When cloud providers go out of business

It’s not every day we witness a cloud provider abruptly closing its doors. Yet, that’s exactly what happened when NetEase, a Hangzhou, China-based internet and gaming giant, announced it was shutting down its public cloud service. As of April 7, 2025, the platform will go offline permanently. Clients are being encouraged to migrate to other services. Although this move is limited to a small number of clients in mainland China, it raises broader questions about how businesses should safeguard themselves from the risks associated with a cloud vendor shutdown.

The consolidation of the cloud computing market from 2010 to 2013, as smaller providers faced difficulties competing with major players such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud, reflects the challenges we see today. After the initial boom in the public cloud market, many smaller, niche providers struggled to compete with the significant investments and economies of scale achieved by the larger players. Customers began gravitating toward providers with robust infrastructures, global reach, and extensive service offerings, leaving smaller players unable to scale profitably or invest in cutting-edge features.

During this period, several cloud companies exited the public cloud space altogether. Notable examples include Nirvanix, a cloud storage provider that shuttered operations in 2013, GoGrid, which pivoted to focus on data services and left the public cloud market, and Joyent, which sold its cloud business after failing to compete with hyperscalers. They all had customers who needed to quickly figure out an exit strategy.

The story of NetEase

NetEase cited “strategic adjustments” as the reason for terminating its service, indicating plans to refocus on its core strengths, especially its gaming and big data solutions offerings. Shutting down its public cloud service highlights how competitive the cloud market has become—nowhere more so than in China, where the market has exploded due to artificial intelligence innovations.

Analysts, such as Ivan Lam from Counterpoint Research, have noted that AI is driving growth, albeit at a significant cost. The public cloud market in China increased by 8% in the first half of 2024 alone, fueled by substantial investments in AI capabilities. Companies like Alibaba and ByteDance are at the forefront of this movement, with Alibaba committing $52 billion to AI infrastructure during the next three years, the largest private investment of any Chinese firm in the sector. These giants are leveraging their extensive resources to develop general-purpose AI models, such as Alibaba’s Qwen and ByteDance’s Doubao, thereby surpassing smaller competitors like NetEase.

I can hear some of you thinking, NetEase existed in the Asian market and had a niche technology. The U.S. and European markets differ, right? Not really.

Enterprises need to think ahead

NetEase’s story reminds us of the vulnerabilities inherent in relying on third-party cloud partners. Many enterprises embrace the convenience and scalability of public cloud platforms but often overlook one hard truth: Cloud vendors are businesses. Like any business, their priorities can change, and they can fail.

So, what do you do if your cloud provider shuts its doors? How do you prepare for the unthinkable? Although migrating your workloads is one solution, taking action before a closure is even better. Here are some recommendations:

Don’t rely on a single cloud provider. This is the reason multicloud strategies remain critical for enterprises. By spreading workloads across multiple providers, companies can reduce the risk of disruption if one vendor falters or fails.

Stay informed about your cloud provider’s financial health, business focus, and strategic priorities. If a vendor is scaling back on investments, pivoting to niches outside your needs, or losing ground to competitors, these are red flags that warrant reevaluating your partnerships.

Establish backup and disaster recovery plans. If your primary cloud service fails, maintaining backups in alternative environments ensures continuity. Test these disaster recovery systems regularly to ensure they’re operational when needed.

Include migration support in your service-level agreements. If a provider closes, they should shoulder part of the migration responsibility, as NetEase appears to be doing with its dedicated customer support teams.

Consider keeping mission-critical workloads on premises or in a hybrid cloud. A structure that integrates public and private environments offers greater control and reduces dependency on potentially unstable vendors.

A cautionary tale

A provider going out of business was a common concern when clouds began to grow rapidly, but it’s not as significant today. Clouds have been around for so long that many take their ability to stay in business for granted. However, the market now offers numerous smaller cloud companies that provide specialized technologies such as GPUs, data storage, data analysis, and more. Therefore, some normalization will likely occur, primarily through mergers and acquisitions. Those can be just as risky. The cloud services you rely on might be shut down due to service redundancies after a merger or acquisition.

I see closure fallout happening from time to time, but I don’t view it as a considerable risk. Most enterprises see it coming and usually have plenty of time to react. It does require money and comes with risks, but those are the “fortunes of war” you must navigate. Just ensure you have planned for this unlikely event and don’t let it be a surprise from which you can’t recover.