Major Companies Retract from Public Cloud Amid Rising Concerns

The cloud has been a dominant force in enterprise technology for over a decade, offering vast capacity, robust security, and access to cutting-edge technologies. In the era of artificial intelligence (AI), where capacity is king, public cloud services have been a go-to choice. However, a recent survey hints at a shift away from these public offerings.

According to a Rackspace survey of 1,420 IT executives, nearly seven out of ten companies (69%) have begun moving some applications back to on-premise systems or private clouds. The primary reasons for this shift include data security and compliance concerns, cited by 50% of respondents, better integration with existing on-premise systems, noted by 48%, and cost savings and budget constraints, mentioned by 44%.

Industry experts and business leaders have acknowledged this reevaluation of the public cloud's value. Rising cloud subscription costs have caused many finance executives to take a step back. "Enterprises are simply spending too much on public cloud services, especially for applications they migrated years ago," remarked David Linthicum, a leading consultant, author, and former CTO at Deloitte.

Linthicum points out that technical debt often drives the move back to on-premise environments. "This is usually a self-inflicted issue," he explained. "Companies didn't refactor their applications to run more efficiently on public clouds. As a result, they end up with hefty bills to support the computational and storage needs of these under-optimized applications."

Instead of investing more to optimize or refactor these applications, many enterprises opt to return them to on-premise systems. Security and compliance also play significant roles. Linthicum noted, "Enterprises realize that maintaining compliance in the cloud, with its data and sovereignty rules, is too costly. So, they choose to bring everything back on-premise."

Miha Kralj, global senior partner for hybrid cloud service at IBM Consulting, suggests that the high costs of cloud operations often result from lift-and-shift migrations that fail to optimize applications for cloud environments. "These migrations maintain existing architectures that don't take advantage of cloud-native capabilities, leading to inefficient resource use and unexpectedly high expenses," he said.

However, Kralj argues that returning to on-premises infrastructure isn't always the solution. "Most performance, security, and cost challenges can be addressed through cloud-native refactoring — redesigning applications to leverage cloud capabilities like auto-scaling, containerization, and serverless architectures. Companies that invest in refactoring often see improved operational efficiency and better cost control."

Timothy E. Bates, a professor at the University of Michigan and former CTO for Lenovo and General Motors, highlighted the cost considerations. "Many organizations find cloud solutions costly due to unexpected expenses like data egress fees and premium features," he said. "On the other hand, on-prem solutions have higher upfront costs but are more cost-effective in the long run for stable workloads."

Bates has observed this trend toward balancing cloud and on-prem solutions while architecting hybrid solutions for GM. "Large enterprises are increasingly reevaluating the risks and limitations of relying solely on the cloud for critical workloads and intellectual property," he noted.

Richard Robbins, founder and owner of TheTechnologyVault.com, added that enterprises, especially those in regulated sectors like banking, are moving some or all of their web apps from the cloud to on-prem or hybrid setups. "There's been enough vulnerability and downsides to cloud hosting to make executives wary of not having more control over security and other aspects," he observed.

Bates also emphasized that security, control, and cost efficiency are key factors in this cloud hesitation. "While the cloud offers scalability, it's a shared resource — organizations must trust third-party providers like Azure, Amazon, or Google with their most sensitive data. For businesses with highly proprietary information or strict compliance needs, the risks of not having full control over data storage often outweigh the benefits."

The hype around the cloud has somewhat faded, with AI now capturing much of the attention. As a result, many decision-makers are taking a more pragmatic view of the cloud's pros and cons. "In 2017, I talked to CIOs and DevOps personnel who were assigned, often reluctantly, to move their technology to the cloud," Robbins recalled. "Many felt overwhelmed and pushed back. That was during the peak of the cloud rush, when having apps in the cloud was a status symbol."

Now, with the initial rush to the cloud being somewhat hasty and uncoordinated, enterprises are rethinking their strategies. Robbins noted, "Companies like Dropbox, one of the first major enterprises to embrace the cloud, started moving back to their own hosting infrastructure as early as 2015. Their move saved nearly $75 million in operational costs over two years, influencing others to follow suit."

Bates pointed out that reliability and performance also favor on-premise systems. "Applications requiring low latency and mission-critical tools or apps dealing with proprietary processes are often better managed on dedicated, in-house infrastructure," he said. "When we built the hybrid model for GM, we benefited from the cloud without sacrificing the security and reliability of on-prem systems. This hybrid approach is now being adopted by more companies."

Yet, some experts believe the evidence of a significant shift away from the cloud is not clear-cut, particularly when considering vendor perspectives. Seth Geftic, vice president of product marketing at Huntress, remarked, "When we discuss the potential security benefits of local architecture, it's a minor part of larger cybersecurity conversations. I don't believe companies are moving away from the cloud in large numbers, but there are valid reasons for considering local infrastructure."

The future likely involves a balancing act between on-prem and cloud solutions, weighing the benefits of each. "Cloud providers have significant control over their resources, leaving companies with little room to negotiate when prices rise," Geftic said.

"While the cloud can be expensive, it offers advantages like speed, scalability, and ease of use. The industry might see a shift from fully cloud-based architectures to hybrid environments. A complete move from the cloud to entirely local systems seems unlikely."