Reaping Benefits from Cloud Repatriation: The Case of 37signals and Industry Trends

This year, software firm 37signals will see a profit boost of more than $1 million by moving away from cloud services. “To be able to get that with such relatively modest changes to our business is astounding,” says David Heinemeier Hansson, co-owner and chief technology officer. The US company, known for its project management and productivity software like Basecamp and Hey, outsourced its data storage to a cloud services provider, costing them $3.2 million in 2022.

Seeing these costs prompted Hansson to rethink their strategy. “I went: ‘Wait! What are we spending for a week of rentals?’ I could buy some really powerful computers just on one week’s worth of [cloud] spending.” By investing in hardware and hosting it in a shared data center, the annual cost was reduced to $840,000.

Beyond cost, other factors influenced the decision. Hansson noted the internet’s distributed design has eroded as companies rely on three major cloud providers. If one goes down, it impacts large parts of the web. He also found that the cloud didn’t significantly boost productivity, as the operations team size remained unchanged.

While the cloud offers rapid scalability, Hansson argues most companies don’t need such speed. For 37signals, receiving and setting up new servers within a week suffices. The cloud, however, remains useful for experimenting with new products that need large but temporary computing power.

Cloud repatriation, the trend of moving workloads back from the cloud, is gaining traction. A Citrix survey found that 94% of large US organizations had repatriated data or workloads in the past three years, citing security concerns, unexpected costs, performance issues, compatibility problems, and service downtime.

Plitch, a German firm providing software for modifying single-player games, built private data centers, saving 30% to 40% in costs after two years. Security and processing power needs drove their decision. Markus Schaal, managing director, explained, “We have highly proprietary R&D data and code that must remain strictly secure. While the public cloud offers security features, we ultimately determined we needed outright control over our sensitive intellectual property.”

Mark Turner, chief commercial officer at Pulsant, helps companies migrate from the cloud to colocation data centers. In colocation, clients own the IT hardware but house it with another firm, ensuring security, proper temperature, and power backup. Turner observes, “The cloud is going to continue to be the biggest part of IT infrastructure, but there is a good place for local, physical, secure infrastructure.”

One of Pulsant’s clients, LinkPool, moved from a $1 million per month cloud bill to colocation, reducing costs by up to 85%. Turner notes, “The change leaders in the IT industry are now the people who are not saying cloud first, but are saying cloud when it fits.”

This shift reflects a broader reevaluation of cloud services. While the cloud offers flexibility and scalability, cost and control considerations are prompting many firms to explore alternatives. As companies like 37signals demonstrate, cloud repatriation can lead to significant savings and operational benefits.