The Cost of Cloud Paradox: Andreesen Horowitz Making the Case for Hybrid Cloud?

I recently read a fascinating post from Sarah Wang and Martin Casado of Andreesen Horowitz. They drew my attention to an interesting phenomenon amid the massive migration of workloads into the cloud: the repatriation of workloads from the cloud back into data centers.   That’s an interesting counter current. Why would that be?

Wang and Casado analyzed the impact of the cloud on 50 public software companies. They point out that the value proposition of the cloud seems clear: “infrastructure available immediately, at exactly the scale needed by the business – driving efficiencies both in operations and economics.”¹ They also point out that the cloud enables an overall environment for innovation. So, cloud adoption is a great strategy for high-growth, innovative businesses looking to maximize shareholder value by scaling rapidly.   However, they point out that, upon achieving scale, growth naturally slows. At that point, the “cost of cloud” begins to outweigh the benefits. Many high-growth but money-losing public companies are valued on a multiple of gross profits and gross margin structure. While it’s been an article of faith that cloud computing is cheaper than data center computing, some enterprises have rejected that orthodoxy and increased their gross profits as a result. Wang and Casado cite the case of Dropbox, which saved nearly $75 million over two years and increased their gross margin from 33% to 67% by repatriating workloads from the public cloud. Wang and Casado posit that “Repatriation results in one-third to one-half the cost of running equivalent workloads in the cloud”^2. Furthermore, as they extrapolate these savings across their set of 50 public software companies, they estimate that the industry could save $4 billion in net savings, which would “unlock” $100 billion in market capitalization at these 50 companies alone.³ These numbers are staggering. Wang and Casado state the paradox of cloud: “You’re crazy if you don’t start in the cloud; you’re crazy if you stay on it.”⁴ 

Wang and Casado make several prescriptive recommendations and you can read their full post  here. Their final recommendation is to repatriate incrementally and in a hybrid fashion: “It doesn’t have to be all or nothing! In fact, of the many companies we spoke with, even the most aggressive take-back-their-workloads ones still retained 10 to 30% or more in the cloud.”⁵

The fundamental thesis of Caveonix has always been that the journey to the cloud ends in a hybrid cloud state. That’s why we built the world’s first hybrid cloud security platform. Thanks to Wang and Casado for validating our thesis!

1. Casado, Martin, and Sarah Wang. “The Cost of Cloud, A Trillion Dollar Paradox.” Andreesen Horowitz, 27 May 2021, a16z.com/2021/05/27/cost-of-cloud-paradox-market-cap-cloud-lifecycle-scale-growth-repatriation-optimization/.
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.