Key Takeaways
- AWS operates at 30-40% profit margins; for every dollar spent, 30-40 cents is pure profit for Amazon
- Cloud costs suppress over $500B in market value across software companies, doubling infrastructure bills at scale
- Real-world 50-server workload: $1M/year on AWS vs $203K/year bare metal, 80% cost reduction
- Bare metal delivers 2-3x better performance: NVMe drives provide 500K+ IOPS vs 3K IOPS on cloud storage
- Hidden costs compound the pain: egress fees ($0.09/GB), IOPS charges, and support tax (10-15% of total spend)
- 5-year TCO analysis shows $4.7M savings on bare metal vs cloud, with 82.6% total cost reduction
Table of Contents
Let’s talk about the elephant in the room: AWS operates at nearly 30% profit margins1, with some estimates as high as 40%. That means for every dollar you spend on cloud infrastructure, 30-40 cents is pure profit for Amazon. You’re not paying for innovation - you’re subsidizing their margins.
Andreessen Horowitz’s landmark analysis revealed that cloud costs are suppressing over $100 billion in market value across just 50 public software companies1. When extended to the broader market, the impact exceeds $500 billion. As they put it: “If you’re operating at scale, the cost of cloud can at least double your infrastructure bill.”
The Shocking Math
Here’s a real-world comparison that will make you reconsider everything:
Scenario: 50-Server Web Application
Workload Profile:
- 50 application servers (c5.2xlarge equivalent)
- 10 database servers (r5.4xlarge equivalent)
- 500TB storage
- 50TB/month data transfer
Cloud Costs (AWS)
Compute:
- 50 × c5.2xlarge: $428 × 50 = $21,400/month
- 10 × r5.4xlarge: $1,008 × 10 = $10,080/month
Storage:
- 500TB EBS (gp3): $0.08/GB × 500,000 = $40,000/month
Data Transfer:
- 50TB egress: $0.09/GB × 50,000 = $4,500/month
Support (Business): 10% of spend = $7,598/month
Total Monthly: $83,578
Total Annual: $1,002,936Bare Metal Costs
Hardware (amortized over 3 years):
- 8 × Dell R650 (40 cores, 512GB RAM): $15,000 × 8 = $120,000
- Storage servers: $80,000
- Networking equipment: $30,000
- Total: $230,000 ÷ 36 months = $6,389/month
Colocation:
- 2 × 42U racks: $2,000/month
- Power and cooling: $1,500/month
- Bandwidth (100TB included): $2,000/month
Operations:
- Part-time sysadmin: $5,000/month
Total Monthly: $16,889
Total Annual: $202,668The Verdict: 80% Cost Reduction
| Model | Annual Cost | Savings |
|---|---|---|
| Cloud (AWS) | $1,002,936 | N/A |
| Bare Metal | $202,668 | $800,268 (80%) |
The Hidden Costs They Don’t Want You to See
1. The Egress Extortion
AWS charges $0.09/GB to access your own data:
- Backup to external location? Pay up.
- Migrate to another provider? Massive exit fee.
- Customers downloading content? You’re paying.
Real example: Video streaming company paying $125,000/month just in egress fees.
2. The IOPS Racket
Need consistent disk performance?
- gp3 baseline: 3,000 IOPS
- Need more? $0.005/IOPS per month
- 20,000 IOPS = extra $85/month per volume
- 100 volumes = $8,500/month just for IOPS
Bare metal equivalent: NVMe drives with 500,000+ IOPS included.
3. The Support Tax
AWS support pricing is a percentage of spend:
- Developer: $29/month (useless)
- Business: 10% of spend (minimum $100)
- Enterprise: 15% of spend (minimum $15,000)
Spending $500K/month? That’s $50K-75K just for support.
4. The Complexity Overhead
Hidden operational costs:
- CloudFormation debugging time
- IAM permission troubleshooting
- Service limit investigations
- Multi-region complexity
- Cost allocation archaeology
Conservative estimate: 20% additional operational overhead.
Performance: The Dirty Secret
Cloud providers don’t want you to know:
CPU Performance
Cloud (c5.2xlarge):
- 8 vCPUs (4 physical cores hyperthreaded)
- Shared with other tenants
- Steal time reduces available CPU
- Actual performance: ~70% of advertised
Bare Metal (Modern Server):
- 40 physical cores
- Dedicated to you
- No virtualization overhead
- 100% of performance available
Network Performance
Cloud: “Up to 10 Gbps” (shared, variable) Bare Metal: Dedicated 25-100 Gbps (guaranteed)
Storage Performance
Cloud EBS gp3: 3,000 IOPS, 125 MB/s Bare Metal NVMe: 500,000+ IOPS, 3,500 MB/s
The 5-Year TCO Comparison
Let’s look at total cost of ownership over 5 years:
| Cost Category | Cloud (AWS) | Bare Metal |
|---|---|---|
| Infrastructure | $5,014,680 | N/A |
| Hardware refresh (year 4) | N/A | $230,000 |
| Colocation (5 years) | N/A | $337,500 |
| Operations (5 years) | N/A | $300,000 |
| Annual price increases (5%) | $628,169 | N/A |
| Migration costs | $0 | $100,000 |
| Training | $50,000 | $25,000 |
| Total 5-Year Cost | $5,692,849 | $992,500 |
| Savings | N/A | $4,700,349 (82.6%) |
Real Company Examples
Dropbox: The $75 Million Wake-Up Call
Dropbox saved $75 million over two years by moving off AWS2. They shifted 90% of their workloads from public cloud to custom-built infrastructure. The result? Gross margins improved from 33% to 67% between 2015 and 2017, “primarily due to Infrastructure Optimization.”
