Are rainy days ahead for cloud computing?

This year, software company 37signals will see its profits rise by more than $1 million (£790,000) by moving away from the cloud.

“It’s amazing that we can achieve this with such modest changes to our business,” says David Heinemeier Hansson, co-owner and technical director.

The American company has millions of users for its online project management and productivity software, including Basecamp and Hey.

Like many companies, it has outsourced data storage and computing to a third-party company, a so-called cloud service provider.

They have huge data centers, where they host data from other companies, accessible via the Internet.

In 2022, these services cost 37signals $3.2 million.

“Seeing the bill every week really radicalized me,” says Mr. Heinemeier Hansson.

“I was like, ‘Wait! How much do we spend on a week’s rental?’ I could buy very powerful computers with just a week’s expenses (cloud).

That’s what he did. Purchasing hardware and hosting it in a shared data center costs $840,000 per year.

Although costs prompted Mr Heinemeier Hansson to act, other factors were also of concern.

The Internet is designed to be highly resilient.

“I’ve seen the distributed design erode as more and more companies move to essentially three computer owners,” he says, referring to the three major cloud providers.

If a major data center goes down, large parts of the web can be taken offline.

The cloud was marketed as cheaper, simpler and faster, he says. “The cloud hasn’t been able to simplify things to the point where we can measure productivity gains,” he says, noting that his operations team has always been the same size.

Was using the cloud faster?

“Yes, but that didn’t matter,” says Mr. Heinemeier Hansson.

“If you want to connect a hundred servers to the Internet, you can do it in less than five minutes (in the cloud). It’s incredible.

“But we don’t need, and I don’t think the vast majority of companies need, a five-minute turnaround time on a massive number of additional servers.”

It can have new servers delivered and installed in its data center within a week, which is quite fast.

37signals uses the cloud to test new products. “We needed a few big machines, but we only needed them for 20 minutes,” explains Mr. Heinemeier Hansson.

“The cloud is ideal for this. It would be a waste to buy this computer and have it sit idle 99.99% of the time.”

He still recommends the cloud to start-up companies. “When you have a speculative start-up and there’s a lot of uncertainty about whether you’re going to be around in 18 months, you absolutely shouldn’t spend your money on buying computers,” he says. “You should lease them.”

37signals is not alone in bringing workloads back from the cloud, known as cloud repatriation.

Digital workspace company Citrix found that 94% of large U.S. organizations surveyed had worked to repatriate data or workloads from the cloud in the past three years.

Reasons given included security concerns, unexpected costs, performance issues, compatibility issues, and service downtime.

Plitch provides software that allows users to modify single-player games, including adjusting the difficulty.

It built its own private data centers and moved cloud workloads there, saving about 30-40% of costs after two years.

“A key factor in our decision was that we had highly proprietary R&D data and codes that needed to be kept strictly secure,” says Markus Schaal, CEO of the German company.

“If our investments in features, fixes and games were disclosed, it would be an advantage for our competitors. Although the public cloud offers security features, we ultimately decided that we needed to have full control over our sensitive intellectual property.

“As our AI-assisted modeling tools advanced, we also needed significantly more processing power that the cloud couldn’t meet within the budget.”

He adds: “We experienced occasional performance issues during periods of heavy usage and limited customization options through the cloud interface. Moving to a private infrastructure gave us complete control over hardware purchasing, software installation, and networking optimized for our workloads.”

Mark Turner, Commercial Director at Pulsant, helps businesses migrate from the cloud to Pulsant’s colocation data centers across the UK.

In a colocation arrangement, the customer owns the computer equipment, but hosts it at another company, where it can be kept safe, at the right temperature, and with backup power.

“The cloud is going to continue to be the most important part of IT infrastructure, but there’s a good place for on-premises, physical, secure infrastructure,” he says. “You’re seeing a repatriation of things that never should have been in the cloud or that won’t work in the cloud.”

Some of its biggest offboarding customers are online software providers, where each additional customer places additional load on the server, increasing cloud costs.

LinkPool is one such client, which enables smart contracts to be implemented using blockchain. It was developed in the public cloud, initially using free credits. Business exploded and the cloud bill reached $1 million per month. Thanks to colocation, costs decreased by up to 85%.

“(The founder) now has four racks in a data center in the city where he lives and works, connected to the world. He’s competing and can change his price because his costs won’t change based on (customer demand),” Turner said.

“The leaders of change in the IT industry now are those who don’t say cloud first, but talk about cloud when it’s appropriate,” he adds. “Five years ago, the disruptors of change were cloud first, cloud first, cloud first. »

Of course, not everyone is repatriating. Cloud computing will remain a huge business, with AWS, Microsoft’s Azure and Google Cloud Platform as the major players.

For companies like Expedia, they are essential.

It used the cloud to consolidate 70 petabytes of travel data from its 21 brands.

Applications also run in the cloud, except for legacy software that doesn’t run there yet.

“We’re experts in travel,” says Rajesh Naidu, chief architect and senior vice president at Expedia. “(Cloud service providers) are experts in infrastructure. It’s one less thing I have to worry about while we focus on running our business.”

“One of the main advantages that the cloud gives us is a global presence, the ability to deploy our solutions closer to the region in which they need to be implemented,” he explains.

“The other important point is the resilience and availability of the infrastructure. Cloud providers have designed and architected their infrastructure very efficiently. We can benefit from their innovation.”

Expedia has a cloud center of excellence, which saved about 10% on cloud costs last year.

“It is essential to have policies because otherwise, businesses could easily incur huge cloud costs,” says Naidu. “You can opt out of services that you don’t need. If you consume cloud resources wisely, your bill won’t be a surprise at the end of the day.”