Cloud isn’t an enterprise panacea.

In fact, the question of where to draw the line on adoption is becoming an increasingly pressing priority for CIOs as the rise of AI drives up cloud costs.

Many C-suite leaders grappling with the dilemma, however, aren’t asking themselves the right questions, said Ari Weil, cloud evangelist at Akamai. Rather than debating whether cloud or on-premise data storage and operations are the better choices, CIOs should be questioning where they are and where they’re going, he said.

“What am I trying to achieve and what does my application really need to do?” said Weil. “Because that consideration can really easily be taken in a bunch of different directions.”

Sticker Shock

Many enterprises rushed into cloud adoption over the past decade as hyperscalers like Amazon Web Services, Microsoft Azure and Google Cloud gained prominence. The platforms were lauded for their ability to provide instantaneous access, broad service and rapid scalability. Businesses were also attracted to the potential cost flexibility that cloud offered, though expenses “rarely go down, they usually go up,” said Herb Hogue, chief technology officer at Myriad360.

Indeed, the rush to adopt cloud created a “centralization of power” among providers, said Jeremy Roberts, senior director of research and content at Info-Tech Research Group. Three of the top firms control 63% of the cloud market, as of the second quarter of this year, and are raking in billions upon billions in revenue, according to CRN.

“When you think about who has the keys to the internet, a highly centralized, cloudified world means that there are a couple of data center providers that provide the infrastructure that underpins a lot of stuff,” said Roberts.

For enterprises, the rush to cloud also caused “service lock-in,” said Hogue. While functionalities of cloud environments are similar, their slight differences make moving from one cloud to another difficult:

  • As a result, costs may mount quicker than an enterprise expects, said Roberts, leading to “sticker shock” when the bill comes in.
  • Even testing the waters in cloud environments can run up a tab, said Weil: One CIO he worked with accidentally spent $200,000 trying to understand how the company she had recently joined was using cloud. In asking questions and creating queries, he said, the data-movement fees piled up quickly.
  • “The CIO is rapid-firing so many questions before the team tells her that every time she asks for something, we’re running up more costs,” Weil said.

AI, meanwhile, is driving costs up even more. As hyperscalers throw billions into data center infrastructure, enterprise cloud spending is rising right alongside it: Gartner predicted that global cloud spending would reach $723 billion this year, up more than 21% from 2024.

“I think we’re sort of in the FOMO stage,” said Roberts. “There will likely be a reckoning when people look at their spend.”

Money on the Table

Despite the cloud hype, on-premise solutions also have significant benefits, Hogue said. Keeping operations in-house allows enterprises to manage their own resources, know exactly what their costs are, and maintain control when things go wrong.

Another cost to be considered is the talent required to maintain cloud systems. There’s a common misconception that cloud environments are less complex than on-premise systems, said Hogue. In reality, going all in on cloud “is like moving to 3-dimensional chess,” he said.

Plus, Roberts noted, by ceding control over your own infrastructure, you could be “leaving a ton of market cap on the table.” He compared it to a taxi company that doesn’t own its own cars.

“It’s essentially outsourcing the infrastructure … there’s somebody else making a margin on what is a core part of your business,” Roberts said.

When trying to pick the best option, he said, it’s essential to consider the “five elements” of cloud — on-demand self-service, broad network access, rapid elasticity, pooling resources and measured services — and determine how they fit into your overall business.

Finding the right answers requires knowing exactly where your business is going and what your needs will be until you get there, he said. While cloud might be more useful for rapidly scaling organizations, investing in on-premises infrastructure may be better in the long run for larger, more mature enterprises, he said. Issues occur when organizations don’t correctly forecast their own growth. “Cloud, I always remind people, isn’t an end in itself,” said Roberts.

And both options have their drawbacks. While relying on the cloud as a mature organization can lead to a hefty bill, investing in your own infrastructure before your organization is ready can lead to growing pains with hardware capital expenses, said Hogue.

Middle Ground

In recent years, some enterprises have begun repatriating their data, said Weil, pulling some of it back from the cloud in favor of on-premises solutions to cut costs, find efficiencies and retain full control over their information.

Industries with higher data-security standards, such as insurance, financial services and healthcare, are more prone to repatriation, he said: “People realized this data didn’t need to scale. This data didn’t need to be exposed to the public internet.”

In such cases, it may be beneficial for organizations to meet in the middle. Many are turning to a hybrid approach, seeking to strike a balance between cloud and on-premises solutions. That lets them leverage the scalability that the cloud provides while keeping the most critical data in trusted hands, which is vital in industries with tight regulatory and compliance requirements.

Obtaining the best of both worlds may, however, create double the challenges. When operating on both types of infrastructure, you need “two sets of expertise,” Roberts noted, making hybrid solutions more complex than either option alone. “Those might be trade-offs that are worth taking, but (hybrid) is not universally good,” Roberts said.

Choosing between cloud, on-premises, or a middle ground requires knowing what’s at the core of your business and how closely you want to guard it, Hogue said.

“What’s the possibility of spilling your secret sauce?” he asked. “That’s really where organizations come back to the question of if they want that out there or not.”