It turns out that the cloud is expensive, and the more workloads you move to the cloud, the more it costs. Go figure.
When we were in the “growth at all costs” phase between 2021 and 2022, it was easy to ignore or minimize the costs associated with operating in the cloud. But when companies started scrutinizing every entry in the technology budget, it became pretty clear that the cloud bills were big and only getting bigger, and maybe we should look for ways to lessen that budgetary impact.
The brute force way would be to say, “let’s just move back on-prem!” But there are major questions about this approach. Why did you move to the cloud in the first place? Maybe you were thinking there would be cost savings. But even if you were wrong on that point, it’s the agility of the public cloud that has always been its primary value proposition.
Think back for a second to the bad old days of on-prem, when you had to plan for capacity. If your company grew faster than you anticipated, you were pretty much stuck, putting your business in a very vulnerable position. The corporate procurement process has always been fraught with time-consuming bureaucracy. You have to plan to buy servers, then you need to rack and stack them. Even if you want to do that, do you still have the personnel with that skill set? Chances are you’ve been hiring for a cloud DevOps world.
While it’s possible to move certain workloads with less pain than others, consider that earlier this month, Ofcom, a U.K. communications watchdog, issued a report criticizing the top cloud infrastructure players for making it too hard to move workloads between clouds — and presumably back on-prem, if that was the desire. If it’s truly so expensive and difficult, how does it make sense for companies to do that?
I decided to explore if companies really want to move back on-prem. I asked a group of industry experts about it, and while I got a decidedly mixed set of answers, it seems that the cloud repatriation idea is being greatly exaggerated.
The cloud infrastructure market is vast and growing
Let’s start with the fact that the cloud infrastructure market is huge, even as it’s slowing down amid the economic uncertainties affecting every industry. The market reached over $200 billion in 2022. The fourth quarter was up 21% to $61 billion, per Synergy Research. While it was down from the prior year, when the market grew at 36%, it was still a substantial market by any measure.
“From a numbers perspective, we continue to see strong growth in the cloud market — 2022 worldwide spending on cloud infrastructure services was up 26% from 2021, despite problems in China and a much-strengthened U.S. dollar — while investment in enterprise on-prem infrastructure remains weak,” John Dinsdale, chief analyst and research director at Synergy Research, told TechCrunch+. “Servers shipped to enterprises grew by 3% in 2022. Looking ahead, we continue to forecast strong growth in the cloud market and weak growth in on-prem infrastructure.”
There were other signals that the market was slowing, though. Market leader Amazon’s cloud business dropped from 39% in Q4 2021 to 20% in Q4 2022 with the CFO warning that growth had dropped into the mid-teens to start the first quarter of this year. AWS, Amazon’s cloud arm, was included in the latest round of Amazon layoffs. These are different times, and customers are cutting back on their public cloud usage.
One signal that a return to the data center could be at hand is the state of the server market. It would serve to reason that companies moving their workloads from the public cloud would require new servers. If Synergy’s numbers on the server front are accurate, there isn’t much happening to suggest companies are building their own servers.
It’s worth noting, however, that Synergy defines the cloud infrastructure market as infrastructure as a service, platform as a service and hosted private cloud services, the latter of which matters when looking at the question of returning to on-prem. Repatriation doesn’t necessarily mean going back to running your own servers, only that you could be moving a workload from a public cloud to a private one in a managed colocation facility.
Still, it’s hard to draw any firm conclusions from those numbers alone.
Is there a trend or wishful thinking?
I spoke to a number of industry people about whether this is all wishful thinking, and while some people might be moving workloads, it doesn’t sound like it’s a trend or something that’s even very common. Jeetu Patel, executive vice president for security and collaboration at Cisco, which has been shifting from datacenter hardware to software as a service over the last decade, sees a mix, depending on the use cases, but nothing to suggest that companies are repatriating workloads in a big way.
“I think the big architectural shift that’s going on [involves] hybrid and multicloud. So what’s happening is companies aren’t going with just one cloud service provider. They have at least two,” Patel said.
But he says there are workloads where the cloud just isn’t appropriate because of latency or other issues. “There’s some workloads that right now, for example, the latency that you would get with something like an Amazon would not be sufficient, where you’d have to have your own backbone,” he said. “So like in the security space, for example, there’s a lot of arguments where there might be some workloads for which you need to have your own backbone. But by and large, the shift is moving to the cloud.”
