Forget About Cloud Computing. On-Premises Is All the Rage Again

From startups to enterprise, companies are lowering costs and regaining control over their operations

Cloud is no longer the promise of the future. Image generated with Leonardo AI

Ten years ago, everybody and their mother was fascinated by the cloud. It was the new thing, and companies that adopted it rapidly saw tremendous growth. Salesforce, for example, positioned itself as a pioneer of this technology and saw great wins.

The tides are turning though. As much as cloud providers still proclaim that they’re the most cost-effective and efficient solution for businesses of all sizes, but this is increasingly clashing with the day-to-day experience.

Cloud computing was touted as the solution for scalability, flexibility, and reduced operational burdens. Increasingly, though, companies are finding that, at scale, the costs and control limitations outweigh the benefits.​

Attracted by free AWS credits, me and my CTO started out with setting up our entire company IT infrastructure on the cloud. However, we were shocked when we saw the costs ballooning after just a few software tests. We decided to invest in a high-quality server and moved our whole infrastructure onto it. And we’re not looking back: This decision is already saving us hundreds of Euros per month.

We’re not the only ones: Dropbox already made this move in 2016 and saved close to $75 million over the ensuing to years. The company behind Basecamp, 37signals, completed this transition in 2022, and expects to save $7 million over five years.

We’ll dive deeper into the how and why of this trend and the cost savings that are associated with it. You can expect some practical insights that will help you make or influence such a decision at your company, too.

Cloud Costs Have Been Exploding

According to a recent study by Harness, 21% of enterprise cloud infrastructure spend—which will be equivalent to $44.5 billion in 2025—is wasted on underutilized resources. According to the study author, cloud spend is one of the biggest cost drivers for many software enterprises, second only to salaries.

The premise of this study is that developers must develop a keener eye on costs. However, I disagree. Cost control can only get you so far—and many smart developers are already spending inordinate amounts of their time on cost control instead of building actual products.

Cloud costs have a tendency to balloon over time: Storage costs per GB of data might seem low, but when you’re dealing with terabytes of data—which even we as a three-person startup are already doing—costs add up very quickly. Add to this retrieval and egress fees, and you’re faced with a bill you cannot unsee.

Steep retrieval- and egress fees only serve one thing: Cloud providers want to incentivize you to keep as much data as possible on the platform, so they can make money off every operation. If you download data from the cloud, it will cost you inordinate amounts of money.

Variable costs based on CPU and GPU usage often spike during high-performance workloads. A report by CNCF found that almost half of Kubernetes adopters found that they’d exceeded their budget as a result. Kubernetes is an open-source container orchestration software that is often used for cloud deployments.

The pay-per-use model of the cloud has its advantages, but billing becomes unpredictable as a result. Costs can then explode during usage spikes. Cloud add-ons for security, monitoring, and data analytics also come at a premium, which often increases costs further.

As a result, many IT leaders have started migrating back to on-premises servers. A 2023 survey by Uptime found that 33% of respondents had repatriated at least some production applications in the past year.

Cloud providers have not restructured their billing in response to this trend. One could argue that doing so would seriously impact their profitability, especially in a largely consolidated market where competitive pressure by upstarts and outsiders is limited. As long as this is the case, the trend towards on-premises is expected to continue.

Cost Efficiency and Control

There is a reason that cloud providers tend to advertise so much to small firms and startups. The initial setup costs of a cloud infrastructure are low because of pay-as-you-go models and free credits.

The easy setup can be a trap, though, especially once you start scaling. (At my firm, we noticed our costs going out of control even before we scaled to a decent extent, simply because we handle large amounts of data.) Monthly costs for on-premises servers are fixed and predictable; costs for cloud services can quickly balloon beyond expectations.

As mentioned before, cloud providers also charge steep data egress fees, which can quickly add up when you’re considering a hybrid infrastructure.

Security costs can initially be higher on-premises. On the other hand, you have full control over everything you implement. Cloud providers cover infrastructure security, but you remain responsible for data security and configuration. This often requires paid add-ons.

A round-up can be found in the table above. On the whole, an on-premises infrastructure comes with higher setup costs and needs considerable know-how. This initial investment pays off quickly, though, because you tend to have very predictable monthly costs and full control over additions like security measures.

There are plenty of prominent examples of companies that have saved millions by moving back on-premises. Whether this is a good choice for you depends on several factors, though, which need to be assessed carefully.