Is adopting the cloud a money-losing mistake?

Everything is in the cloud.It certainly feels that way, even though it's patently untrue.
Written by Andrew Nusca, Contributor

Everything is in the cloud.

It certainly feels that way, even though it's patently untrue. Cloud computing is everywhere, it's a buzzword, it's on the tip of everyone's tongues. To the cloud, I say! To the cloud!

But new research from McKinsey & Co. says that trying to adopt the cloud model would be a money-losing mistake for most large corporations. The research is being presented at a symposium this afternoon sponsored by the Uptime Institute, an organization that focuses on improving the efficiency of data centers.

The McKinsey study, "Clearing the Air on Cloud Computing," concludes that outsourcing a typical corporate data center to the cloud would more than double the cost. The study uses Amazon's well-known Web Services as the model for the price of outsourced cloud computing. According to McKinsey, the total cost of the data center functions would be $366 a month per unit of computing output, compared with $150 a month for the conventional data center.

Moreover, the labor savings resulting from a move to the cloud has been exaggerated, and it's still a costly, labor-intensive endeavor to provide care for company software and help to users.

In other words: don't think the cloud means instant savings, because it doesn't.

(Owning the hardware is cost-effective for most corporations, though: there are significant depreciation writeoffs for tax purposes, according to the study.)

On the other hand, the cloud can be beneficial for small and medium-sized companies, typically with revenues of $500 million or less.

Still, the study suggests that IT pros focus mainly on adopting virtualization, which offers improved efficiencies without too much overhead (so long as it doesn't disrupt everything, says our own Dennis Howlett). According to McKinsey, the average server utilization in a data center is 10 percent, and can be easily increased to 18 percent by adopting virtualization.

With more aggressive adoption programs, servers in corporate data centers can reach up to 35 percent utilization, McKinsey said. [via]

UPDATE 2:35 p.m.: IBM provides a counterpoint to the survey's findings:

IBM believes this view neglects to consider that large enterprises are not going to outsource their entire data center operations to a public cloud like Amazon's. Different workloads demand different support, and as such, there are certain applications that shouldn’t be moved to a cloud model.

Rather, IBM is seeing that many clients are taking advantage of their existing resources through a mix of both public and private cloud models to more cost-effectively support specific applications like business resiliency and information protection services, as well as collaboration services. According to IBM research, companies can save up to 80 percent on floor space and 60 percent on power and cooling – and cloud computing can deliver triple asset utilization, making the resources they already own more efficient. Utilizing overflow capacity in the cloud for highly variable or seasonal workloads is another attractive opportunity which can reduce inefficiencies and cut costs.

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