Do you have an aging IBM i environment? Are you weighing hardware renewal against cloud hosting? A pattern we see repeatedly is that the payback period for cloud hosting is usually under two years.
This pattern holds up across small and midmarket IBM i shops. That’s because the cost model around hardware, labor, and risk has shifted faster than most planning cycles. What looks cheaper on paper typically turns out to be the opposite once you factor in lifecycle reality.
The shift began around 2020, when infrastructure costs, skills scarcity, and compliance expectations accelerated. By the time leaders model the full picture, cloud hosting becomes the lighter, safer, and often cheaper path.
This post explains why the payback is so consistent and why organizations routinely underestimate risk and cost. We’ll also cover how to evaluate the numbers without vendor spin.
Why Legacy Cost Models Fail Today’s CIOs
Most comparisons focus on server pricing rather than the broader lifecycle. You’re not buying a standalone box. Everything that wraps around it matters. Consider skills, patching, power, Disaster Recovery, testing, compliance, and time. The box is the easiest part.
What CIOs Rarely Talk About
About three years ago, I sat with a midmarket IT director who had just finished mapping their hardware refresh plan. On paper, the new IBM i hardware looked clean. Reasonable capital number. Predictable maintenance. Straightforward installation. But their admin had a backlog of untested PTFs, their DR runbook lived in an outdated binder, and their board had just tightened recovery requirements.
We ran a simple timeline exercise. Hardware procurement would take weeks. Migration would stretch across two quarters because they were juggling ERP upgrades. DR modernization would require separate budgeting. And their lone IBM i admin was retiring within 18 months.
Once we laid out the actual steps, the on-prem plan no longer looked like a technical decision. It looked like a staffing, risk, and continuity gamble.
The moment of clarity came when we plotted the TCO over three years. Cloud hosting was 20% lower before accounting for labor risk. More importantly, it stabilized the team. They could redirect their energy toward modernization rather than babysitting a lifecycle.
I’ve seen this pattern repeat across industries with different numbers but identical pressure points. The real ROI often comes from time saved, risk removed, and staffing stabilized long before the pure cost savings show up.
The Hidden Cost Drivers Behind the Two-Year Payback
Four drivers make the economics tilt toward cloud hosting.
- Retiring IBM i skills erode predictability. Replacing a seasoned admin is expensive and slow. Cloud hosting folds OS management, PTF strategy, monitoring, and backups into a subscription.
- Hardware lifecycle anchors you to capital cycles. New systems require refreshes, expansions, batteries, RAID components, and warranty extensions. Cloud eliminates the capital cycle and turns it into predictable OPEX.
- DR and backups modernize automatically. Tape-based strategies and untested restores create financial and compliance exposure. Cloud hosting includes off-site replication, snapshots, standby capacity, and tested failovers.
- Elasticity removes overprovisioning. You have to size on-prem environments for peak, but cloud scales on demand. The month-end, quarter-close, and seasonal spikes no longer require permanent hardware.
Why Small IBM i Environments See the Strongest Returns
Shops running fewer than five IBM i cores face unique pressure. Hardware refreshes cost disproportionately more per unit of capacity. Most essential skills often reside in one person. Backups may be functional but unverified. DR is frequently nonexistent.
Cloud hosting absorbs all of this and stabilizes the environment. In many cases, the subscription cost matches or beats the annualized cost of staying on-prem, before accounting for labor or DR modernization. That’s why smaller environments almost always see faster ROI.
A Look at the Two-Year Payback Model
A typical three-year on-prem footprint includes hardware at $80k to $200k, but that’s just the beginning. You must also consider:
- Maintenance at $6k to $20k per year
- Labor at $40k to $120k per year
- DR upgrades at $40k to $150k
- Recurring power, cooling, and patching expenses
- Total: $200k to $550k across three years
A cloud hosting subscription in the $3k to $8k per month range costs $110k to $290k over three years. This difference isn’t theoretical. It’s the logical outcome of spreading costs across a lifecycle instead of absorbing them in spikes.
Leadership Pressures Accelerating the Move
Four forces show up in almost every conversation.
- Staffing Fragility: A single IBM i expert introduces operational fragility. Cloud hosting neutralizes that risk.
- Continuity Requirements: Boards no longer tolerate multi-hour recovery windows. Cloud solves this with structured HA and tested failovers.
- Data Center Consolidation: Leaders want fewer storage arrays, SAN switches, tape libraries, and auxiliary systems. Cloud reduces the footprint.
- Modernization Momentum: API enablement, data integration, hybrid patterns, and long-term ERP changes move faster when infrastructure aligns with capital hardware.
Validating ROI Without Vendor Bias
A clean audit-style review works best. Assess refresh timelines, true admin allocation, DR readiness, PTF currency, and the long-term opportunity cost of staying on-prem. These five inputs determine the financial model without marketing promises.
Common Questions About How Cloud Pays Back
How should I model admin labor when calculating ROI?
Look beyond headcount. Track allocation as well. If your admin spends a quarter to half their time on IBM i tasks, include that cost. Labor risk matters as much as labor expense. Quantifying both gives you a more realistic three-year TCO.
What if my IBM i is stable and rarely changes?
Stability is good, but stability alone doesn’t cover lifecycle responsibilities. Patching, PTFs, backups, and DR testing still matter. Many organizations underestimate these tasks because they are quiet until they aren’t.
Will cloud hosting lock me into long contracts?
Most platforms offer flexible terms aligned with capacity needs. The key is to ensure the agreement includes DR testing, patching, and clear performance guarantees. Flexibility is part of the value, not a constraint.
Can cloud reduce audit friction?
Yes. Cloud hosting standardizes backups, PTF levels, DR testing, and documentation. That reduces audit workload and improves the quality of findings. It turns reactive audits into predictable events with fewer manual steps.
What if we plan to sunset IBM i in a few years?
Cloud hosting often makes transition periods easier. You avoid capital purchases and maintain stable operations while modernizing or planning ERP changes. That prevents technical debt from accumulating during the transition.
Does cloud outperform on-prem performance?
Performance depends on configuration, but cloud platforms typically run newer hardware with tuned storage. Most organizations see equal or better performance because environments are right-sized instead of over- or underbuilt.
Is DR testing disruptive in the cloud?
No. Snapshot-based methods and standby LPARs allow structured testing without interrupting production. That is often the first time organizations achieve repeatable DR tests.
How long does a migration really take?
With stable PTF levels and clear cutover planning, migrations are often completed within weeks. Complexity rises when environments are outdated, but cloud teams handle this regularly. The key is aligning schedules early so momentum is maintained.
See If Cloud is the Better Option For Your Organization
When CIOs compare hardware refresh cycles to cloud hosting, the numbers shift quickly. The real savings come from eliminating lifecycle spikes, reducing labor exposure, and smoothing ongoing maintenance.
If your next hardware purchase is approaching, this is the time to model the full lifecycle. Contact our team to learn more about the benefits of a cloud transition.
