Cloud Exit: 42% of Companies Move Data Back On-Premises

Today, we are in a strange phase shift between widespread cloud adoption and the emerging trend of ‘Cloud Exit’ — with most businesses settling somewhere in between.

Initially drawn by the promise of cost savings and increased flexibility, companies are now taking steps to right-size their cloud usage based on practical experience and outcomes.

In this scenario, ‘Exiting the cloud is not important for everyone, but having a cloud exit strategy matters.’

Techopedia explores the stats and trends that are forming around the cloud — first, the crowd rushes in, and then sometimes, certain segments realize it is not for them.

Table of Contents Table of Contents

1. Why 'Cloud Exit' Trend is Growing
2. Cloud Exit: Key Stats at a Glance
3. 'Cloud is Not a Charity'
4. Cloud Dreams vs. Reality
5. Key Drivers of Cloud Exit
6. The Bottom Line
7. FAQs

Show Full Guide

Table of Contents

1. Why 'Cloud Exit' Trend is Growing
2. Cloud Exit: Key Stats at a Glance
3. 'Cloud is Not a Charity'
Show Full Guide
4. Cloud Dreams vs. Reality
5. Key Drivers of Cloud Exit
6. The Bottom Line
7. FAQs

Why ‘Cloud Exit’ Trend is Growing

In simple terms, Cloud Exit is a trend in which businesses are right-sizing their cloud dependencies and re-evaluating their cloud expenses by either actively planning exits or scaling down their cloud usage. A notable chunk of businesses are actively revising their cloud commitments.

42% of organizations surveyed in the United States by Citrix earlier this year are considering or already have moved at least half of their cloud-based workloads back to on-premises infrastructures.

In fact, 94% of respondents involved in this recent survey were involved in some kind of ‘cloud reparation’ project.

As we unveil in our extensive cloud statistics article, the pressing cost of the cloud has proven to be a big turn-off for corporations. Over 43% of IT leaders found that moving applications and data from on-premises to the cloud was more expensive than expected.

One of the first high-profile cloud exits dates back to 2015, when Dropbox reduced its operating costs by $74.6 million over two years. Despite the initial benefits of cloud scalability and flexibility, Dropbox’s rapid growth made the ongoing costs unsustainable.

Some companies scale so much that it makes sense to build their network with custom tech and abandon the cloud. Meanwhile, exiting the cloud helped them reduce their dependency on cloud services from major providers like Amazon and Google, using custom technology and building their own network.

‘Cloud is Not a Charity’

Dropbox’s vice president of engineering and an ex-Facebook engineer, Aditya Agarwal, pointed out that despite benefiting from cost efficiencies in large-scale operations, cloud providers do not provide the service at cost  — choosing not to pass on the full savings to customers.

Agarwal said: ‘Nobody is running a cloud business as a charity.’ When businesses reach a size where it is economically viable, constructing their own infrastructure can save significant costs while eliminating the ‘cloud middleman’ and associated expenses.

That said, the cloud is certainly not “Just someone else’s computer,” as the joke goes. It has added immense value to those who adapted to it.

But like artificial intelligence (AI), it has been mythologized and exaggerated as the ultimate tool for efficiency — romanticized to the point where pervasive myths about cost-effectiveness, reliability, and security are enough for businesses to dive headfirst into adoption.

These myths are frequently discussed in high-profile forums, shaping perceptions that may not always align with reality, leading many to commit without fully considering potential drawbacks and real-world challenges.

Moreover, a handful of giant corporations with monopolistic tendencies run the cloud market and influence everything from pricing to technological innovation.

This uneven distribution of market power can stifle competition and restrict operational flexibility, compelling businesses to reconsider their cloud strategies.

Cloud Dreams vs. Reality

In 2019, Gartner boldly predicted that 80% of enterprises would shut down their traditional data centers by 2025 and move to the cloud, but how much of that is true?

Just three years later, a 2022 Accenture report showed some mixed progress. While nine out of ten companies acknowledge substantial benefits from their cloud investments, only 42% have fully realized their anticipated outcomes, and a mere 32% define their cloud journeys as complete and satisfied.

Given the gap between the idealized perception of cloud computing and the operational reality, businesses must approach the cloud with a balanced perspective. Let us understand cloud exit, why businesses are right-sizing the cloud, and how monopolistic practices decelerate innovation.

