Rainy days ahead for cloud computing? – BBC News

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

“It’s amazing to be able to achieve that with such relatively modest changes to our business,” said co-owner and Chief Technology Officer David Heinemeier Hansson.

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

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

They own huge data centers, where they store data from other companies. This data is accessible via the internet.

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

“Seeing the bill every week has really radicalised me,” says Mr Heinemeier Hansson.

“I said, ‘Wait! What are we spending on a week’s rent?’ I could buy some very powerful computers for just a week [cloud] expenditure.”

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

While the costs prompted Mr Heinemeier Hansson to take action, there were also other factors that concerned him.

The Internet is designed to be very resilient.

“I saw the distributed design erode as more and more companies gravitated primarily toward three computer owners,” he says, referring to the three leading cloud providers.

If a major data center fails, large parts of the web could go offline.

The cloud, he says, was presented as cheaper, easier and faster. “The cloud wasn’t able to simplify things enough that we could measure the productivity gains,” he says, noting that his operations team has always been about the same size.

Was using the cloud faster?

“Yes, but that 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 time on a huge number of additional servers.”

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

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

“That’s what the cloud is ideal for. It would be a shame to buy that computer and have it sit idle 99.99% of the time.”

He still recommends the cloud for early-stage companies. “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 spend money buying computers,” he says. “You should rent them.”

37signals is not the only one retrieving workloads from the cloud, also known as cloud repatriation.

Digital workplace company Citrix found that 94% of large U.S. organizations it surveyed had worked to repatriate data or workloads from the cloud in the past three years.

The reasons cited included security issues, unexpected costs, performance issues, compatibility issues and service downtime.

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

The company built its own private data centers and moved cloud workloads there. As a result, the company saved an estimated 30% to 40% on costs after two years.

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

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

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

He adds: “We occasionally encountered performance issues during periods of high usage and limited customization options through the cloud interface. Moving to a private infrastructure gave us full control over hardware procurement, software installation and networks that were optimized for our workloads.”

Mark Turner, Chief Commercial Officer at Pulsant, helps companies migrate from the cloud to Pulsant’s colocation data centres in the UK.

With a colocation arrangement, the customer owns the IT hardware, but it is placed with another company. There the hardware is stored safely, at the right temperature and with emergency power supply.

“The cloud will continue to be the majority of IT infrastructure, but there is a sweet spot for on-premises, physical, secure infrastructure,” he says. “There is a repatriation of things that should never have been in the cloud or that don’t work in the cloud.”

Some of its largest repatriation customers are online software providers, with each additional customer putting more strain on the server, driving up cloud costs.

One of those customers is LinkPool, which enables smart contracts using blockchain. It was developed in the public cloud, initially using free credits. Business exploded and the cloud bill was $1 million a month. Thanks to colocation, costs fell by as much as 85%.

“[The founder has] now has four racks in a data center in the city where he lives and works, connected to the world. He competes against his competitors and can shift his price level because his costs do not move along [with customer demand]” says Mr. Turner.

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

Of course, not everyone repatriates. Cloud computing will continue to be a huge business, with AWS, Microsoft’s Azure and Google Cloud Platform being the biggest players.

For companies like Expedia, they are essential.

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

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

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

“One of the most important things the cloud gives us is a global presence, the ability to deploy our solutions closer to the region where they are needed,” he says.

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

Expedia has an excellent cloud center, which saved approximately 10% on cloud costs last year.

“You have to have policies in place, otherwise companies can easily incur huge cloud costs,” says Mr. Naidu. “You can reject things if you don’t need them. If you consume [cloud resources] wise, then your bill at the end of the day will not be a surprise.”