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Cloud computing has been touted as the future of IT infrastructure for businesses of all sizes, promising scalability, flexibility, and cost savings. Since its introduction, it has been advertised as the single most cost-effective option for hosting business IT infrastructure. Banking on this claim, more and more businesses moved their IT workload to the cloud during the past decade.

However, a growing number of companies are now reconsidering their cloud strategy. They are pulling out of their contracts as they find it financially non-viable. While this may seem counterintuitive, these businesses have found that cloud computing costs can quickly spiral out of control, eating into their profits and bottom line. 

In fact, many experts in the field have done the math to show how companies can save millions of dollars by pulling out of the cloud and taking a more traditional approach to IT infrastructure.

Why are businesses abandoning the cloud?  

While cloud providers often promote their services as cost-effective, the reality is that many businesses end up paying more than they anticipated. This is because cloud providers typically charge based on usage. As a company grows, its usage can quickly increase, leading to higher costs.

Moreover, the cloud billing structure is often confusing and overly complex. It also involves many hidden costs that businesses tend to overlook at the beginning. For example, AWS offers hundreds of services, and each service has its own pricing model. It charges for every bit of data transferred to and from the platform. Furthermore, you pay taxes for all the outbound transfers. All these together make it almost impossible for a business to approximate the bill that keeps changing each month.  

All these hidden charges and complex calculations make it almost impossible for businesses to track their cloud bill.

How much can a business save with a physical server- a practical example:

Last October, David Heinemeier Hansson, CTO of SaaS project management outfit 37Signalsannounced the company’s intention to pull out from the cloud. While the company is in the process of moving its workload from the cloud to its own physical server, Hansson has given a detailed analysis of how this decision will help the company save about $7m in server expenses over the next five years.

37Signals spent 3.2m on the cloud last year. Hanson’s analysis shows that $2.3 million of their cloud bill went towards:

  • “app servers
  • cache servers
  • database servers
  • search servers
  • the works,”
  • and the remaining was spent on data storage.

The company plans to replace these cloud servers with eight physical servers running dual 64-core CPUs in each data center or 14 machines running single-core CPUs at a higher clock frequency. These physical servers will cost about $600,000. It’s huge, especially when we compare it with the initial cost of cloud deployment.

However, Hansson argues that when the cost is amortized over five years, it is $120,000 a year, and unlike the cloud, the company owns the server outright and can use it for as long as it needs. 

In addition to this, the company needs to pay for the power, cooling, and connectivity. According to Hansson’s calculation, the total of these costs stands at $720,000 per year. So, the company will be paying $840,000 per year for everything together.     

While Hansson has made a compelling argument against the use of the cloud for mid-sized businesses, he is not the only one who is out there bursting the bubble of the public cloud and its tall claims. In recent times, many other businesses have taken a similar path to reduce their IT expenditure.    


The above example shows how a company benefits from quitting the cloud and transferring the IT workload to traditional in-house data centres. The companies can reduce the cost further by choosing colocation hosting. When you house your own servers in a colocation data center, you share the cost for power, cooling, and network with other clients of the facility. Because of this, the recurring cost comes down significantly.

Coloco offers colocation hosting services at an affordable cost. Reconsider your IT strategy, evaluate the pros and cons, and make the right decision, keeping in mind the long-term goal of your business.