Key Drivers of Cloud Exit

Organizations are now reconsidering their cloud commitments and exploring the feasibility of cloud exit strategies. These are the key factors that are driving this market sentiment:

Everyone talks about how moving to the cloud reduces capital expenditures and eliminates the need for physical servers and hardware. While that may be true initially, what often goes unmentioned is how long-term cloud operational costs can be unexpectedly high.

One such case is the well-known project management tool provider Basecamp, whose monthly spending reached approximately $180,000, finding cloud services from providers like Amazon and Google were more costly and complex than anticipated.

After spending $3.2 million on cloud services in 2022, they calculated that switching to on-premises hardware would cost $840,000 annually. Giving up on this financial burden, Basecamp projects a savings of $7 million over five years.

This scenario is far from unique. Several organizations find the recurring costs associated with cloud services, particularly for scalability and storage, can exceed the costs of maintaining on-premises infrastructure.

As the benefits of scalable cloud services diminish, companies that experience stable and predictable data demands find that the premium price of cloud flexibility is no longer justifiable.

Avoidable charges and cloud waste were another noteworthy issue revealed in the 2023 State of Cloud Strategy Survey by Hashicorp. 94% of respondents in this survey reported incurring unnecessary expenses because of the underutilization of cloud resources.

These costs often result from maintaining idle resources that do not cater to any of the company’s actual operational needs. These inflated costs not only contribute little to business growth but also divert funds from potential development areas.

PwC’s Global Workforce Hopes and Fears Survey 2024 suggests that about 47% of tech leaders rank cloud-related threats as their top threat scenario. The common perception is that on-site infrastructure is inherently unsafe because it is physically accessible.

But is it truly unsafe due to its physical accessibility, or is it a matter of how well access is controlled?

The truth is that remote access significantly increases the likelihood of cyber attacks by multiplying the potential entry points for hackers. Plus, the cloud happens to be an attractive target for hackers. Over 80% of data breaches in 2023 involved data stored in the cloud, while the global average cost of a breach was $4.45 million.

Big corporations like Capital One, Twilio, Pegasus Airlines, and Uber have all suffered in some form or other from AWS breaches in the past. These high-profile information leaks have intensified the fear of storing sensitive data in the cloud.

Reliability issues, particularly those related to cloud service outages, pose the risk of temporarily halting business operations.

For businesses that have reached a scale where downtime means substantial financial loss, the risk of outages can make cloud services seem less viable.

In 2023, outages from major cloud providers like Oracle, Azure, and AWS disrupted services for hundreds of thousands of users each time, potentially causing the company to lose millions.

Unfortunately, in 2024, the prevalence of cloud outrages is increasing.

Vendor lock-in and limited flexibility are significant challenges that complicate the cloud for organizations looking to navigate these services.

With Amazon Web Services holding a 31% market share, Microsoft Azure at 25%, and Google Cloud at 11%, a small number of large providers dominate the market.

Due to this concentration, these companies gain near-monopolistic power over not only pricing and service terms but also the flexibility through which businesses manage their technological infrastructures.

It also allows these giants to unfairly privilege their first-party applications and services, making it difficult for third-party services to compete.

It is clear that unchecked market dominance in the cloud sector could slow technological advancements. In February 2024, Google stepped up its criticism of Microsoft. They cautioned that Microsoft’s pursuit of a cloud monopoly could compromise the development of next-generation technologies like AI and called for regulatory intervention.

Exiting or switching services is not exactly seamless. Since providers manage the cloud infrastructure entirely, customers have limited backend operations control. During exits or migrations, they often face potential security vulnerabilities, high costs, and complexities in reconfiguration.

While egress fees are slowly becoming less of a problem in 2024, the providers’ end-user license agreements (EULA) and management policies can further restrict operational freedom.

All these factors add to the risks associated with cloud adoption. Businesses must have a calculated approach to make sure they benefit from cloud technologies without compromising their operational sovereignty.

The Bottom Line

While cloud computing continues to offer significant advantages for many businesses, the narrative of ‘cloud computing as an all-encompassing solution’ is slowly changing. The aforementioned cloud complexities and the near-monopolistic practices of major providers compel us to remain careful in our cloud engagements.

Cloud computing is not a one-way path but requires continuous reassessment and revision. Businesses must fully control their technological environments to drive innovation and growth on their own terms. The ability to swiftly move from cloud to on-premises or a hybrid model becomes a significant competitive advantage for growing companies.

Cloud exit isn’t a sign of failure but of agility and foresight. All you need is a thoughtful approach to cloud engagement and the preparedness for disengagement. Sometimes “it’s not you — it’s me”.

FAQs