For some companies, and some applications, there comes a time when colocation becomes a better option than cloud infrastructure-as-a-service (IaaS). Here, The Aligned Team shares stories of companies that have “de-clouded” – and where that tipping point was for them. Plus, 5 factors to assess when the cloud is right for you, and when it isn’t.

As with most things, there is no single “right” infrastructure solution for every company, or every application, at every time. Sometimes, cloud-based infrastructure-as-a-service (IaaS) is the best solution. Other times, colocation is. Some companies, and some applications, will never work well in the cloud. Others will. Others work well in the cloud for a time – until they don’t. We call that moment the tipping point, when colocation becomes a better option than cloud.

When cloud IaaS is the best option

One of the clearest use cases for cloud IaaS is application development and testing. In the cloud, the dev team can easily spin up a server with just a credit card. No need to request new data center space, provision said data center space, procure the hardware, install the hardware…and no capital outlay. If the dev team breaks from the project for a while, no worries because the server capacity is pay-per-sip. And once the dev team is ready to test, it’s easy to move the application into a test environment in the cloud and take as much capacity as necessary, when it’s necessary.

Maybe even after the application moves to production, cloud IaaS is the right infrastructure solution – because it’s not yet clear how fast user adoption might grow, and therefore how much capacity will be needed. But at some point sooner than later, the user adoption growth curve is well understood. Then, the downsides of cloud IaaS become more apparent. Cost. Noisy neighbors. Availability. At that point, moving the application into a data center colocation environment starts to make more sense.

Especially when that data center is cloud-like in its pricing model. When the data center offers truly flexible capacity in right-sized increments, on-demand. And when the data center’s network, with peering capabilities from public cloud to private infrastructure, makes moving from one to the other easy.

Outgrowing the cloud

We’ve been hearing the stories of companies that have reached the point where, for some applications at least, cloud doesn’t make sense anymore. In a trend referred to as “de-clouding” these companies are moving back to their own data centers, or to data center colocation. Here are some of their stories.


For its first three years, the deal and coupon site relied on public cloud infrastructure-as-a-service. In 2011, the company’s user base reached a size where it made sense for Groupon to switch to a combination of its own data centers and colocation data centers.

Harmail Chatha, Groupon’s director of global data center operations, said “The biggest driver was cost. It was not economically feasible for us to stay in the cloud.” He added, “There are economies of scale [with a data center] once you get bigger.”

Chatha said that once a company starts to spend $200,000 to $250,000 per month in the cloud, they should look at the other options. “Run the numbers and talk to some data center providers,” he advised, adding that the numbers – the particular tipping point – will vary by enterprise.


This Y Combinator graduate, which provides real-time databases for transactions and analytics, also relied on cloud IaaS at first. But about two years after the company’s 2011 launch, founder Eric Frenkiel remembers, they moved most of their operation onto owned infrastructure. Frenkiel says they had reached the point where physical machines were cheaper ­­– much, much cheaper – than the virtual machines available from the cloud provider.

MemSQL still uses cloud IaaS for certain tasks. And that’s exactly the point: For some applications, cloud IaaS is a great long-term solution. For others, there comes a point when it’s time to part ways.

Red Cross

This is not a case of leaving the cloud, but one using cloud IaaS for some applications, but not others. As Red Cross grew out of its two data centers, the organization considered cloud IaaS, but did not feel confident moving much of its operations to a public cloud because of security concerns. For applications that are not mission-critical, (email, for example), Red Cross does use the cloud.

The experiences of these three organizations have a couple of important things in common. For one, Groupon and MemSQL both relied on cloud IaaS when they were just starting out, didn’t have a lot of capital to invest in data center infrastructure, and needed the extreme flexibility and speed to market. But once their applications (and their businesses) matured, they moved to physical infrastructure. For another, MemSQL and Red Cross both consider the cloud a viable long-term solution for some applications, but not others.

Making the right decision

When a company “de-clouds” it’s most often not an indictment of the value of cloud IaaS, but a reflection of the maturity of the organization and/or its applications. The organization has “outgrown” the cloud and for one reason or another (often, cost efficiency) colocation becomes the better option.

What are the factors that make cloud IaaS the “right” decision – or not? The Economist’s Intelligence Unit’s Mapping the Cloud Maturity Curve (pdf) survey of global IT leaders identified five fundamental components of a mature organizational approach to cloud computing:

  • Aligned strategy – Align your cloud strategy to your business objectives
  • Organizational harmony – Foster greater collaboration between business and IT
  • Digital culture – Develop a culture that promotes the effective use of digital technology
  • Dynamic infrastructure – Match your IT infrastructure to your business requirements
  • Good governance – Develop the data governance processes required by cloud

Based on those five factors, every company, for every application, needs to determine what its own tipping point is. Even if it makes perfect sense to host applications in cloud IaaS at one point, changes in IT needs or business goals may eventually require a company to think about de-clouding.

Bottom line: Cloud IaaS is not a magic bullet. Neither is data center colocation. They are, rather, two tools available to businesses intent on growing, innovating, and delivering value to their customers. Right at some point, but not every point.

What’s your cloud story?

This is the first in what we hope to be a robust ongoing discussion about trends in infrastructure decision-making. We’d love to hear how you made the cloud IaaS v. data center colocation decision – and how, perhaps, that decision has changed as you’ve grown. Join the conversation at

Aligned Data Centers is the first data center colocation provider to offer a cloud-like model: pay-for-use pricing plus on-demand scalability.