dual-core 1.5 GHz processor minimum. Quad-core x64 architecture 2 GHz CPU or higher such as AMD Opteron or Intel Xeon systems recommended.

Memory — 4-GB RAM minimum, 8-GB RAM or more recommended.

Hard disk — 10 GB of available hard disk space minimum, 40 GB or more of available hard disk space recommended.

Is Dynamics 365 on-premise pricing different to cloud pricing?

The licensing model for Dynamics 365 is designed to give users as much flexibility and value for money as possible. To that end, there are a number of ways to license the product, depending on the needs of your organization.

The most cost-effective option is to purchase one of the three available plans, which bundle apps together to give users access to a range of functionality at a discounted rate.

For those looking for a full business software package, including both ERP and CRM apps, there’s the Dynamics 365 Plan, which features all the applications the suite has to offer.

The Unified Operations Plan features only the ERP-aligned modules, and the Customer Engagement Plan gets you just the CRM apps.

Users can also build their own plans by purchasing apps separately. It should be noted, however, that Dynamics 365 for Finance and Operations, the suite’s flagship ERP app, is not available to license as a standalone module, and must be obtained as part of a plan.

Plan Price Modules included
Dynamics 365 Plan Full user — $210 /user/month


Additional Users:

  • Team Members — $8 /user/month
  • Operations Activity — $50 /user/month
  • Operations Devices — $75 /device/month
Finance and Operations




Customer Service

Project Service Automation

Field Service

Social Engagement

Relationship Sales  


Unified Operations Plan Full user from $190 /user/month


Additional Users:

  • Team Members — $8 Per user/month
  • Operations Activity — $50 Per user/month
  • Operations Devices — $75 Per device/month
Finance and Operations




Customer Engagement Plan Full user — $115 /user/month

Additional Users:

  • Team Members — $8 /user/month

Customer Service

Project Service Automation

Field Service

Social Engagement

Relationship Sales


Businesses wishing to deploy Dynamics 365 on-premise, there are additional costs to consider. To run Dynamics 365 from their own data centers, on-premise users will also need to purchase a license for each of their servers.

Customers wanting to deploy on-premise through the Local Business Data option have a second choice when it comes to licensing. As well as having the standard monthly subscription model available, offline users can also purchase the solution through a Software Assurance plan.

Microsoft’s Software Assurance program is a volume licensing scheme that enables Dynamics 365 users to take advantage of additional benefits, training, and support, as well as giving them the right to upgrade their software at no additional cost when new versions become available.

We’ve summed up the key points from this post into a handy infographic:

View infographic

Infographic showing pros and cons of Dynamics 365 deployment options

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