Cloud Computing More Expensive for Corporations?

Most IT pros don't really need another reason to say "no" to cloud computing--despite the cost savings that have been widely heralded, there are still significant security concerns that have, as of yet, kept most companies on the fence but for a few choice applications.

Throwing a huge monkey wrench into our understanding of the pros and cons of cloud computing is a study by McKinsey analyst William Forrest. In it, Forrest claims that for large companies, cloud computing is actually more expensive than the traditional in-house route.

Confused? Here's a summary of the key points:

  • Renting the storage and access is more expensive than owning it in the long run.
  • A large organization will still require the majority of its IT employees for support and administrative tasks, so there is not a significant cost savings in staff.
  • While the assumption with cloud computing is that economies of scale (one organization owning a massive data center) will lead to very inexpensive storage, virtualization can offer just as compelling of a price point.

While the report has met criticism for failing to examine the cases where cloud computing can lead to significant cost savings (especially in large organizations, because Forrest does contend that cloud computing is beneficial to smaller organizations), I do think the report offers a nice dose of reality (a somewhat biased reality, albeit). Like most new technologies, cloud computing is often considered in the context of a brand new, starting company. And granted, it's very compelling in such a case. You haven't already invested in equipment, so you save a lot of up-front costs by renting. You're not sure how quickly the company will grow, so you have much more elasticity. And finally, it saves extra time finding and retaining some staff right off the bat.

But, most companies are not considering cloud computing from such a perspective. They already have tons of hardware that's bought and paid for, they have staff that they've already hired and trained and are happy with, and many of them have fairly static workloads if they've hit a plateau of growth. So not only will cloud computing fail to offer these organizations many of the benefits listed above, but it will create plenty of extra pains through restructuring the organization and getting set up under the new system.

As nice as it would be to give a black and white answer about whether cloud computing is right for you, wrong for you, or right for you in certain contexts, it's just not that easy. Every organization has different needs, and must consider what might be able to move to the cloud and what the strengths and weaknesses are. In many cases, I don't doubt that virtualization can offer many of the increased efficiencies without the drawbacks.

While I recommend you take it with a grain of salt, the report is actually a nice and easy read--more like a PowerPoint presentation than a traditional report. You can view it here.

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