Are Organizations Shifting Back to On-Prem?

Over the past couple of decades, the shift towards embracing public cloud infrastructure appeared to be an unstoppable, unidirectional force. As providers continued to scale, costs for end-users were expected to decrease, and an increasingly diverse range of services would enable startups to maintain their agility and rapidly respond to fluctuations or disturbances in demand.

However, in recent years there has been a growing debate on whether organizations are moving back from public cloud environments to private clouds or on-premises solutions. After reading some recent articles debating the topic, I thought I would provide a review of the current state of the trend and examine reasons behind the shift.

The Reverse Migration Trend

Remember when everyone was jumping on the public cloud bandwagon? Well, it seems the pendulum is swinging back! According to a report by IDC, enterprises are increasingly moving workloads back from the cloud to on-premises environments. As IDC analyst Stephen Elliot puts it, “Enterprises continue to migrate workloads back from public cloud environments” (Network World). As per a 2022 report by Bessemer Ventures, the adoption of virtual private clouds has experienced a considerable surge. Similarly, a Solutions Review article states that seven in 10 companies have moved cloud applications back on-premises. Talk about a comeback!

The reasons driving organizations to rethink their cloud strategies are as diverse as the organizations themselves. Here’s a rundown of some of the primary factors behind the reverse migration:

• Unpredictable costs: Public cloud providers typically use a pay-as-you-go model, which means organizations are billed based on their actual usage of resources. While this can be cost-effective for some workloads, variable usage patterns can result in unpredictable monthly expenses, making it difficult for companies to budget accurately.
• Complex billing models: Public cloud billing models can be intricate, with costs depending on various factors such as data storage, data transfer, compute resources, and additional services. This complexity can make it challenging for organizations to understand and control their cloud spending fully.
• Egress fees: Transferring data out of a public cloud can incur significant egress fees. If an organization frequently moves large amounts of data between the cloud and on-premises systems or among different cloud providers, these fees can add up quickly and increase the overall cost of using a public cloud.
• Scaling inefficiencies: While the public cloud offers excellent scalability, it can also lead to increased costs if organizations do not manage their resources efficiently. For instance, provisioning more resources than needed or not deallocating resources when they are no longer required can result in unnecessary spending.
• Cost of managed services: Some organizations opt for managed services in the public cloud to simplify management tasks and reduce operational overhead. However, these managed services often come at an additional cost, which can increase overall cloud spending.
• Over-reliance on proprietary services: Public cloud providers offer various proprietary services that can improve performance and simplify deployment. However, using these services can create vendor lock-in and make it more challenging and expensive to migrate workloads to another provider or back on-premises in the future.
• Lack of cost optimization expertise: Many organizations lack the necessary expertise to optimize their public cloud costs effectively. Without a thorough understanding of cost optimization strategies, such as rightsizing instances, using reserved instances or savings plans, and leveraging spot instances, organizations may struggle to control their cloud spending.
• Data security: In a world where cyber threats are constantly evolving, organizations are increasingly concerned about the security of their data. Some companies believe that private clouds and on-premises environments offer superior data protection compared to public clouds, as they provide more control over security measures and data access.
• Compliance requirements: Industries with strict regulatory compliance requirements, such as healthcare and finance, are more inclined to favor private clouds or on-premises solutions. These options allow organizations to maintain tighter control over their data and meet industry-specific standards that might not be possible in a public cloud environment.
• Control and customization: Public clouds are designed to cater to a wide variety of users and use cases, which can sometimes mean limited customization options. Organizations seeking more control over their infrastructure and the ability to tailor solutions to their specific needs may find private clouds or on-premises environments more appealing.

Mixed Sentiments Among CIOs

When it comes to CIOs, opinions on this cloud reversal are as mixed as a bowl of trail mix. Some CIOs feel the public cloud offers flexibility and scalability that on-premises environments cannot match, while others argue that on-premises environments offer better data security and control.

The public cloud offers a range of benefits that have made it an attractive option for many organizations. Here are the primary advantages:

• Scalability: Public cloud providers offer virtually unlimited resources, allowing organizations to scale their infrastructure quickly and easily in response to changing demands. This means that businesses can grow without worrying about the limitations of their own data centers.
• Flexibility: The public cloud provides access to a wide range of services and technologies, enabling organizations to select the best tools for their specific needs. This allows for greater innovation and adaptability as businesses evolve.
• Cost savings: By using a pay-as-you-go model, public cloud providers allow organizations to pay only for the resources they use. This can lead to cost savings, particularly for companies with variable workloads or those that don’t have the capital to invest in their own data centers.
• Reduced maintenance: Public cloud providers take care of infrastructure maintenance, including hardware, software, and network management. This can free up internal IT resources to focus on more strategic tasks and reduce the need for in-house expertise on maintaining infrastructure.
• Global reach: Public cloud providers have data centers located around the world, which can help organizations ensure low-latency access for their users and support global expansion.
• Disaster recovery and redundancy: Public cloud providers typically offer robust backup and disaster recovery solutions, with data stored across multiple locations. This can help organizations safeguard their data and ensure business continuity in the event of a disaster.
• Faster deployment: Public cloud services can be deployed quickly, allowing organizations to get new projects and applications up and running faster than they could with on-premises infrastructure.
• Security: While security remains a concern for some organizations, public cloud providers invest heavily in security measures to protect their infrastructure and customers’ data. This can often result in more robust security than individual organizations can achieve on their own.

The Hybrid Approach: Best of Both Worlds?

As organizations reconsider their cloud strategies, a hybrid approach combining the best of both worlds seems to be gaining traction. An ITPro article highlights that many enterprises are adopting hybrid cloud models, leveraging the benefits of both public and private clouds. This strategy lets them maintain control over sensitive data and applications while still benefiting from the scalability and flexibility that public cloud offerings bring to the table. The perceived and real benefits of a hybrid approach include flexibility and agility, cost optimization, improved security and compliance, increased resilience, and greater choice and reduced vendor lock-in.

However, a hybrid approach can lead to greater management overhead, as it requires managing and orchestrating resources across multiple environments. Some of the challenges associated with hybrid cloud management include:

• Complexity: Managing resources across different cloud environments and on-premises infrastructure can be complex, requiring organizations to develop and maintain expertise in multiple platforms.
• Integration: Ensuring seamless integration and interoperability between public and private clouds or on-premises infrastructure can be challenging, particularly when dealing with different APIs, data formats, and networking configurations.
• Security and compliance: A hybrid approach requires organizations to implement consistent security and compliance policies across multiple environments, which can be difficult to achieve and maintain.
• Monitoring and management: Managing a hybrid cloud environment often necessitates the use of multiple monitoring and management tools, which can increase the complexity and cost of IT operations.

Despite these challenges, many organizations find that the benefits of a hybrid approach outweigh the management overhead, particularly when they invest in tools and processes to streamline and automate hybrid cloud management.

One thing is for certain: the debate over whether organizations are moving back from public cloud environments to private clouds or on-premises solutions is far from settled. With an array of factors at play, the reasons behind the shift can vary greatly among organizations. While some organizations prioritize cost predictability, control, and data security, others are still singing the public cloud’s praises for its flexibility and scalability. In response, many companies are embracing hybrid cloud models, eager to reap the benefits of both environments.

As the cloud landscape continues to evolve, businesses will need to carefully assess their unique needs and challenges, so that they can make informed decisions about their cloud strategies.