Why some companies are backing away from the public cloud

The cloud has dominated enterprise technology provision for a decade or more. Public cloud services, with huge capacity, commitments to security, and assurances that the latest and greatest technologies are running underneath, offer a compelling value proposition. In the age of artificial intelligence (AI), capacity is critical. However, a new survey suggests evidence of a movement away from public provision.

Close to seven in 10 companies (69%) have moved at least some apps off the cloud and back to on-premise systems or private clouds, the survey of 1,420 IT executives from Rackspace finds. Reasons given for this retrenchment back to on-premise environments include data security and compliance concerns, cited by 50%, better integration with existing on-premise systems, mentioned by 48%, and cost savings and budget constraints, cited by 44%. 

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Industry experts and business leaders also recognized a reconsideration of the value of public clouds. For one, the rising costs of cloud subscriptions — with accompanying sticker shock — means many finance chiefs have paused for thought. “Enterprises are just spending too much on public cloud services, given applications they may have migrated to the cloud years ago,” said David Linthicum, a leading consultant, author, and former CTO with Deloitte. 

Technical debt may be the root of many moves back to on-premise environments. “Normally this is a self-inflicted thing,” Linthicum said. “They didn’t refactor the applications to make them more efficient in running on the public cloud providers. So the public cloud providers, much like if we’re pulling too much electricity off the grid, just hit them with huge bills to support the computational and storage needs of those under-optimized applications.”

Rather than spending more money to optimize or refactor applications, these same enterprises put them back on-premise, said Linthicum. Security and compliance are also an issue. Enterprises “realize that it’s too expensive to remain compliant in the cloud, with data and sovereignty rules. So, they just make a decision to push it back on-premise.”

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The perceived high costs of cloud operations “often stem from lift-and-shift migrations that in some cases didn’t optimize applications for cloud environments,” said Miha Kralj, global senior partner for hybrid cloud service at IBM Consulting. “These direct transfers typically maintain existing architectures that don’t leverage cloud-native capabilities, resulting in inefficient resource utilization and unexpectedly high expenses.”  

However, the solution to this problem “isn’t necessarily repatriation to on-premises infrastructure,” said Kralj. “Most performance, security, and cost challenges we encounter can be addressed through cloud-native refactoring — redesigning applications to fully utilize cloud capabilities like auto-scaling, containerization, and serverless architectures. Organizations that invest in refactoring consistently report improved operational efficiency and better cost control.”

When it comes to costs, “many organizations are finding that cloud solutions can be costly, with unexpected expenses from data egress fees and premium features, among others,” said Timothy E. Bates, professor at the University of Michigan and former CTO for Lenovo and General Motors. “On the other hand, on-prem solutions have upfront costs, but they are more cost-effective in the long run for stable workloads.”  

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Bates witnessed the trend toward achieving a better balance between cloud and on-prem while architecting and building hybrid solutions for GM: “Large enterprises are increasingly reevaluating the risks and limitations of relying solely on the cloud for critical workloads and intellectual property.”  

Enterprises don’t like being dependent upon someone else’s cloud infrastructure, said Richard Robbins, founder and owner of TheTechnologyVault.com. “Many of the enterprises that are regulated, especially banks and other financial institutions, are moving some or all of their web apps from the cloud back to on-prem or to hybrid setups,” he observed. “It is clear that there has been enough vulnerability and downsides to cloud hosting to make executives feel nervous about not having more control over the security and other aspects of cloud hosting.”

Bates also said security, control, and cost efficiency are at the roots of such cloud hesitation: “A cloud, while offering scalability, is a shared resource — organizations have to trust third-party providers like Azure, Amazon, or Google with their most sensitive data. For businesses with highly proprietary information or strict compliance needs, the potential risks of not having end-to-end control over the storage of that information far exceed the benefits.”

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To a large degree, the hype around the cloud has dissipated, with many people focusing on AI instead. As a result, many decision-makers are taking a clear-eyed view of the cloud’s benefits and drawbacks. “I remember talking to CIOs and DevOps personnel in 2017 — several of them had been assigned, to their dismay, to do whatever was needed to move their technology into the cloud,” said Robbins. “Most felt overwhelmed with the assignment and pushed back. That was during the cloud rush, when having apps hosted in the cloud was a status symbol and a marketing flex.”  

Now, “with the movement to the cloud being hasty and not very well coordinated, enterprises are re-thinking their initial decision to move to the cloud,” Robbins continued. “Companies like Dropbox, one of the first major enterprises to use the cloud, began moving back to their own hosting infrastructure as early as 2015. The benefits of their reversal — including saving nearly $75 million in operational costs over a two-year period — have influenced other enterprises to follow suit.” 

Bates said reliability and performance are also considerations that favor on-premise systems. He said applications that require low latency, and mission-critical tools or apps that deal with proprietary processes, are sometimes better run from dedicated, in-house infrastructure. “When we built the hybrid model for GM, we got the benefits of the cloud without compromising on the security and reliability of on-prem systems,” he said. “This hybrid model is something that is now being adopted by more companies.”

However, some experts believe evidence of a movement away from the cloud is unclear, especially when vendor perspectives are involved. “When we talk about the potential security benefits of local architecture, this is a drop in the bucket compared to larger conversations in cybersecurity at this moment,” said Seth Geftic, vice president of product marketing at Huntress. “Although I don’t believe that people are moving away from the cloud in such high waves, there are a number of potential reasons that a company could look toward local infrastructure.”

A balancing act between on-prem and cloud will likely continue, with the need to weigh the advantages for both sides. “Cloud providers have a huge deal of control over their resources, meaning that there is little companies can do when they decide to put up prices,” said Geftic. 

“Cloud is an expensive solution, but one that offsets that with a number of advantages — speed, scalability, ease of use. What the industry could experience is a slight deviation from full-cloud architecture and a restructuring toward hybrid environments. A direct leap from fully cloud-based to fully local seems like a slight stretch, if I’m being honest.”