Thinning Clouds? Report Questions Value Of Cloud Computing

data center server virtualization

By questioning the value of cloud computing, the report is taking on what IT vendors from IBM to Salesforce.com have touted as the computing model of the future. The 33-page report, "Clearing the Air on Cloud Computing," is being presented Thursday at a symposium in New York sponsored by The Uptime Institute.

Backers have argued that cloud computing is less expensive because it doesn't require the amount of IT infrastructure -- such as servers -- that traditional on-premise computing does. Customers also subscribe to services on a pay-as-you-go model rather than make big, up-front capital expenditures. Cloud computing boosters also say it allows businesses to implement new technology more quickly.

Using Amazon's Web Services as the model, the McKinsey report argued that outsourcing the operations of a typical corporate data center to the cloud would cost $366 a month per unit of computing output, compared with operating costs of $150 a month for a conventional data center.

The report also said the labor savings of cloud computing have been exaggerated given the ongoing costs of managing service provider relationships and supporting users.

Still, the report acknowledges the potential benefits of cloud computing, including the reduced up-front cost of the pay-per-use model -- a significant consideration in these days of tight capital and reduced cash flows. Cloud-computing technology also is easier to scale out to meet growing demand, the report acknowledges.

"Clouds already make sense for many small and medium-size businesses," the report said, referring to companies with annual revenue of $500 million or less.

"But technical, operational and financial hurdles will need to be overcome before clouds will be used extensively by large public and private enterprises," the report said. "Rather than create unrealizable expectations for 'internal clouds,' CIOs should focus now on the immediate benefits of virtualizing server storage, network operations and other critical building blocks."

Some IT vendors with a stake in cloud computing were quick to respond. "IBM believes [the McKinsey report] neglects to consider that large enterprises aren't going to outsource their entire data center operations to a public cloud like Amazon's," said an e-mailed rebuttal from IBM media relations. "Different workloads demand different support, and as such, there are certain applications that shouldn't be moved to a cloud model."

But IBM said it is seeing many customers adopt a mix of public and private cloud models to reduce the cost of supporting specific applications such as business resiliency, information protection and collaboration services. The company said businesses can save up to 80 percent on floor space and 60 percent on power and cooling costs through cloud computing.