Are there rainy days ahead for cloud computing?

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

“The ability to achieve this with such relatively modest changes to our business is astonishing,” says co-owner and CTO David Heinemeier Hansson.

The US-based company has millions of users of online 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 went, ‘Wait! What are we going to spend on a week of rental?’ I could buy some really powerful computers for a week’s worth of (cloud) rent.”

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

While costs prompted Heinemeier Hansson to act, other factors also raised concerns.

The Internet is designed to be very resilient.

“I saw distributed architecture disappear as more and more companies were essentially relying on three computer owners,” he says, referring to the three leading cloud 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 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 amazing.

“But we don’t need, and I don’t think the vast majority of companies do, need five minutes of data processing on a huge number of additional servers.”

It could 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 a few big machines, but we only needed them for 20 minutes,” says Heinemeier Hansson.

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

He still recommends the cloud for startups. “If you’re a speculative startup and there’s a lot of uncertainty about whether you’re going to be around in 18 months, you absolutely shouldn’t be spending money on computers,” he says. “You should be renting them.”

37signals is not alone in restoring workloads from the cloud, which is known as cloud repatriation.

Digital workplace firm Citrix found that 94% of large U.S. organizations it surveyed had worked to move 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 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 data and research and development code that must remain strictly secure,” 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 determined that we needed complete control over our confidential intellectual property.

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

He adds: “We occasionally experienced performance issues during periods of heavy usage 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 colocation data centers across the UK.

In the case of a colocation agreement, the customer owns the IT equipment but stores it in another company, where it can be stored safely, at an appropriate temperature and with an uninterruptible power supply.

“The cloud will continue to be the largest part of IT infrastructure, but there’s a sweet spot for on-premises, physical, secure infrastructure,” he says. “You’re repatriating things that should never have been in the cloud or that won’t work in the cloud.”

Some of its biggest repatriation customers are online software providers, where each additional customer puts more load on the server, driving up cloud costs.

One such customer is LinkPool, which enables smart contracting using blockchain. It was built in the public cloud, initially using free credits. Business exploded, with cloud bills reaching $1 million per month. Colocation has reduced costs 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.’”

More business technologies

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

“One of the most important things the cloud gives us is global presence, the ability to deploy our solutions closer to the region where they need to be located,” 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 a cloud center of excellence that has saved about 10% on cloud costs over the past year.

“You have to set the rules, otherwise it’s easy for companies to incur huge cloud costs,” says Naidu. “You can discard things when you don’t need them. If you consume (cloud resources) wisely, your bill won’t be a surprise at the end of the day.”