Cloud Repatriation: Navigating the Shift Back

A new trend in cloud computing is making waves – cloud repatriation. It’s a term that’s buzzing in the corridors of IT departments and boardrooms alike. Cloud repatriation is when businesses move their data and applications from public clouds back to private or hybrid clouds.

It is challenging the dominance of public cloud solutions. Businesses realize that the one-size-fits-all approach may not meet all their needs. Here, we delve into the concept of cloud repatriation, highlighting why businesses are moving away from public cloud solutions. We also discuss the benefits and challenges of this transition and provide insights into planning a successful cloud repatriation strategy with real-world examples and case studies. Let’s dive into this phenomenon and unravel the mysteries behind this emerging trend.

What is Cloud Repatriation?

Cloud repatriation is a growing trend in cloud computing. It means businesses moving their data and apps from public clouds to private cloud or hybrid cloud hosting. In essence, it entails bringing back control and ownership of data and/or applications that were previously hosted on public cloud platforms.

Picture this: a few years ago, your company joined the cloud bandwagon, lured by the promises of flexibility, scalability, and cost-efficiency. Fast forward to today, and the scenario has shifted. Cloud repatriation is moving data and applications from the public cloud. They go back to on-premises or private cloud environments. It’s like a boomerang; you threw your data out to the cloud, and now you’re bringing it back home. But why?

Why are Businesses Moving Away From the Cloud?

The cloud journey isn’t always sunny. The decision to move away from the cloud is not taken lightly by businesses. It is driven by a combination of factors that have led to the realization that public cloud solutions may not be the best fit for their specific needs. Companies often face unexpected problems. These include rising costs, worries about data security, and compliance headaches.

• Cost: One of the primary factors driving businesses away from the cloud is the cost. While public cloud services initially promised cost savings, many organizations have found that as their usage and storage requirements increase, the costs can quickly escalate. Public cloud providers charge based on usage. As businesses grow, their expenses become unpredictable and unsustainable. This has prompted businesses to explore alternative options that offer more predictable and manageable cost structures. For instance, a friend running an e-commerce platform shared how their public cloud costs skyrocketed as their business grew. Their AWS charges for API calls, data usage, GPU time, and storage escalated to $60,000 per month. The exact savings obviously varies by company. But several experts we spoke to converged on this “formula”: Repatriation costs one-third to one-half as much as running equivalent workloads in the cloud.
• Security and compliance: Security and compliance concerns are another biggie. Public cloud services have stringent security measures in place, but some organizations may have specific security requirements that cannot be fully met in a public cloud environment. Additionally, industries with strict compliance regulations, such as healthcare and finance, may find it more challenging to meet their compliance obligations in a public cloud setting. By repatriating their data and applications to private clouds, businesses can have tighter control over security measures and ensure compliance with industry regulations. With data breaches making headlines, companies are increasingly nervous about storing sensitive data in the public cloud. It’s like keeping your valuables in a shared safe – it’s secure, but you can’t help but worry.
• Performance: Another reason why businesses are moving away from the cloud is performance issues. Public cloud services are shared by many organizations. The performance can be hurt by the activities of other users on the same infrastructure. For businesses that require consistently high performance for their applications and data, this can be a significant drawback. By repatriating their data and/or applications to private or hybrid cloud environments, businesses can have greater control over the infrastructure and optimize it to meet their specific performance requirements.

Database is the Largest Contributor to Cloud Cost Overages

A survey by Vega survey highlighted an unexpected primary factor in cloud cost overruns. When asked which aspects of their cloud expenditure were most exceeding their forecasts, the response was somewhat surprising.

Contrary to what one might assume, it wasn’t compute or bandwidth that were the main offenders; instead, database expenses topped the list. This raises the question of whether users of popular databases like Snowflake, known for its bundled consumption-based billing, formed a significant part of this survey group. In Snowflake’s model, customers receive a consolidated bill covering both storage and compute usage, lacking a detailed breakdown. Although we inquired about the specifics of the survey participants, the survey conductors couldn’t provide this granular information.

Planning a Cloud Repatriation Strategy

So, how do you ensure a smooth transition? First, assess your needs and choose the right environment. It’s like planning a vacation; you need to pick the right destination based on your preferences and budget. Also, involve your IT team and choose the right partners. It’s a team effort, and having experienced players on your side can make a world of difference.

• Assessing Needs: The first step in planning a cloud repatriation strategy is to assess the specific needs and requirements of the business. This involves evaluating the reasons for moving away from the public cloud, benefits, and projected outcomes. Don’t forget to consider the potential loss of some public cloud benefits such as scalability and elasticity.
• Choosing the Right Infrastructure Environment: Once the decision has been made, the next step is to determine the most suitable environment for repatriating the data and/or applications. This includes on-premise data centers, private cloud or hybrid cloud providers. Factors to consider include performance, security, compliance, scalability and reliability needed. Also, do not forget the integration capabilities with existing systems and applications.
• Creating a Migration Plan: The repatriation process involves migrating applications, data, and workloads from the existing public cloud environment to the new on-premises or private/hybrid cloud environment. This plan should outline the step-by-step process. It will explain how to transfer data and applications from the public cloud to the private or hybrid cloud. It should include considerations for data transfer methods, timing, dependencies, and potential risks or challenges. In
• Executing a Successful Migration: The final step is to execute the migration plan and ensure a successful transition from the public cloud to the private or hybrid cloud environment. This involves carefully following the planned steps, monitoring the migration process, and addressing any issues or obstacles that may arise. I have found that an often-overlooked step is having a backup and recovery plan. It helps to reduce data loss or downtime during migration. In my experience, this process can take several months depending on the size and complexity of the environment. Keep in mind that you need to ensure that there are skilled staff in place either in-house or provided by the private cloud hosting provider.

