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Technology Stocks : Cloud, edge and decentralized computing -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (262)	4/15/2009 7:43:24 PM
From: Glenn Petersen	Read Replies (4) \| Respond to of 1685

While he admits that the idea of piping in computing power from an external service holds appeal for small and medium-sized businesses with fast-growing and unpredictable needs, Forrest calculates that big companies could end up paying more than twice as much for those services as they would to own the same computing resources in-house. Deflating The Cloud Andy Greenberg, 04.15.09, 12:00 PM ET "The cloud" has come to represent the bright future of computing, a world where processing and storage become as ubiquitous, cheap and accessible as electricity. But for big business, one researcher argues that "cloud" metaphor may be economically apt: The closer you look at the much-hyped technology's price advantages, the fuzzier they seem. At a conference organized by the Uptime Institute, a consulting firm focused on data center technologies, McKinsey & Co. analyst William Forrest on Wednesday plans to present a report aimed at debunking cloud computing's appeal for large businesses. While he admits that the idea of piping in computing power from an external service holds appeal for small and medium-sized businesses with fast-growing and unpredictable needs, Forrest calculates that big companies could end up paying more than twice as much for those services as they would to own the same computing resources in-house. "Those who are banking on the whole-scale move to clouds from large enterprises are likely to be disappointed, unless someone comes out with a more attractive price than any provider currently on the market," Forrest says. In his analysis, Forrest focuses on one of McKinsey's financial services clients, and tallies the cost of buying and managing the processing cores that run the company's Linux and Windows applications. Then he compares those costs with the price of running the same cores in Amazon's "Elastic Cloud" service--an offering that hosts the computing resources in Amazon's data center and delivers the processing power over the Internet. The results: When renting rather than owning its cores, he found that the financial firm would be paying more for all but a few Linux applications. In fact, when adding up the total information technology resources actually used by the financial services company and multiplying the figure by the cost of those resources in Amazon's cloud, Forrest found that the financial services company would be shelling out nearly 150% more in a cloud computing model. "In the most relevant cases for chief information officers, there are relatively few financially beneficial offerings," Forrest says. "And even in the best possible scenarios, only a few Linux purchases remain attractive." Much of cloud computing's misplaced hype, contends Forrest, comes from the assumption that businesses that make the switch will be able to do away with their entire IT department, an expensive collection of personnel. But in his analysis of McKinsey's financial services client, Forrest found that only around 15% of the company's 1,700 or so IT employees had hands-on access to hardware and software--most worked in support or other administrative areas. That means moving to Amazon's service would only cut about 200 full-time workers, hardly the savings chief information officers might imagine. Forrest's report also points to what he says is another misconception about cloud computing: that by clustering many companies' IT resources under the same roof, a data center can tap into unprecedented economies of scale. In his analysis, Forrest uses data that Google released earlier this month, showing that the Web giant's servers--a fair stand-in for those of cloud computing providers like Amazon--function about 3.8 times as efficiently as a typical machine. But by using the most efficient virtualized setups available, Forrest claims that companies can achieve about 3.5 times their typical output for the same hardware, almost matching his estimate for a cloud provider's efficiency. Of course, there's more to cloud computing's promise than efficiency and price. Amy Wohl, the lead analyst at Wohl Associates and a cloud computing proponent, argues that Forrest's analysis leaves out the value of avoiding big capital outlays, as well as cloud computing's flexibility in dealing with unpredictable IT needs and adding new capabilities. "There are very few companies in the world that use the same compute power every day," Wohl says. She adds that the debate over cloud computing needn't be black and white. Companies could host some of their IT requirements on their own premises, and tap into a provider like Amazon for others. "Cloud computing's elasticity of supply is meant to provide for those peak requirements at periods of high demand," she says. "Many customers will continue to do day-to-day computing in their own data centers and get those peaks from the cloud." But big businesses are less likely than small companies and startups to need those variable offerings, Forrest says. And in cases like the Christmas shopping season, when large numbers of businesses ramp up their IT use simultaneously, cloud computing providers would face the same peaks as their customers--a situation that Forrest says would raise the provider's prices and erase any savings. None of that renders cloud computing useless, Forrest argues. In fact, he admits that it offers real breakthroughs for small- and medium-sized businesses. But given its massive hype--he cites a Merrill Lynch report last year claiming that the technology could make business applications "three to five times cheaper"--the economics of cloud computing need a dose of reality. Says Forrest: "Unless someone really thinks about how CIOs should be using cloud computing and where it makes the most sense, it could easily end up as a dirty word." Story link