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Why Enterprises Are Repatriating Data from the Cloud

More enterprises are moving data and platforms away from public clouds. What’s driving this change?

• By Michael Gibbs
• January 18, 2024

It has been nearly two decades since Amazon Web Services brought cloud computing to the masses. By 2021, 96 percent of companies were using public clouds to support their business processes -- hosting business applications, websites, storing data, and managing office applications such as email, calendars, and video conferencing.

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Then, in 2022, something changed. The number of businesses using the cloud began to decline, with some moving data and platforms to onsite, private data centers. The shift is known as cloud repatriation.

The cloud supposedly offers businesses all the benefits they need in the digital era: flexibility, scalability, mobility, and security. Cloud computing drives digital transformation and gives organizations a competitive edge. That hasn’t changed, so why are some companies now seeking a better alternative?

The shift is being driven by cost. Many businesses bought into the cloud because they thought it would be cheaper, which was how the cloud was originally sold. Providers told businesses they could have all the benefits of a data center without the expense of building and maintaining it -- but they didn’t provide the whole truth.

Why Cloud Computing Is Often More Expensive Than Traditional Data Centers

Cloud computing involves renting space in someone else’s data center. It is effectively a landlord-tenant model. For that type of relationship to be effective, the vendor (landlord) must always charge more than the actual cost of building and operating the network and data center. They must collect the revenue needed to buy the equipment, maintain it, market it, sell it, and still make a profit.

Initially, the promise of cloud computing being cheaper than traditional data centers was believable because of economies of scale. Cloud providers could deliver services at lower prices than data centers because they were larger.

Then they reached hyperscale, which changed the financial equation.

Operations get more complicated when clouds reach hyperscale. They need much more redundancy and fault tolerance because their systems are much more complex, with more opportunities for things to go wrong. The cloud at hyperscale involves not only the components of the traditional data center but the control plane of the cloud provider as well.

Cloud at hyperscale also involves many data centers, many servers, and large networks. As a result, cloud providers need a much bigger governance structure and much more equipment. Once all those scaling issues are addressed, any benefits of economies of scale are lost, and operating the cloud becomes increasingly expensive.

Achieving Better Performance Without Driving Up Costs

In the early days of cloud computing, many businesses flocked to the cloud because of cloud certifications. Those certifications were essentially sales training to convince technology professionals their businesses needed to leverage cloud computing. They promised better performance at lower costs, without effectively explaining what the technology was, how it worked, or how businesses could leverage it to improve business performance.

Repatriation allows companies to achieve in their private data centers many of the same benefits of the public cloud, but with higher performance and lower costs. Private clouds enable much more customization, higher security, and better performance, and they can still be integrated with public clouds for near unlimited scalability and agility.

Why do private clouds perform better? The public cloud has higher latency than data centers because of the distance between the cloud and the business. Cloud providers also need to use network-type storage rather than storage in the servers themselves, which is more scalable but more costly, while providing lower performance.

Specialization is another benefit businesses lose when they rely on the cloud. Cloud providers are like telephone companies -- a large service provider that must meet the needs of the masses. That makes them less capable of offering specialized services. With data centers, the business owns the entire environment and can customize it to meet unique needs in an optimal way.

The Future of Cloud Computing

Cloud computing continues to make sense for most businesses. Its scalability and agility can be leveraged to give businesses a competitive advantage. As businesses seek to keep up with the rapid pace of today’s business world, cloud computing increases the velocity at which they can create and deploy new applications and business functions.

However, most businesses will achieve maximum performance with a hybrid cloud strategy that uses both public and private clouds, using the public cloud for its agility and scalability and leveraging the private cloud to provide the optimal cost and performance.

Repatriation does not involve abandoning the cloud. Rather, it is a result of businesses having a better understanding of the overall strengths and weaknesses of the cloud. Leveraging the public cloud for what it does best and building a private data center for the rest empowers businesses to get the highest level of cloud capacity and performance at the lowest cost.