“Missed expectations” are driving the cloud repatriation trend – but it’s not as bad as you might think

IDC has warned that the growing trend of cloud repatriation is driven by missed expectations, largely around the growing costs of running workloads in the cloud.

The report comes a week after 37 Signals — the SaaS company behind Basecamp — has revealed it will save $10 million over five years by ditching the cloud in favor of investing in its own hardware.

And we can expect more companies to follow that lead, though IDC said repatriation is a growing trend, but not “a wholesale migration.” Indeed, the analyst firm’s own research suggests only 8-9% of companies plan a full workload repatriation, with most moving only specific workloads back in house.

“Cloud computing has been heralded as the panacea for modern IT challenges, promising scalability, flexibility, and cost savings,” IDC said. “However, as the cloud landscape matures, many organizations are finding that the reality of cloud adoption does not always align with their expectations.”

Cost is one aspect driving repatriation, with IDC research showing half of organizations spent more on cloud than expected last year, with 59% expecting similar cost overruns this year.

“The complexities of cloud environments, coupled with unforeseen external influences, make it challenging to forecast costs accurately,” IDC said. “Factors such as the increasing cost of third-party services, energy costs, and the financial implications of new technologies like GenAI are contributing to these budget blowouts.

It’s not just costs driving cloud repatriation efforts

IDC said the cloud repatriation trend wasn’t just about fluctuating costs, but performance and security concerns, too. The cloud isn’t necessarily suitable for all workloads, IDC said, causing concerns with performance and latency.

“For instance, technical and AI-related workloads often experience performance bottlenecks in public cloud environments, prompting organizations to consider repatriation,” IDC said.

Another challenge is security and compliance, with IDC saying cloud companies do offer advanced security measures, but that hasn’t been enough to assuage concerns by organizations operating in sensitive industries, such as finance and healthcare.

“As a result, production data and backup/disaster recovery processes are among the most repatriated elements of workloads.”

Beyond technical complaints, IDC said managing multi-cloud or hybrid cloud setups has become “incredibly complex”. That can lead some companies to reconsider their cloud strategies, as it makes it costly to manage and difficult to secure data across multiple platforms.

IDC added that larger companies are more likely to repatriate than smaller businesses. “This is due to their greater resources, larger workloads, and more complex IT environments,” IDC added. “Economic factors and comprehensive workload strategies also play a role in driving repatriation activities among large enterprises.”

Millions for 37 Signals

Back in 2023, 37 Signals’ CTO David Heinemeier Hansson said the company had looked at its setup and decided it made more sense to ditch the cloud because of the “grotesque” costs. Instead of shelling millions on its cloud bill, the company would invest in its own hardware.

The repatriation project has taken years, largely because of the length of cloud contracts — some stretch for up to four years, meaning 37 Signals won’t be able to move all of its setup in-house for some time yet.

But in the meantime, the company has reported significant savings. Hansson has said the company will save $10 million over five years, which is three million dollars more than 37 Signals predicted when it set out on the project.

Of course, there are significant hardware investments to be made, but Hansson said that was recouped in the first year — and that’s for hardware the firm expects to use for several years. The company has stressed that the repatriation project isn’t just about cost savings, but the flexibility to try experiments and innovate.

Hansson suggested all companies should consider repatriation, but warned it may not make sense for everyone.

“Now, as with all things cloud vs on-prem, it’s never fully apples-to-apples. If you’re entirely in the cloud, and have no existing data center racks, you’ll pay to rent those as well — but you’ll probably be shocked at how cheap it is compared to the cloud,” he wrote at the time.