Cloud is a waste of money for some startups

There is a common myth that the Cloud is the low cost solution vs. having your own IT environment.  The Cloud is only lower cost at a certain point.  To prove the point, consider does Google, Microsoft, or Amazon use the Public Cloud to host its services?  No.  Their lowest cost way is to host IT services is in their own IT environment.  The cloud has limits of where it makes sense.  The cloud is great when you are at the initial startup phase and you don't want to be distracted with buying servers, getting them hosted, configuration, management, etc.

Wired discusses a company smaller that made the switch from AWS to their own servers.

In Silicon Valley, tech startups typically build their businesses with help from cloud computing services — services that provide instant access to computing power via the internet — and Frenkiel’s startup, a San Francisco outfit called MemSQL, was no exception. It rented computing power from the granddaddy of cloud computing,

But in May, about two years after MemSQL was founded, Frenkiel and company came down from the Amazon cloud, moving most of their operation onto a fleet of good old fashioned computers they could actually put their hands on. They had reached the point where physical machines were cheaper — much, much cheaper — than the virtual machines available from Amazon. “I’m not a big believer in the public cloud,” Frenkiel says. “It’s just not effective in the long run.”

There are details on the hardware costs, but beware there are hidden costs and do you have the people in your company who can run your own hardware.

This past April, MemSQL spent more than $27,000 on Amazon virtual servers. That’s $324,000 a year. But for just $120,000, the company could buy all the physical servers it needed for the job — and those servers would last for a good three years. The company will add more machines over that time, as testing needs continue to grow, but its server costs won’t come anywhere close to the fees it was paying Amazon.

Frenkiel estimates that, had the company stuck with Amazon, it would have spent about $900,000 over the next three years. But with physical servers, the cost will be closer to $200,000. “The hardware will pay for itself in about four months,” he says.

There are limits where the cloud makes sense.  Can you see where the line is drawn?  Where it starts to make sense to move out of the Public Cloud?