Panel: do cloud computing economic advantages break down in enterprises?

The purpose of information technology is "to provide compute and storage. That's it. full stop. That compute and storage can be provided by mainframes, private data centers, distributed networks, or by the cloud."

- Allan Leinwand, venture capitalist

At this week's Interop conference in New York, I heard a great panel discussion, moderated by AT&T's Joe Weinman, on the economics of cloud computing. Weinman was joined by Adam Selipsky of Amazon Web Services, Allan Leinwand of Panorama Capital (which invests in cloud vendors), Andy Rhodes of Dell, Harris Tilevitz of Skadden Arps, one of the largest law firms in the world, and William Forrest of McKinsey & Co., author of the last spring's watershed report on "Clearing the Air on Cloud Computing."

A public cloud provider, private cloud operator, consultant, network provider, and venture capitalist debate cloud's business value

McKinsey's Forrest, for one, stated that while his research "found significant amounts of workloads today could be moved to public cloud providers," it still "wouldn't make economic sense to move large chunks of data centers to the cloud."

Nevertheless, he predicts, "there will be a continued move to the cloud, as there are increasingly attractive economics over people building their own data centers." He says that these economics keep getting better because "the public cloud guys have built a better box, they buy in volume, and operate more efficiently than most enterprises."

"The idea that you buy an individual server, that is going away. You either buy racks of servers or go to the cloud."

Amazon's Selipsky, needless to say, was bullish on the cloud computing paradigm. He noted that in a government CIO rountable last week, Vicek Kundra, the US CIO, "certified that 45% of all government IT could run on public clouds."

Selipsky went on to say that cloud computing is suitable for both large and small enterprises. "For start-ups, its a total no-brainer. We also have a lot of big enterprises using our services." He foresees many enterprises moving to a hybrid cloud environment in the coming years. And, he noted that cloud providers also bring another advantage beyond cost savings: "The biggest benefit of the cloud is that is it enables focus. You can take the intellectual capital of your staff and focus on your business -- not IT."

VC Leinwand, however, says he still sees a "huge gap" between cloud services offered and the ability to effectively manage them in an enterprise environment. "Cloud storage costs one-tenth of onsite data storage," he points out. But what about configuration, integration, data deduplication, and monitoring? There's a gap between what the enterprise is used to doing behind the firewall and what cloud providers can do."  He added that he is seeking to fund companies that can help close that gap.

AT&T's Weinman, for his part, raised doubts about the sustainability of cloud computing economics, which may break down as enterprise management requirements come into play. "I'm not sure there are any unit-cost advantages that are sustainable among large enterprises," he said. A more likely scenario that will be seen is hybrid adoption of cloud computing in some areas, and private capabilities for others where it makes business sense.

Another option is private clouds, and Skadden's Tilevitz reports great success at his global law firm of 2,000 partners. Originally, the initiative started after September 11, 2001, as a way to ensure business continuity by operating three regional data centers. Now, built on a Citrix environment, the virtualized environment has evolved into an internal cloud of sorts, from which the firm's various office access online services. For example, he related, a partner may need to load five million pages of documentation into an online format overnight. "We have more than a petabyte of image data that we keep for seemingly forever that we use for litigation," he said.

Economies of scale have also kicked in as well. "Our expenses for this private cloud have dropped over time," Tilevitz said. "I see it as almost a reversion back to the mainframe world. Everyone is now using applications and data remotely."  Tilevitz also said his firm is looking at becoming a "public" cloud provider of sorts as well, selling excess disk capacity online.