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At a conference in Silicon Valley last week, more than 30 cloud computing start-ups gathered to pitch their offerings and business plans to venture capitalists. The upbeat mood at the Under the Radar conference was in direct contrast to a recent study by McKinsey & Company on cloud computing.
In that study, "Clearing the Air on Cloud Computing", McKinsey concluded that outsourcing a typical corporate data center to a cloud service provider would more than double the cost.
It based its assessment on Amazon.com's Web service, largely because that service is the best known and costs are available. Based on that assessment, McKinsey found that the cost of a conventional data center was $150 per unit of computing output, compared to $366 per month for a comparable cloud offering.
Not only is that significantly more expensive than running a typical corporate data center, McKinsey also says it's less reliable. Amazon sets its service level agreements (SLAs) for monthly uptime (in percentages) at 99.5% for its EC2 (Elastic Compute Cloud) service and 99.9% for its S3 storage service. That compares to typical enterprise SLAs of 99.99%.
Needless to say, many at the cloud computing conference disputed the findings and rationale of the McKinsey study. But some of the more interesting comments came from several CIOs and technology executives who were there to evaluate the business plans and offerings of the cloud start-ups.
"I don't think it's something that should be evaluated under just a pure cost scenario," said Steve Heck, chief technology officer for Getty Images, a digital media provider. "It's more about the flexibility in managing variable demands." In other words, cloud computing may fill a gap when demand for a particular service is greater than forecasted or simply growing at a rate greater than the IT infrastructure can practically service.
Heck added he's not willing to pay too high a premium for a cloud service, but that added flexibility does bring value.
David Powers, who is in charge of cloud computing initiatives for pharmaceutical giant Eli Lilly, says cloud computing does give companies the ability to bring on certain services faster, and that too has value beyond cost savings. If, for example, Powers can bring on a service via cloud computing that allows Eli Lilly scientists to bring a product to market four-to-six weeks faster, it can have a significant payback.
Mark Bagley, vice president of technology for British Telecom provided another perspective on the argument. Bagley's role is to spot and evaluate innovative products that can be used inside BT as well as products that can be resold to BT customers. Bagley says in many cases when BT offers a new service, it doesn't know how big the demand might be for that product. Cloud computing gives the company the ability to launch a service and quickly ramp up or scale down depending on demand.
Perhaps Joe Weinman, VP of strategy and emerging services for AT&T, best summed up the attitude towards the McKinsey study: "Own the base and rent the spike," he offered.
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