Are there rainy days ahead for cloud computing?

This year, software company 37signals will see its profits increase by more than $1 million (£790,000) as a result of leaving the cloud.

“The fact that we’ve been able to achieve this with such relatively modest changes to our business is amazing,” says co-owner and CTO David Heinemeier Hansson.

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

Like many other companies, it has entrusted data storage and processing to an external company, a so-called cloud service provider.

They own huge data centers where they store third-party data that can be accessed over the Internet.

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

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

“I said, ‘Wait! How much do we spend on weekly rental?’ I could buy really powerful computers for just a week’s worth (in the cloud).”

So he did that. Buying the hardware and hosting it in a shared data center costs $840,000 a year.

While costs prompted Heinemeier Hansson to act, other factors were also a concern.

The internet is designed to be incredibly resilient.

“I’ve seen the distributed design erode as more and more companies have become essentially focused on three computer owners,” he says, referring to the three leading cloud service providers.

If the primary data center fails, much of the network could be taken offline.

The cloud was presented, he says, as cheaper, easier and faster. “The cloud hasn’t been able to make things easier enough for us to measure any productivity gains,” he says, noting that his operations team has always been about the same size.

Was using the cloud faster?

“Yes, but it didn’t matter,” says 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 amazing.

“But we don’t need – and I don’t think the vast majority of companies need – a five-minute downtime on a huge number of additional servers.”

It can take him a week to deliver new servers and install them in the data center, which is fast enough.

37signals uses the cloud to experiment with new products. “We needed some large machines, but we only needed them for 20 minutes,” says Mr. Heinemeier Hansson.

“The cloud is perfect for this. It would be wasteful to buy this computer and let it sit idle 99.99% of the time.”

He still recommends the cloud to start-up companies. “When you have a speculative startup and there is great uncertainty about whether you will survive in 18 months, you should absolutely not spend money on computers,” he says. “You should rent them.”

37signals is not the only company involved in restoring workloads from the cloud, which is called repatriation to the cloud.

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

Reasons cited included security concerns, unexpected costs, performance issues, compatibility issues, and service interruptions.

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

It built its own private data centers and repatriated cloud workloads to them, saving an estimated 30% to 40% in costs after two years.

“A key factor in our decision was the fact that we have highly proprietary R&D data and code that must remain strictly protected,” says Markus Schaal, managing director of the German company.

“If our investments in features, patches, and games were leaked, it would benefit our competitors. While the public cloud offers security features, we ultimately decided we needed complete control over our sensitive intellectual property.

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

He adds: “We encountered sporadic performance issues during periods of heavy use and limited customization options via the cloud interface. Moving to a private infrastructure gave us full control over hardware purchases, software installations, and a network optimized for our workloads.”

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

In colocation, the customer owns the IT equipment but stores it with another company where it can be stored safely, at the right temperature and with backup power.

“The cloud will still be the largest part of IT infrastructure, but there is a good place for local, physical and secure infrastructure,” he says. “There is a repatriation of things that should never have been in the cloud or that won’t work in the cloud.”

Its largest repatriation clients include online software providers, where each additional client increases server load, which translates into higher cloud costs.

One such client is LinkPool, which enables smart contracting using blockchain. It was created in the public cloud, initially using free credits. Business exploded and the cloud bill reached $1 million a month. Thanks to collocation, costs were reduced 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 with his competitors and he can change his price point because his cost isn’t going to change in line with (customer demand),” Mr. Turner says.

“The IT change leaders are now the people who don’t say ‘cloud first,’ but they say ‘cloud when it fits,’” he adds. “Five years ago, the change disruptors were saying ‘cloud first,’ ‘cloud first,’ ‘cloud first.’”

Of course, not everyone will repatriate. Cloud computing will remain a huge business, with AWS, Microsoft Azure, and Google Cloud Platform being the biggest players.

For companies like Expedia, they are essential.

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

Applications also run in the cloud, except for legacy software that does not yet run in the cloud.

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

“One of the most important things that the cloud gives us is global presence, the ability to deploy our solutions closer to the region where they need to be,” he says.

“The second thing is the resilience and availability of infrastructure. Cloud providers have designed and engineered their infrastructure really well. We can benefit from their innovations.”

Expedia has an excellent cloud services center that saved about 10% on cloud services costs last year.

“You have to set the rules, otherwise companies can easily incur huge cloud costs,” says Mr. Naidu. “You can throw things away when you don’t need them. If you use (cloud resources) wisely, there won’t be a surprise bill at the end of the day.”