Are cloud computing rainy days ahead?

This year, software firm 37signals will see a profit increase of more than $1m (£790,000) from moving away from the cloud.

“That we were able to achieve this with such relatively modest changes to our business is astounding,” says co-owner and chief technology officer David Heinemeier Hansson.

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

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

They own huge data centers where they host data from other companies that can be accessed over the internet.

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

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

“I said, ‘Wait! How much are we going to spend for a week’s rent?’ I could buy really powerful computers in just a week [cloud] spending.”

So he did. It costs $840,000 per year to purchase the hardware and host it in a shared data center.

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

The Internet is designed to be highly resilient.

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

If a large data center goes down, large parts of the site can go offline.

The cloud was designed, he says, to be cheaper, easier and faster. “The cloud hasn’t been able to make things easier to the point where we can 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]. That’s unbelievable.

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

He can have new servers delivered and installed in his data center in a week, which is fast enough.

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

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

He still recommends the cloud for start-ups. “When you have a speculative start-up and there’s a lot of uncertainty about whether you’ll be here in 18 months, you definitely shouldn’t be spending your money on computers,” he says. “You should borrow 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 US organizations it surveyed had worked to repatriate data or workloads from the cloud in the past three years.

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

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

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

“A key factor in our decision was that we have highly protected research and development data and code that must remain highly secure,” says Markus Schaal, CEO of the German firm.

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

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

He adds: “We occasionally encountered performance issues during periods of heavy use and limited customization options through the cloud interface. Moving to a privately owned infrastructure gave us full control over purchasing hardware, installing software and networks optimized for our workloads.”

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

In a colocation arrangement, the client owns the IT hardware but houses it at another company where it can be safely kept at the right temperature and with power backup.

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

Among its biggest repatriation clients are online software providers, where each additional customer puts more strain on the server and increases cloud costs.

One such client is LinkPool, which enables smart contracting using blockchain. It was developed in the public cloud, initially using free credits. The business exploded and the cloud bill reached $1 million a month. Using colocation, costs have been reduced by up to 85%.

“[The founder has] he now has four seagulls in a data center in the city where he lives and works, connected to the world. He will stand up to his competitors and can move his price because his costs will not move in line [with customer demand]” says Mr. Turner.

“The leaders of change in the IT industry now are people who don’t say cloud first, but say 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 repatriates. Cloud computing will remain a huge business, with AWS, Microsoft’s Azure and Google Cloud Platform as the biggest players.

For companies like Expedia, they are essential.

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

The app also runs in the cloud, except for older software that doesn’t work there yet.

“We are travel experts,” says Rajesh Naidu, chief architect and senior vice president at Expedia. “[Cloud providers] they are experts in infrastructure operation. That’s less of a concern for me when we focus on running our business.”

“One of the main things the cloud gives us is a global presence, the ability to deploy our solutions closer to the region they need to be in,” he says.

“Another thing is the resilience and availability of the infrastructure. Cloud providers have designed and architected infrastructure really well. We can ride on the coattails of their innovation.”

Expedia has a cloud center of excellence that saved roughly 10% of cloud costs last year.

“You have to set policies because otherwise it’s easy for companies to run huge cloud costs,” says Mr Naidu. “You can reject 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.’