Pro tip: There’s also no reason that repatriation, can’t be done incrementally, and in a hybrid fashion. We need more nuance here. The discussion is too either/or. For example, repatriation only makes sense for a few of the most resource-intensive workloads. It doesn’t have to be all or nothing. In fact, of the many companies we spoke with, even the most aggressive take-back-their-workloads ones still retained 10 to 30% or more in the cloud.

What Companies are Repatriating Cloud?

Primarily, we’re seeing this shift among companies that have grown weary of the one-size-fits-all nature of public clouds. Across all our conversations with diverse leadership of organizations, the pattern has been remarkably consistent: If you’re operating at scale, the cost of cloud can at least double your infrastructure bill.

Mid-to-large sized SaaS companies

Cloud spend ranging from 75 to 80% of cost of revenue was common among software companies that we spoke to. These companies are often conservative when sizing cloud commits. They fear spending too much. So, they commit only to their baseline loads. So, as a rule of thumb, committed spend is often typically ~20% lower than actual spend… elasticity cuts both ways. Some companies we spoke with reported that they exceeded their committed cloud spend forecast by at least 2X. A $500M private software company told us that their public cloud spend amounted to 81% of COR. Drawing from our conversations with experts, we estimate that cloud repatriation drives a 50% reduction in cloud spend. For the broader universe of scale public software and consumer internet companies utilizing cloud infrastructure, this number is likely much higher.

Larger Enterprise companies

A vast majority of enterprises surveyed globally are overspending in the cloud, according to a new HashiCorp-Forrester state of the cloud survey report.

Take the example of infrastructure monitoring as a service company Datadog. The company traded at close to 40X 2021 estimated gross profit in 2021, and disclosed an aggregate $225M 3-year commitment to AWS in filings. If we annualize committed spend to $75M of annual AWS costs—and assume 50% or $37.5M of this may be recovered via cloud repatriation—this translates to roughly $1.5B of market capitalization for the company on committed spend reductions alone.

Rough estimates like these might not hit the bullseye , but the general trend they reveal is unmistakable: the market value of large-scale public software firms is significantly burdened by cloud expenses, potentially by hundreds of billions of dollars. Broadening our scope to include a wider range of enterprise software and consumer internet companies, this figure could surpass $500 billion. This is under the assumption that about half of the total cloud expenditure is by major tech companies, which could see substantial gains from shifting back to private cloud solutions.

For those at the helm of businesses, industry experts, and innovators, the influence of cloud costs on market capitalization is too substantial to overlook. This holds true not just for long-term strategic planning but also for decisions that affect the near future. The cost implications are too pronounced to be sidelined in any discussion about infrastructure choices.

What is an Example of a Cloud Repatriation?

Let’s look at some real-world examples.

Large Healthcare Provider

A healthcare company I worked with moved back to a private cloud due to HIPAA compliance requirements. They found managing patient data easier and more secure on-premise.

Mid-Sized SaaS

Last year, we helped a mid-sized SaaS migrate migrate off AWS and Google Cloud to a colocation private cloud environment. The result reduced their infrastructure spend to $840,000 a year, compared the prior $2.2M cloud bill. That equates to $7M in savings over five years after moving off the public cloud. In addition, they now have much faster hardware, a lot more cores, much cheaper NVMe storage, and room to expand at a very low cost.

DropBox

To grasp the financial impact of cloud optimization and the significant savings it can yield, let’s examine a more pronounced instance of large-scale cloud repatriation: Dropbox. In 2016, Dropbox initiated a major infrastructure optimization project. By transitioning most of their workloads from public cloud services to a more economical, tailor-made infrastructure in co-location facilities directly managed by Dropbox, they achieved a savings of about $75M over two years. This strategic move significantly boosted Dropbox’s gross margins, which soared from 33% to 67% between 2015 and 2017. This remarkable increase came from their infrastructure optimization efforts and a concurrent rise in their revenue during that period.

The shift to a private cloud allowed Dropbox to cut down on running costs while customizing its infrastructure for improved efficiency and security. This intricate transition spanned two years, involving detailed planning to transfer petabytes of data, ensuring no disruption to user services. Consequently, Dropbox emerged with a storage solution that was not only more economical and scalable but also boasted enhanced performance, underscoring the wisdom of their decision to transition away from reliance on public cloud infrastructures.

source: Dropbox S-1 filed February 2018

Conclusion

In conclusion, repatriating from the public cloud to a private or hybrid cloud environment requires careful planning. Organizations also need to consider of factors such as performance, security, compliance, scalability, and reliability. Companies can optimize their infrastructure, customize their environment, and integrate with existing systems through repatriation. The cost savings from transitioning to a private or hybrid cloud solution can be substantial. Additionally, repatriation doesn’t have to be all-or-nothing. Companies can choose which workloads to repatriate while still utilizing the benefits of the public cloud. Overall, careful planning and the right partners can ensure a smooth transition.

In addition, the potential impact of AI raises some interesting questions about where infrastructure should be physically located. This causes us to revisit our premise that repatriation is an isolated and negligible trend.

What we need is not a retreat from the cloud, but a reevaluation of how best to use it. It’s time for the honest assessments we’ve always called for, with the added urgency of big cloud bills and increasing security concerns behind them.

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