They explained to me that it is a bit like keeping your land line phone while switching to a cell phone. You may not use the land line much but you want to keep it for emergencies. May be you don't trust you cell phone for emergency calls. May be you home security system does not work with your cell phone and so on.
They also explained to me that software licence is not the largest portion of a software implementation budget. A significant portion (more than 80%) of their budget is spent on consulting, maintaining the software and hardware. Customers have calculated, without the help of any outside vendors to influence their thinking, that they can actually save money even if they pay software licence fee for both OnPremise and OnDemand versions of the same software because they save a significant portion of their consulting, maintenance and hardware costs by moving to the cloud. For some customers this could be tens of millions of dollars a year.
I find this mildly perplexing. But I am not complaining.