Why cloud bills rise with scale, and when leaving pays

What the a16z analysis measured

The essay benchmarked public software companies and found that committed cloud spend averaged 50% of cost of revenue. Actual spend is often higher than the commitment. One private company in the analysis reported 81%.

The authors then ran a thought experiment. For 50 top public software companies, they estimated the aggregate cloud bill at $8 billion. They assumed that moving workloads to owned infrastructure would cut that by 50%, or about $4 billion a year.

How $4 billion of savings becomes $100 billion of value

High-growth software companies that are still burning cash are often valued on gross profit multiples. The essay used an average multiple of 24 to 25 times, based on 2021E gross profit. Applied to $4 billion of annual savings, that gives roughly $100 billion of market value.

That is the figure a16z says is being lost across the 50 companies, relative to running infrastructure themselves. The authors extended the logic to the wider universe of scale public companies and estimated that the total impact is potentially greater than $500 billion.

Both numbers rest on assumptions, mainly the 50% cut and the multiple. They are an illustration of scale, not a measurement of what any one company would save. The essay called its assumptions relatively conservative. It noted that actual spend is often higher than committed spend, and it assumed the two were equal.

Why the bill rises with scale

Actual spend can run above commitments. Some companies the essay spoke with reported that they exceeded their committed cloud spend forecast by at least 2X.

The a16z authors pointed to Dropbox as a more extreme case of large-scale repatriation. Moving most workloads off public cloud saved nearly $75 million over two years, and gross margin rose from 33% to 67% between 2015 and 2017. The essay's multiple assumes savings are net of depreciation from incremental capital spending, where relevant.

What 37signals' exit shows in dollars

37signals, the company behind Basecamp and HEY, has published the figures from its own move. Its cloud bill was $3,201,564 at the start, much of it AWS. The Register reported in October 2024 that the bill had fallen to about $1.3 million, a cut of almost $2 million a year.

The compute move needed about $700,000 of Dell servers. The company's CTO said that outlay was entirely recouped during 2023 as cloud contracts expired. The team managing infrastructure stayed the same size.

The remaining $1.3 million, as of October 2024, was Amazon S3 storage under a four-year contract. The plan was to replace it with 18 petabytes of Pure Storage arrays across two datacenters. The Register reported in May 2025 that the arrays cost $1.5 million, would cost under $200,000 a year to run, and would save about $1.3 million a year.

It projects savings of well over $10 million across five years, up from an original estimate of $7 million. These are the company's own projections.

For the software companies a16z benchmarked, cloud spend sits in cost of revenue, where it weighs on gross margin.

The exit fee that AWS now waives

Data transfer out to the internet is a charge that applies when customers move data off AWS. AWS announced on March 5, 2024 that it would provide free internet data transfer-out for customers moving off the platform. The customer must contact AWS Support and request credits.

Conditions apply. Customers must move all of their data off AWS, or all of a particular service's data. Accounts must be in good standing and be the payer account for the services involved. Eligible customers outside the EU have 180 days to complete the move, with more time available by notifying Support. Repeated requests from one account get extra scrutiny. EU customers fall under AWS's EU Data Act addendum, and UK customers under a separate switching addendum.

In the 37signals case, AWS waived about $250,000 in egress fees, according to The Register. AWS's page says an update on Sept. 30, 2025 removed a requirement to need more than 100 GB of monthly transfer out before contacting Support.

What the evidence says about when repatriation makes sense

The a16z essay did not argue for leaving the cloud wholesale. It recommended treating cloud spend as a key performance indicator, as Spotify does with an internal cost tool, and rewarding engineers who reduce it. One CTO quoted in the essay said that approach brought overall spend down by $3 million in six months.

It also described routine optimization. Segment cut infrastructure costs 30% while traffic rose 25%, and the essay says third-party tools can deliver gains of 10% to 40%.

For repatriation, the advice was to design for portability early and move incrementally, starting with the most resource-intensive workloads. Even aggressive repatriators kept 10% to 30% or more in the cloud.

The 37signals servers were recouped during 2023, the CTO claims, as cloud contracts expired.