It’s time to throw open the cloud’s exit doors

There’s an old Chinese proverb: “Behind a smile, a hidden knife.” Cloud migrations done right bring about many smiles. Moving to the cloud can help reduce the need to invest in maintaining legacy infrastructure and provides a pay-as-you-go model that theoretically reduces costs, provides seamless scaling based on demand, and is a strong base for agility and innovation. The cloud also keeps businesses up and running when faced with unexpected events, such as the pandemic-induced lockdowns.

The hidden knife can cut many ways. One issue facing cloud services buyers is vendor lock-in. Vendor lock-in can force buyers to remain in an environment; egress fees typically charged for moving workloads can make it too expensive to move. Ideally, buyers should be able to move their workloads if they choose to, and they shouldn’t be penalized for it. Google Cloud took a step in the right direction by removing data transfer fees for a full exit from its cloud environment.

Buyer’s remorse among enterprises for hyperscaler contracts is high

Angst related to pricing remains high among hyperscaler contract buyers. In collaboration with IBM, HFS Research surveyed 510 participants from businesses that had bought cloud services. Among enterprise and business side respondents, only 6% stated that they did not have at least some buyer’s remorse.

Exhibit 1: Most hyperscaler contract buyers have at least some buyer’s remorse

Sample: 510 participants from businesses that had bought cloud services, Business Cloud Study in collaboration with IBM, December 2023
Source: HFS Research, 2024

About one-third (34%) of respondents stated that a main reason for having hyperscaler contract buyer’s remorse was high switching costs for using other providers or for moving data and workloads off the cloud, and 29% named cloud costs being higher than anticipated as a main reason.

The dissatisfaction can increase churn. Twenty-six percent (26%) of the respondents stated they had terminated a multi-year service contract with their (then) primary hyperscaler in the past 12 months.

An increase in churn rates creates a lose-lose proposition for enterprises and hyperscalers. Hyperscalers can be stuck with customers looking to move if they are unhappy. Customers undertaking migrations spend time and money they could have used more productively, as migrations can disrupt existing workflows and integrations, leading to operational challenges and diminished productivity.

Google Cloud removes data transfer fees on a full exit

In January 2024, Google Cloud announced that it would provide free network data transfers for those customers wishing to migrate their data from Google Cloud to another cloud provider or on-premises. By doing so, it became the first hyperscaler to provide free network data transfers for those seeking to exit. The step is a positive move, signaling that Google doesn’t want to keep customers who don’t wish to be there.

However, the offer comes with a caveat. It is applicable only if the customer wants to move the entirety of their data out of the platform and terminates their relationship with Google Cloud. It does not apply to a customer wanting to move only partial workloads. Most organizations prefer using multi-cloud approaches; an Oracle study estimated the number of enterprises using or planning to use multi-cloud as high as 98%. Many companies won’t benefit from Google’s offer.

A factor that might have pushed Google to become the first provider offering this free exit plan is that it currently trails AWS and Microsoft Azure in market share. It has less to lose by offering free exits. From an ecosystem point of view, it is a welcome step that should act as a catalyst to the debate around the cost of exits from cloud services providers.

Licensing practices are also a key concern

Another key issue enterprises face is being locked in due to contract terms. According to The Register, in October 2019, Microsoft classified its major competitors as listed providers, meaning customers had to pay more to run their workloads on competing clouds. Office 365 Windows Apps was prohibited from being hosted on other providers. While rules were tweaked to allow usage on AWS, other cloud services providers still can’t run Office 365.

A report by CISPE, a non-profit trade association for infrastructure-as-a-service cloud providers in Europe, estimated that Microsoft’s Bring Your Own License (BYOL) policy change in 2019, which ended users’ ability to deploy on-premises Office 365 licenses on third-party infrastructure, may have resulted in first-year license repurchase costs equivalent to €560 million for the European market.

Regulatory bodies are taking note

UK regulator Ofcom raised concerns by companies about the difficulty of switching or mixing and matching cloud services providers. Ofcom’s concerns about the market included costly exit fees for transferring data to another provider, particularly those charged by the three market leaders; difficulty in combining computing needs across different cloud providers; and the structuring of discounts for committing a certain level of spending with market-leading cloud suppliers. Ofcom recommended to the Competitions and Markets Authority to launch a formal investigation.

The European Union passed the EU Data Act, which companies will need to comply with by September 2025. It requires public and private cloud computing services providers to remove “obstacles to effective switching” between their own and competing cloud services, including commercial, contractual, technical, or organizational hurdles. The Act is in favor of cloud service providers.

Regulatory moves may alter the landscape

Governments and regulators are starting to pay attention to technological advancements with the advent of GenAI. As the backbone of technological advancements, the cloud will face greater scrutiny. It remains to be seen how the major providers remove the “obstacles to effective switching” as envisaged by the EU Data Act, but it’s likely that more countries will develop similar requirements.

The demand for cloud will only grow in the coming years, and it is in the interest of hyperscalers to develop a cost-effective way for customers to switch between services instead of proving to be a hindrance. Coming up with an interoperable mechanism will also help attract customers that are on the fence about migrating to the cloud due to lock-in concerns.

IT services companies providing cloud services will need to keep a close eye on the evolving landscape. Easier switching could result in more opportunities for migration between providers and from legacy to cloud. They will also need to focus on creating solutions that are compatible across platforms, requiring strong ecosystem partnerships with all the hyperscalers.

The Bottom Line: It is in cloud services providers’ interests to ensure a level playing field that does not impose costs on customers looking to switch.

It is important that cloud services providers collaborate to develop a framework that enables customers to switch seamlessly. Seamless, cost-effective switching can create a win-win situation where hyperscalers retain valuable customers and enterprises focus on their core business objectives without the burden of frequent migrations. Interoperability of solutions is a key focus area for players building solutions with easier switching. The cloud ecosystem stands to gain by opening the exit doors.