Rising cloud costs, security push some firms back to on-premise infra

The shift, called cloud repatriation, involves moving applications, data, and workloads from a public cloud environment back to on-premises infrastructure, private clouds, or other hosting environment

A decade ago, moving an enterprise’s workload to Cloud was touted as the Next Big Thing in the tech world — a move that could lower operating costs, enable scale, and expedite innovation. But that’s now changing, at least partially. 

Firms are ditching their Cloud-first approach for a more nuanced hybrid strategy — a mix of on-prem (short for on-premise) infrastructure and Cloud presence — to counter escalating costs, rising cybersecurity concerns, and compliance risks across many countries. 

This shift — known as Cloud repatriation — involves moving applications, data, and workloads from a public Cloud environment back to on-prem infrastructure, private Clouds, or other alternative hosting environments, and it’s gaining traction. 

A Barclays CIO survey last year showed that 83 per cent of enterprise chief information officers planned to repatriate at least some workloads in 2024, rising from 43 per cent in 2020. 

This is because the sheer volume of workloads in Cloud is leading to higher expenses, alongside larger storage requirements and massive computing programs in artificial intelligence (AI), generative AI, and data processing, which require hundreds of graphics processing units and terabytes of data. 

“It will be a hybrid Cloud environment for the industry. There will be a few players that are all Cloud, and there will be a few that are no-Cloud, but generally, most enterprise clients are going to be hybrid and have some of both,” Ric Lewis, senior vice-president of infrastructure at IBM, told Business Standard earlier this year. “The clients feel secure, not just in the architecture, but because it is on their premises, so nobody is getting at those machines.” 

Some companies that have completed the repatriation include Dropbox, Government Employees Insurance Company (Geico), and 37signals. Dropbox, initially built on Amazon Web Services (AWS), migrated most of its data to colocation facilities to gain control over hardware and network configurations. Insurer Geico moved back to on-prem due to high Cloud storage costs, and 37signals — the company behind Basecamp — completed this transition in 2022, expecting to save $10 million over five years.

 

Walmart, the world’s largest retailer, also decided to adopt a hybrid approach a few years ago. The company invested in 10,000 edge nodes — in-house devices and servers that can handle data processing locally — to reduce reliance on public Cloud service providers. 

Ashutosh Sharma, vice-president and research director at Forrester, says that earlier, enterprises were gung-ho about using public Clouds such as AWS, Microsoft Azure, and Google Cloud Platform for everything, but many have now tempered their exuberance. 

“If you look at Europe, there is a huge desire to repatriate. Repatriate in the sense that they are not just content having it in their own data centres. They also have concerns about putting their workloads into global Cloud service providers that originate from the US. So they are thinking of working with local Cloud providers or putting certain workloads onto platforms that the government and local regulations have some control over,” he added.   

AWS told the UK’s Competition and Markets Authority last year that its Cloud business faces competition from on-prem information technology. It also said that building a data centre requires considerable effort, so the fact that customers are doing it highlights both their level of flexibility and the attractiveness of moving back to on-prem. 

“AWS said that customers may switch back to on-prem for a number of reasons, including to reallocate their own internal finances, adjust their access to tech, and increase the ownership of their resources, data, and security. AWS said that perceived benefits of on-prem may include closer control of assets and proximity,” according to the report. 

However, that doesn’t mean Cloud is facing an imminent existential threat, especially at a time when the three Cloud giants are pouring billions into it. James Blake, vice-president, cyber resiliency strategy at cybersecurity firm Cohesity, said that repatriation is happening mainly among firms that never fully embraced Cloud. 

“They literally lifted and shifted what they were doing on-prem to Cloud. They just took their physical servers, created virtual images of them, and launched those virtual images in Cloud. From a return on investment perspective, I think you’re missing a trick in some of the more advanced automations and feedback loops that you can create if you’re using something like CloudFormation or Terraform — if you go to the extreme of infrastructure as code,” Blake explained. 

Deepak Mittal, chief executive of CloudKeeper, which provides Cloud cost optimisation solutions, said that there are other benefits to being on Cloud. “Clients are not locked in, and there is no capital expenditure. They can change their mind. There’s this whole scale-up and scale-down thing that you’ll never get with a data centre. However, if your business is fixed, you know that these are your computing needs and those will not change over a five-year period, then you can move that part of the operation to your own data centre.”