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Hosted API, private cloud or on-premises: deciding where your models run

A comparison of deployment options for language models, covering data protection, quality, cost, latency and the operational burden of each.

2 min readLast reviewed

One of the first questions in any enterprise AI project is where the model runs and where the data goes. The answer affects quality, cost, latency, compliance and how much your team has to operate. There is no universally right choice; there is a right choice for each workload.

The main options

OptionStrengthsTrade-offs
Commercial model APIStrongest models, no infrastructure, fast to startData leaves your environment under provider terms; dependency on provider roadmap
Cloud-hosted model service in your account or regionEnterprise terms, regional processing, private networkingModel choice limited to what the platform offers; cost model varies
Self-hosted open-weight models in your cloudFull control of data and versionsGPU cost and capacity planning; you operate it; quality may lag frontier models for some tasks
On-premisesMaximum isolationHighest operational burden; hardware lead times

Questions that decide it

  • What data will the model see, and what do your contracts, regulators and data protection obligations say about where it may be processed?
  • Do the provider’s terms exclude training on your data, and for how long are inputs retained?
  • What quality does the task need? Measure candidate models on your evaluation set rather than relying on public leaderboards.
  • What latency and volume do you expect, and what does that imply for cost under each option?
  • Who will operate, patch and monitor a self-hosted deployment?

Mix options per workload

Many organisations use more than one option: a frontier API for low-sensitivity drafting, a regional cloud service for customer data, and a small self-hosted model for high-volume classification. A routing layer and a common evaluation suite make this manageable.

Data protection is about the whole system

Where the model runs is only part of the picture. Logs, vector indexes, caches and evaluation datasets also contain personal or confidential data. Regulators such as the UK Information Commissioner’s Office publish guidance on applying data protection principles to AI systems, including minimisation and security, which applies across these components.

Sources and further reading

  1. UK ICO, Guidance on AI and data protection
  2. OWASP Top 10 for Large Language Model Applications
  3. NIST AI 600-1, Generative AI Profile (2024)

Applying this to your own system?

Talk it through with an engineer. We will tell you what we would do, and what we would not.