That said, he is on the board of Equinix, a company that sets up colocation facilities for customers, essentially offering on-prem as a service. Equinix has a $65 billion market cap, so he says there’s room for both, but that doesn’t necessarily mean there’s a large-scale movement from the public cloud.
Ray Wang, founder and principal analyst at Constellation Research, whose firm works with large companies across industries, says he’s not seeing any movement back on-prem, except perhaps some financial services workloads.
“What’s happening is the increased use of analytics and AI means [financial services companies] have to be efficient with usage or else it gets pricey very quickly,” he said. “In many cases, we are seeing that — and it explains some of the HPE Greenlake deals our clients have been on.” Greenlake helps companies manage data workloads in a cloud-like consumption model, except in an on-premises environment.
But are companies that are on a long cloud journey turning back? Monica Caldas, EVP and chief information officer at Liberty Mutual, told me that while she does see the price increases, it’s not having any impact on the overall direction of the company’s resource allocation. The cloud still has the same value proposition it always has for her.
“At Liberty Mutual, we started our cloud journey 10 years ago with a few key outcomes in mind: exceptional availability, limitless scalability and the opportunity to realize cost savings over time. Today, with three-quarters of our workloads in the cloud, it’s those same goals that keep us aligned to our journey to the cloud: speed of decision-making, flexibility and cost optimization,” Caldas said. “While we may see price increases from the public cloud providers this year, we’re focused on maximizing value and making IT dollars more efficient and effective.”
Alvina Antar, CIO at Okta, said that nothing she’s seeing suggests a movement away from the cloud. “When I’m talking to other CIOs, the discussion is definitely not about moving from cloud to on-prem. It’s about how to fully leverage the cloud technologies they’ve invested in to focus and drive efficiencies,” she said. “Thinking about hosting for cost-savings is short-sighted and doesn’t factor in the overhead and headcount costs for those who need to maintain the infrastructure.”
So are at least some workloads moving out of the public cloud? Here’s where it gets complicated.
I’ve looked at clouds from both sides now
There is little doubt that companies have been experiencing some cloud sticker shock as they move more workloads to public cloud providers. There’s also little doubt that they’ve been looking for ways to reduce those costs by looking for things like zombie cloud projects that are costing money long after a project ends or workloads being processed in an inefficient manner. When we get in a tight economic situation like we are experiencing, companies begin looking at these kinds of expenditures much more closely.
IDC analyst Natalya Yezhkova says her firm’s surveys over the years have shown that companies have consistently been interested in at least exploring the idea of moving some workloads from the public cloud where it makes sense, but they consistently ask if they are thinking about moving not if they actually are doing it.
A 2021 IDC survey showed that the top reasons for considering a move away from the public cloud were: data security, cloud pricing and data privacy concerns. Yezhkova acknowledges that there are a lot of factors that could affect the final decision.
The data on the companies doing it is less clear, and not every company that says it’s considering doing it will actually do it. “Yes, these are plans and not all of them will do it,” she said. That’s because it might not always be worth the cost.
Device42 CEO Raj Jalan, a startup helping companies understand the interactions between hardware and software wherever it lives, said that he’s seeing some movement from the public cloud, but in most cases it’s to a colocation facility like Equinix rather than back into a private data center.
“Customers are coming to us and they are asking how to [move workloads from the public cloud]; I would say on-prem is not the right word. They’re going to co[located] facilities. They still don’t want someone to manage the physical aspect of the data center but are going to a co-lo provider, where they manage the hardware boxes.”
He said that this is easier to do if the company is using containers, or if it’s running a hypervisor like VMWare. Where it gets tricky is when a company uses a platform as a service to run applications and it’s more tied into the cloud provider’s systems.
Okta’s Antar said that in spite of this, the cloud “remains an essential driver for efficiency and durable growth.” And she added, “Now more than ever, the cloud technologies that are not demonstrating business value will be replaced. Accelerating the move to the cloud enables companies to focus on what truly differentiates them in the market. I’m seeing more engineering functions shift all of their investment to deep expertise that differentiates their company, and not fewer.”
It would be a mistake to say that nobody is moving workloads out of the public cloud. Many companies are thinking about it and some are doing it. But IDC’s Yezhkova said that has always been the case as companies try to find the optimal delivery mechanism for a particular type of workload, and this is not some new economically driven trend.
For most companies, the cloud remains an essential part of their technology strategy, and few are going back to running their own data centers anytime soon. But for certain workloads, it might make sense to move them to managed private clouds.