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This year, software firm 37signals will see a profit increase of more than $1m (£790,000) from leaving the cloud.

“To be able to achieve this with such relatively modest changes to our business is astounding,” says co-owner and chief technology officer David Heinemeier Hanson.

The US company has millions of users for its online project management and productivity software, including Basecamp and Hey.

Like many companies, it outsourced data storage and computing to a third-party firm, the so-called cloud service provider.

They own huge data centers where they host data from other companies that can be accessed over the internet.

In 2022, such services cost 37signals $3.2 million.

“Seeing the bill on a weekly basis really radicalized me,” says Mr. Heinemeier Hansson.

“I went, ‘Wait! What are we spending on a week’s rent?” I could buy some really powerful computers for just a week’s worth [cloud] costs.”

So he did. Purchasing hardware and hosting it in a shared data center costs $840,000 per year.

Although the costs prompted Mr. Heinemeier Hansson to act, other factors were also a cause for concern.

The Internet is designed to be extremely resilient.

“I’ve seen the distributed design erode as more and more companies have gravitated toward basically three PC owners,” he says, referring to the three leading cloud vendors.

If a large data center goes down, large parts of the network can go offline.

The cloud was positioned, he says, as cheaper, easier and faster. “The cloud hasn’t been able to make things easier to the point where we can measure any productivity gains,” he says, noting that his operations team has always been about the same size.

Was it faster using the cloud?

“Yes, but that didn’t matter,” says Mr. Heinemeier Hansson.

“If you want to connect a hundred servers to the Internet, you can do it in less than five minutes [in the cloud]. This is amazing.

“But we don’t need, nor do I believe most companies need, a five-minute turnaround on a huge number of additional servers.”

It can have new servers delivered and stacked in its data center in a week, which is fast enough.

37signals uses the cloud to experiment with new products. “We needed several large machines, but we only needed them in 20 minutes,” says Mr. Heinemeier Hansson.

“The cloud is perfect for that. It would be a waste to buy this computer and leave it idle 99.99% of the time.

He still recommends the cloud to fledgling businesses. “When you have a speculative startup and there’s a lot of uncertainty about whether you’ll be around in 18 months, you absolutely shouldn’t be spending your money on computers,” he says. “You have to hire them.”

37signals is not alone in bringing workloads back from the cloud, which is known as cloud repatriation.

Digital workspace company Citrix found that 94% of large US organizations it surveyed had worked on repatriating data or workloads from the cloud in the past three years.

Reasons cited include security concerns, unexpected costs, performance issues, compatibility issues, and service disruption.

Plitch provides software that allows people to modify single-player games, including adjusting the difficulty.

It built its own private data centers and repatriated cloud workloads to them, saving roughly 30% to 40% in costs after two years.

“A key factor in our decision was that we have highly protected research and development data and code that must remain strictly protected,” says Markus Schaal, managing director of the German firm.

“If our investments in features, patches and games were to expire, it would be an advantage to our competitors.” While the public cloud offers security features, we ultimately decided that we needed full control over our sensitive intellectual property.

“As our AI-assisted modeling tools advanced, we also needed significantly more processing power that the cloud could not accommodate within the budget.”

He adds: “We encountered occasional performance issues during periods of heavy use and limited customization options through the cloud interface. Moving to a private infrastructure gave us complete control over hardware procurement, software installation and networking optimized for our workloads.”

Mark Turner, Pulsant’s Chief Commercial Officer, helps companies migrate from the cloud to Pulsant’s colocation data centers in the UK.

In a colocation arrangement, the customer owns the IT hardware but stores it at another company where it can be stored safely, at the right temperature and with backup power.

“The cloud will continue to be the biggest part of IT infrastructure, but there is a good place for on-premise, physical and secure infrastructure,” he says. “There’s a repatriation of things that should never have been in the cloud or that won’t work in the cloud.”

Some of its biggest repatriation customers are online software providers, where each additional customer puts more strain on the server, driving up cloud costs.

One such client is LinkPool, which enables smart contracting using blockchain. It was developed on a public cloud, initially using free credits. Business exploded and the cloud bill reached $1 million per month. By using colocation, costs were reduced by up to 85%.

“[The founder has] now there are four racks in a data center in the city where he lives and works, connected to the world. It goes up against its competitors and can change its price point because its price won’t move in line [with customer demand]’ says Mr Turner.

“The leaders of change in the IT industry now are the people who don’t say cloud first, but say cloud when it’s appropriate,” he adds. “Five years ago, the disruptors of change were cloud first, cloud first, cloud first.”

Of course, not everyone is repatriated. Cloud computing will remain a huge business, with AWS, Microsoft’s Azure and Google Cloud Platform the biggest players.

For companies like Expedia, they are essential.

It uses the cloud to consolidate 70 petabytes of travel data from its 21 brands.

Apps also work in the cloud, except for legacy software that doesn’t work there yet.

“We are experts in travel,” says Rajesh Naidu, chief architect and senior vice president of Expedia. “[Cloud providers] are experts in the management infrastructure. It’s one less thing to worry about while we focus on running our business.”

“One of the main things the cloud gives us is a global presence, the ability to deploy our solutions closer to the region where they need to be,” he says.

“The other thing is sustainability and having infrastructure. Cloud providers have designed and architected their infrastructure really well. We can benefit from their innovation.”

Expedia has a cloud center of excellence that saved about 10% on cloud costs last year.

“You have to set policies because otherwise it’s easy for companies to run huge cloud costs,” says Mr Naidoo. “You can turn things down when you don’t need them. If you consume [cloud resources] reasonably your bill won’t be a surprise at the end of the day.