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Just because on-prem is cheaper doesn’t make the cloud a money pit

Oh and expect to DCs to get more expensive, not less, analysts warn

Comment With cloud costs expected to rise over the next year, you might be considering moving your applications back on-prem or to a colocation facility — after all, it worked for 37Signals.

Earlier this year, the Basecamp project management and Hey email developer revealed the $3.2 million cloud hosting bill that spurred its decision to ditch the cloud and rack up its own servers instead.

It's an attractive prospect, especially if your workloads are predictable. The general consensus here is that the ability to rapidly spin up or down additional resources makes the cloud a good choice for bursty or unpredictable applications. But, as soon as compute demands stabilize, the cloud stops making as much sense, and tossing a couple servers in a rack ends up being a lot less expensive. Dropbox figured this out when it ditched AWS back in 2016, and was a central argument at the heart of 37Signals' decision.

It's not just the cloud, datacenters are getting more expensive too

The tricky part, of course, is that momentum is hard to overcome, and once the data is in the cloud, the high cost of migration — egress fees in particular — means it's often easier to leave where it is.

However, as the Uptime Institute recently pointed out, while some business models will benefit from what they described as cloud repatriation — aka moving workloads back on-prem — it's not as simple as 37Signals or Dropbox might have you believe.

"Very few organizations are moving away from the public cloud strategically — let alone altogether," Uptime analyst Owen Rogers wrote in a recent blog post.

 What's more, the analysts report that many of the same forces driving up cloud costs are negatively impacting colos and private datacenters too, which means the savings made from ditching the cloud may not be as large as enterprises are expecting.

The reason is multifaceted, but it's rooted in ongoing supply chain issues, increased labor and energy costs, as well as a lack of cheap capital which has been compounded by inflation.

Another factor likely to drive up datacenter costs, according to Uptime, are sustainability mandates. Some jurisdictions, including Amsterdam and Singapore, have enacted efficiency mandates on datacenters. The European Commission also is working to roll out datacenter efficiency mandates of its own,  while in the US, several state governments, including Oregon, are weighing similar measures.

Depending on how stringent these requirements are, the cost of building datacenters could go up considerably as operators are forced to change how they build facilities and deploy compute. And in what should surprise no one, operators aren't exactly thrilled about it. Last month, local media in Oregon reported that cloud provider Amazon was pushing back against a proposed law that would force greenhouse gas reductions and fine datacenters that failed to meet sustainability mandates.

These factors combined, Uptime argues, mean that building and running datacenters is going to be more expensive moving forward. And we don't expect colocation facilities are going to eat the higher cost of doing business. More likely, they're going to pass those costs onto their customers in the form of more expensive leases or maintenance fees.

On-prem still cheaper, but don't expect a cloud exodus

For the time being, Uptime notes on-prem and colocation datacenter hosting is still less expensive than the cloud. However, that doesn't mean that everyone should follow 37Signals' or Dropbox's lead.

The reality, the analysts contend, is this isn't a black-and-white, all-or-nothing issue where folks have to make a decision whether to use the cloud or not. "Some applications can be migrated to the public cloud and perform as expected at an affordable price; others may be less successful," Rogers wrote.

According to Uptime, one of the common threads connecting 37Signals, Dropbox, and other examples of cloud repatriation isn't just that their compute and storage needs scaled predictably, but they may not have been able to take advantage of cloud services, like data analytics, to derive additional value.

"If a cloud analytics service — one that would otherwise be time consuming and costly to deploy privately — could use this data source to help create drugs or treatments, the price would probably be worth paying," Rogers explained.

Another element worth pointing out is management. For smaller deployments, the cloud may end up being less expensive than hosting the service on-prem or in a colocation facility if doing so requires additional staff to manage it. As we've previously reported, datacenter operators are already struggling to fill positions.

With that said, several colocation providers have rolled out services designed to make deploying compute in their facilities feel less like renting a rack and more like a bare-metal cloud. For example, both Equinix and Cyxtera offer self-service portals for provisioning bare-metal servers, networking, and all manner of software.

Despite these options, and lower prices, it's unlikely enterprises will abandon the cloud altogether. According to Uptime's annual datacenter capacity survey, just 6 percent of respondents said they were giving up on the cloud altogether. Instead, analysts expect that hybrid approaches involving a mix of on-prem and cloud deployments will continue to the norm. ®

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