Google: The cloud is cheaper

Google: The cloud is cheaper

Summary: In response to McKinsey report, search giant says companies should consider application stack in addition to hardware when weighing costs of cloud.

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When considering the costs of going to the cloud, consider the whole picture, not just hardware costs, said a Google executive.

Following a recently published report from McKinsey, which cast a shadow on cloud computing (refer to sidebar), the cloud platform vendor is perturbed.

The search giant spoke to ZDNet Asia Thursday in response to the report, which recommended large companies be better off managing their IT resources in-house. It compared the costs of running a typical enterprise data center against a cloud alternative, and found the latter to be a more costly option for large enterprises.

What McKinsey said

McKinsey released a report in April 2009, which said cloud computing is suited for smaller organizations, not larger corporations.
In a study, the consulting group found that for small to midsize businesses (SMB), the cost of running a data center is higher than the cost of transiting to a cloud computing environment.
Large enterprises, on the other hand, should run on their own data centers, McKinsey recommended, saying it is much cheaper to manage in-house compute capacity.
Using Amazon's EC2 cloud platform, as an example, the report revealed an increase of 144 percent in costs is needed to move to the platform.
Furthermore, non-labor costs increased from US$43 per month for typical data centers to US$270 per month for Amazon's cloud.
The report also said companies can match server utilization rates in the cloud by applying virtualization technology in-house.
It said companies can achieve server utilization rates of about 35 percent with "aggressive virtualization" and a "generally achievable" rate of 25 percent. Going to a "best-in-class" option, using Google as an example, would yield about 38 percent.

Large companies should instead rely on server virtualization to share compute resources in a more cost-effective way, according to the report.

Matthew Glotzbach, product management director, enterprise, at Google said the report was flawed in that it only focused on hardware cost.

"It is only one cost aspect out of a dozen." Companies also need to consider other costs of the application stack such as licensing and development, said Glotzbach.

Furthermore, he said the report also assumes virtualization will be able to raise hardware utilization to 100 percent. Glotzbach said, in reality most companies are only able to achieve 20 to 30 percent.

"Enterprises haven't been sophisticated enough to plan for that high utilization level." Virtualization, to achieve high utilization "is good in theory, but in reality it isn't even close to how enterprises are run", he said.

Google has been on the path to win large clients over with its cloud-based application offering, Google Apps.

Glotzbach said the majority of its 3,000 new customer wins each day have been small and midsize businesses (SMB), but pointed to the "few dozen large enterprises adopting [cloud services] every quarter" as an indication of cloud services maturing.

He added that the cloud's value lies beyond cost reduction--as a platform, it can help serve functions that companies could not otherwise achieve in-house.

Within the Google Apps offering, he said, companies can post videos for streaming. "There's no way companies could have set that function up themselves," said Glotzbach.

On the cloud, companies can adopt the latest technology without the investment or development cycle involved with building apps in-house, he added.

Companies should think about moving commodity aspects of the business such as e-mail and calendaring to the cloud, he said. Core applications central to the business should be kept in-house; companies need to decide if they want to rewrite these applications to the cloud.

Glotzbach noted that industry momentum around cloud platform providers making it easier for developers to port existing apps to the cloud will help bridge this divide in future.

Konrad Foo contributed to this story. Based in Singapore, he is an intern with ZDNet Asia.

Topics: IT Employment, Apps, CXO, Cloud, Software, SMBs

Victoria Ho

About Victoria Ho

Victoria Ho is a tech journalist based in Singapore, whose writing has appeared in publications such as ZDNet, TechCrunch, and The Business Times. When she's not obsessing about IT, you can find her tinkering with music and daydreaming about which guitar to buy next.

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3 comments
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  • Google: The cloud is cheaper?

    Google are correct in saying there are many costs to consider. This is true of all IT decisions. What most larger organisations will have difficulty getting around is trusting an outsider with their data. If they lose it... COST, well, enough said. I would not go there at this time, so I can't blame any organisation for adopting a wait and see approach.
    anonymous
  • Google: The cloud is cheaper

    Well McKinsey is approximately right in saying so. Clod is suitable for small companies - correction small businesses. From what i see, however big a company may be, it seldom brings a "firm-wide" change to its technology infrastructure. When these changes do happen CC may not be a candidate in the list but such large scale changes are few and far between. Smaller businesses is where the pie is and by small business I do not limit the pie to SMBs but also include small businesses / business units of these larger enterprises. Thats where cc wins the race. Flexible, collaborative, quick, affordable, scalable and mostly updated CC apps is mostly able to meet the needs to smaller ever changing businesses. So yes, the cloud is cheaper and I'd argue, superior in many ways. Read http://talkcrm.blogspot.com/
    anonymous
  • RE: Google: The cloud is cheaper?

    yes i agree..<a href="http://maysioson.stemtechbiz.com/">.</a>
    petty026