Analysts debate merits of cloud computing for large data centers

A new McKinsey report finds cloud computing is not an economical option for large data centers, though smaller ones stand to benefit.

Cloud computing may not be all it's cracked up to be for outsourcing large data centers, according to a new report from McKinsey & Company.

The consultancy warned that for large enterprises, outsourcing an entire data center to a cloud computing service provider does not make economic sense.

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The report, "Clearing the Air on Cloud Computing," cites an example of an unnamed customer that migrated a Windows server farm to Amazon Elastic Compute Cloud (EC2) and compares the total cost of ownership with that of a regular data center.

McKinsey estimates the typical CPU per month cost for 3 GHz dual-core Xeon Windows-based servers is $150 ($43 for nonlabor-related costs and $107 for labor related ones). The report states that the cost of a comparable configuration in EC2 would cost $366 ($270 for large standard Windows configurations and $93 for nonlabor-related costs). The example assumes 10% labor savings by moving to a third-party cloud provider. The total is $216 per month more expensive to move a large Windows environment to EC2 versus running it in-house.

A spokesperson for Amazon said that no one is suggesting moving data centers lock, stock and barrel to EC2. "That's ridiculous," she said.

There's an assumption that clouds are vastly cheaper, and that's just not the case.
William Forrest,
consultant and author, McKinsey report

James Staten, a principal analyst at Forrester Research Inc., agreed. "The thought that we would wholesale up and- move our legacy infrastructures is rather ludicrous," he wrote in the recent report "Which Cloud Computing Platform Is Right for You?" The report notes that many applications require the close coupling of resources that can be accomplished only in a single scale-up system.

Staten writes that hosting a persistent service on a pay-per-use platform is not the best economic decision. "But adding virtual machines on the fly during predictable peak traffic periods is a good use of a cloud computing platform."

"We're not saying clouds don't make sense," said William Forrest, consultant and author of the McKinsey report. "We're pointing out the financial barriers and, in many cases, there's an assumption that clouds are vastly cheaper, and that's just not the case."

Is smaller better for cloud computing?
But for smaller companies, those with less than $500 million in revenue, cloud providers may be attractive for some computing workloads, he said.

The McKinsey report touched a nerve with IT shops, many of whom were burned the first time around with outsourcing which was supposed to be a money-saver, but seldom turned out that way.

"Cloud pricing is still vague," said Charlie Walsh, IT architect with a large toy retailer. "My sense is anything you get on demand costs a premium."

The McKinsey report suggests that rather than create unrealizable expectations for clouds, CIOs should focus on the immediate benefits of virtualizing server, storage and network operations. Eventually, McKinsey's Forrest says, new cloud providers will find ways to do things more cheaply than Amazon, "Microsoft likely being one of those," at which point it will make sense to take another look.

Meanwhile, analyst firm IDC, says the depressed economic climate in the U.S. will in fact drive more enterprises to consider and adopt cloud offerings. Spending on IT cloud services will hit $42 billion by 2012, the company predicts.

What do you think about this story? Email Jo Maitland, Executive Editor. And check out our Server Virtualization Blog.

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