Cloud vs Bare Metal: The Real TCO Nobody Talks About

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: $1,002,936

Bare 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: $202,668

The Verdict: 80% Cost Reduction

Cloud: $1,002,936/year
Bare Metal: $202,668/year
Savings: $800,268/year (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:

Cloud (AWS)

Infrastructure: $1,002,936 × 5 = $5,014,680
Annual price increases (5%): $628,169
Migration costs: $0
Training: $50,000
Total: $5,692,849

Bare Metal

Hardware refresh (year 4): $230,000
Colocation: $67,500 × 5 = $337,500
Operations: $60,000 × 5 = $300,000
Migration costs: $100,000
Training: $25,000
Total: $992,500

5-Year Savings: $4.7 Million (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

B2B SaaS Company

Monthly AWS spend: $125,000
Bare metal cost: $28,000
Monthly savings: $97,000
Annual savings: $1,164,000

E-commerce Platform

Monthly cloud spend: $340,000
Bare metal cost: $72,000
Monthly savings: $268,000
Annual savings: $3,216,000

The Cloud Premium Breakdown

Where does your cloud dollar actually go?

AWS’s Cost Structure

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?

Ready to see your real TCO? Get a free TCO analysis from our experts to model your specific scenario.

Download our “Cloud vs Bare Metal TCO Workbook” (Excel) here

References

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
Reed, P., & Tatam, R. (2025). Cloud Repatriation: Examples, 2025 Trends & Tips for Reverse Migration. Puppet. ↩