Is your Cloud Provider the Hotel California?

What does an iconic Eagle’s 1977 song have to do with cloud computing?

Cloud computing arrived at the tech landscape with a lot of promise more than a decade ago.

According to this Microsoft blog, “Cloud computing is the delivery of computing services—including servers, storage, databases, networking, software, analytics, and intelligence—over the Internet (“the cloud”) to offer faster innovation, flexible resources, and economies of scale.”

I would use the following analogy to explain the cloud types. [I’m a marketing guy; so give me some rope 😂].

1. Public Cloud: This is analogous to booking some seats at a coworking space. You’ll be provided with the internet, electricity, and other utilities you need for work. But you can’t choose your floor and seating. You need to trust the coworking space to work in your best interests.
2. Hybrid Cloud: You have a mix of Dedicated space and Shared space within the coworking space. Meaning, a select portion entirely for your business, and bits elsewhere within the same coworking space.
3. Private Cloud: You have a select portion of the coworking space entirely for yourself. You have a say in how you work within the chosen area. But you must still operate within the overall framework of the coworking space.
4. On-prem Cloud: This is the traditional way where you take for long-term lease an entire building/floor. Almost everything about the workplace is your call.

To put the above in context, 67% of the global cloud services market is dominated by just three public cloud providers: AWS, Google Cloud, and Microsoft Azure.

The Promised Land

What’s the biggest business benefit Cloud brings? From the blog we cited above:

“You typically pay only for cloud services you use, helping you lower your operating costs, run your infrastructure more efficiently, and scale as your business needs change.”

Put simply, instead of buying your storage and compute resources, you rent them from a cloud provider. As you move from a CapEx-intensive model to an OpEx focussed one, you only pay for what you use.

This was the promise: companies can focus on their core functions while leaving cloud operations to the care of a public cloud provider.

In the euphoria, we lost sight of the most important question: Benefits at what cost?

“You can check-out any time you like, but you can never leave!”

So go the lyrics of the Eagle’s 1977 song, ‘Hotel California’.

In many ways, cloud computing is this very hotel. It’s easy to jump onto a public cloud provider. All’s well: until you wish to leave. This is the much-debated vendor lock-in that concerns most organizations.

As this article notes: “Storing a petabyte of data in an Amazon file system can cost 400% more per month than storing it in an on-premises all-flash file store, and moving it back on premises can cost tens of thousands of dollars.”

Jason Ader, a financial analyst at William Blain, is quoted saying: “It is important for customers to take egress costs into account when planning cloud migrations and multi-cloud strategies. In particular, the costs of moving data between different clouds or between the cloud and on-premises data stores as part of a multi-cloud application can be non-trivial.”

As this report indicates, several companies were surprised by a sudden spike in cloud bills. From 2017 to 2018, Adobe’s bill rose by 64%, Pinterest’s by 41%, and Capital One’s by 73%. The report claims about 60% of organizations overspend their cloud budget. Many of these spikes happen due to lack of proper oversight over unplanned usage that is billed at a disproportionately higher rate.

The Reverse Migration to On-prem Cloud

Ahrefs, in their blog, claims to have saved US $400M in 3 years by transitioning from public cloud to on-prem server. It claims, “Ahrefs wouldn’t be profitable, or even exist, if our products were 100% on AWS.” Further: Ahrefs had saved ~USD 400 million this way during these years.

As this a16z blog reports: “[Dropbox] saved nearly $75M over two years by shifting the majority of their workloads from public cloud to lower cost, custom-built infrastructure in co-location facilities” directly leased and operated by Dropbox.” Their gross margins increased from 33% to 67% from 2015 to 2017, which was attributed to their Infrastructure Optimization.

In fact, the blog makes a solid case for full cloud repatriation, i.e. shift the workloads from a public cloud to a special purpose hardware.

Is the Party Over?

The benefits cloud offers are still unrivaled: it boosts organization’s ability to support rapid growth, business agility, and innovation.

However, the payoff has to be weighed against the cost it incurs. Not every business is equally well-placed to capitalize on the cloud advantage.

For companies that prize speed, agility and growth, cloud offers a decisive edge.

But for companies that rely on cost savings and profits for their very sustenance, an on-prem server could be a better alternative.

Now, more than ever before, companies need to pause the hurried pace towards cloud. It’s time to revisit their plans, returns on investment, and whether they can afford to pay the ‘flexibility tax’ for opting cloud.