37signals: $10 Million Over 5 Years
The company behind Basecamp and HEY is projecting $10 million in savings over 5 years by leaving AWS3. As founder DHH explained: “We’re paying over half a million dollars per year for database (RDS) and search (ES) services from Amazon. Do you know how many insanely beefy servers you could purchase on a budget of half a million dollars per year?”
GEICO: When Cloud Goes Wrong
After 10 years migrating 600+ applications to the cloud, GEICO discovered:
- Cloud bills increased by 2.5x
- Reliability challenges increased significantly
- They’re now actively repatriating to private cloud infrastructure4
As GEICO’s VP of Platform Engineering noted: “Storage in the cloud is one of the most expensive things you can do in the cloud, followed by AI in the cloud.”
Additional Examples
| Company Type | Monthly Cloud Cost | Monthly Bare Metal Cost | Monthly Savings | Annual Savings |
|---|---|---|---|---|
| B2B SaaS | $125,000 | $28,000 | $97,000 | $1,164,000 |
| E-commerce Platform | $340,000 | $72,000 | $268,000 | $3,216,000 |
The Cloud Premium Breakdown
Where does your cloud dollar actually go?
AWS’s Cost Structure
| Cost Component | Per Dollar |
|---|---|
| Data center costs | 20¢ |
| Hardware | 15¢ |
| Operations | 10¢ |
| R&D | 10¢ |
| Sales & Marketing | 5¢ |
| Pure profit | 30-40¢ |
You’re paying a 150-180% markup on actual infrastructure costs.
As Andreessen Horowitz discovered: “AWS still operates at a roughly 30% blended operating margin net of [volume] discounts and an aggressive R&D budget; implying that potential company savings due to repatriation are larger.”1
When Cloud Actually Makes Sense
We’re not cloud haters. Cloud is excellent for:
1. True Elastic Workloads
- Black Friday traffic spikes
- Viral content handling
- Batch processing with 100x variance
2. Geographic Distribution
- Global edge locations
- Multi-region disaster recovery
- Compliance requirements
3. Short-Term Projects
- Proof of concepts
- Temporary campaigns
- Development experiments
4. Specialized Services
- Machine learning APIs
- Managed blockchain
- IoT services
The Hybrid Sweet Spot
Smart companies use both:
Bare Metal For:
- Predictable base load (80%)
- Databases
- Core applications
- Storage
Cloud For:
- Traffic spikes (20%)
- Development/testing
- Disaster recovery
- Edge services
Result: 70% cost reduction while maintaining flexibility.
Your TCO Calculator
Calculate your own savings:
Current Cloud Costs
- Monthly compute spend: $_______
- Monthly storage spend: $_______
- Monthly bandwidth spend: $_______
- Monthly support spend: $_______
- Total monthly: $_______
Estimated Bare Metal Costs
- Compute: Current spend × 0.20 = $_______
- Storage: Current spend × 0.15 = $_______
- Bandwidth: Current spend × 0.30 = $_______
- Operations: $5,000-15,000 = $_______
- Total monthly: $_______
Your Potential Savings
- Monthly: $_______
- Annual: $_______
- 5-year: $_______
The Migration ROI
Typical migration project:
- Duration: 6 months
- Cost: 3-6 months of cloud spend
- Payback period: 9-15 months
- 5-year ROI: 400-800%
Action Steps
1. Audit Your Spend
- Download 6 months of cloud bills
- Identify largest cost centers
- Calculate utilization rates
2. Model Alternatives
- Price equivalent bare metal
- Include all costs (hardware, colo, ops)
- Calculate break-even point
3. Start Small
- Pick a single workload
- Run proof of concept
- Measure actual savings
- Scale based on results
The Market Shift Is Already Happening
The tide is turning. According to Puppet’s latest survey, 86% of CIOs are planning to move some public cloud workloads back to private cloud or on-premises, the highest percentage on record5. Even AWS acknowledged in a recent UK regulatory hearing that customers do indeed return to on-premises infrastructure4.
The repatriation formula is remarkably consistent across companies: “Repatriation results in one-third to one-half the cost of running equivalent workloads in the cloud.”1
The Bottom Line
Cloud providers have done an amazing job convincing us that:
- Managing servers is impossibly hard (it’s not)
- Elasticity is always necessary (it’s not)
- Cloud is always cheaper (it’s definitely not)
For predictable workloads - which is most enterprise infrastructure - bare metal delivers:
- 70-80% cost savings (validated by real companies)
- 2-3x better performance (no virtualization overhead)
- Complete control (your hardware, your rules)
- No vendor lock-in (move anywhere, anytime)
As DHH from 37signals put it: “It strikes me as downright tragic that this decentralized wonder of the world is now largely operating on computers owned by a handful of mega corporations.”3
The question isn’t whether you should consider bare metal. The question is: can you afford not to?
Want to see how the numbers look for your specific workload? Request a Free TCO Audit
References
Footnotes
-
Wang, S., & Casado, M. (2021). The Cost of Cloud, a Trillion Dollar Paradox. Andreessen Horowitz. ↩ ↩2 ↩3 ↩4
-
Miller, J. A. (2021). As cloud costs climb, is repatriation the answer?. CIO Dive. Dropbox S-1 Filing. ↩
-
Heinemeier Hansson, D. (2022). Why we’re leaving the cloud. HEY World. ↩ ↩2
-
Pankow, R. (2024). Why Companies Are Ditching the Cloud: The Rise of Cloud Repatriation. The New Stack. ↩ ↩2
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Reed, P., & Tatam, R. (2025). Cloud Repatriation: Examples, 2025 Trends & Tips for Reverse Migration. Puppet. ↩