OnDemand provides all the infrastructure and baseline system support for you. So you don't need hardware and you don't need system administrators. Upgrades and patching are done automatically for you, and there's a support team behind it.
Basically, most of the maintenance is done for you, and you don't have to think about anything beyond using the software.
If you're ok with living with the add-on and other restrictions the OnDemand offering takes away many headaches. One advantage is you won't have some crazy manager wanting you to modify code for something they just don't like, but works fine. Been there.
If you like the OnDemand approach, but without restrictions - which means you can install all plugins, themes, have full admin privileges on you instance and so on - we (//SEIBERT/MEDIA) also offer a similar solution called SWIFT.
You can try it for free for up to 28 days (14 days and another 14 days if you choose to extend the trial) and it's a simple two-field signup. The instance is up and running in about 15 minutes.
Maybe that's an option for you, too.
I have to disagree with that. If you're running your own Jira, you have the costs of hardware and someone to look after hardware, OS, Jira install, doing upgrades and maintenance. So there are advantages on migrating - you can recycle/dump a server and some geek-time. Obviously, you need to weigh that up against the loss of plugin flexibility etc.
Exactly as Alex says, the third option is non-Atlassian hosting. There's a list at https://www.atlassian.com/resources/experts/?tab=find-an-expert&expertskills=ManagedHosting
Nic summed it up well when he said that with the OnDemand service you don't need to worry about maintenance and upgrades, which depending on your technical level and infrastructure can be of enormous benefit because Atlassian provide dedicated engineers to keep everything running smoothly. Even the most experienced administrators can run into problems with upgrades, as well as the cost and hassle of scheduling downtime, doing dry runs etc etc.
However, in my opinon, the biggest advantage of OnDemand over Self-Hosted instances is the level of integration with other OnDemand products and the simplicity of configuring everything because most of it is done for you. It is correct that there are still a lot of restrictions on the OnDemand platform but we are close to being able to allow Addons with Atlassian Connect. There is also the advantage of regular upgrades, (weekly), so that you are always running the latest software and enjoying the latest features.
There are still a number of restrictions and anyone considering migration to the OnDemand platform should certainly read the list of restricted functionality compared to self-hosted instances before proceeding, but in my opinion the reasons to go with Self-Hosted over OnDemand are decreasing all the time as the platform matures: https://confluence.atlassian.com/display/AOD/Restricted+Functions+in+Atlassian+OnDemand
Alex also makes a great point that there are a number of Atlassian Experts who provide Managed Hosting solutions of our products, without the restrictions related to customisation and system administration that are currently associated with the OnDemand platform, so this can often present a solution for people who want the benefits of Managed Hosting without the restrictions.
All the best
We chose to go the route of having one of the Atlassian partners to host and maintain our instances - all at a very reasonable cost. Thus, we don't have to do the maintenance, updates, patches, etc. and they also provide support as well as staging instances. We really needed the additional plugins to make it the product useful for us as we were too limited and the product couldn't support our workflow and wiki needs as is. The downside is that there is more investment since you do have to pay the download license costs.
As others have mentioned, if the out of the box features meet your needs, I would stick with OnDemand.
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