Are rainy days ahead for cloud computing?

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

“To be able to achieve that with such relatively modest changes to our business is surprising,” 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 firm, a so-called cloud service provider.

They own large data centers where they hold data from other firms, which can be accessed over the Internet.

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

“Seeing the bill on a weekly basis really radicalized me,” says Mr. Heinemeier Hansson.

“I went, ‘Wait! What are we spending on a week’s rent?” I can buy some really powerful computers for just a week’s worth [cloud] expenses.”

So, he did. Buying the equipment and putting it in a shared data center costs $840,000 a year.

Although the costs pushed Mr. Heinemeier Hansson to act, other factors were also a concern.

The Internet was designed to be very resilient.

“I saw the distributed design erode as more and more companies gravitated 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 go offline.

The cloud rose, he says, as cheaper, lighter and faster. “The cloud wasn’t able to make things easier to a point where we could measure any productivity gains,” he says, noting that his operations team has always been about the same size.

Was it 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]. This is incredible.

“But we don’t need, nor do I believe the vast majority of companies need, a five-minute turnaround on a massive number of additional servers.”

It can deliver and provision new servers in its data center within a week, which is quite fast.

37signals uses the cloud to experiment with new products. “We had 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 let it sit idle 99.99% of the time.”

He still recommends the cloud for new businesses. “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 buying computers,” he says. “You have to rent them.”

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

Digital workspace company Citrix found that 94% of large US organizations it surveyed had worked on repatriating data or workloads from the cloud in the past three years.

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

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

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

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

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

“As our AI-assisted modeling tools advanced, we also required much more processing power that the cloud could not meet within the budget.”

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

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

In a colocation arrangement, the customer owns the IT equipment but hosts it with another firm, where it can be kept safe, 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.”

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 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 per month. By using colocation, costs were reduced by up to 85%.

“[The founder has] now there are four racks in a data center in the city where he lives and works, connected to the world. He goes up against his competitors and he can move his price point because his cost won’t move accordingly. [with customer demand],” says Mr. Turner.

“The leaders of change in the IT industry are now the people who don’t say cloud first, but say cloud when it fits,” he adds. “Five years ago, the change-breakers were cloud-first, cloud-first, cloud-first.”

Of course, not everyone is being repatriated. Cloud computing will remain big business, with AWS, Microsoft Azure and Google Cloud Platform being the biggest players.

For firms like Expedia, they are essential.

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

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

“We are experts in travel,” says Rajesh Naidu, Expedia’s chief architect and senior vice president. “[Cloud providers] are experts in infrastructure management. That’s one less thing for me to worry about while we focus on running our business.”

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

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

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

“You have to put policies in place because otherwise it’s easy for companies to incur 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.”