Private cloud discredited, part 1

Microsoft, a most unlikely ally, has published a white paper that shows private cloud solutions are up to 40 times *less* cost-effective than public cloud alternatives for many companies. It vindicates my prediction that private cloud will be discredited by year-end.
Written by Phil Wainewright, Contributor

Back in January, I made a controversial prediction that private clouds will be discredited by year end. Now, in the eleventh month of the year, the cavalry has arrived to support my prediction, in the form of a white paper published by a most unlikely ally, Microsoft.

Titled simply The Economics of the Cloud (PDF), the document succinctly sets out the economic factors that make the public cloud model an inexorable inevitability, substantiating my long-held views. It deserves a full reading — don't settle for the overview in the authors' blog post announcing it. Here are some headline numbers that should give pause for thought:

  • 80% lower TCO. The combination of large-scale operations, demand pooling and multi-tenancy create enormous economies in public cloud data centers: "a 100,000-server datacenter has an 80% lower total cost of ownership (TCO) compared to a 1,000-server datacenter."
  • 40-fold cost reduction for SMBs. "For organizations with a very small installed base of servers (<100), private clouds are prohibitively expensive compared to public cloud."
  • 10-fold cost reduction for larger enterprises. "For large agencies with an installed base of approximately 1,000 servers, private clouds are feasible but come with a significant cost premium of about 10 times the cost of a public cloud for the same unit of service."

Since I know there's a subset of ZDNet readers who will leap into Talkback to cry wolf on cloud security without bothering to read either the rest of this blog post or even looking at the white paper, here's what it has to say on that particular canard:

"Large commercial cloud providers are often better able to bring deep expertise to bear on this problem than a typical corporate IT department, thus actually making cloud systems more secure and reliable ... Many security experts argue there are no fundamental reasons why public clouds would be less secure; in fact, they are likely to become more secure than on premises due to the intense scrutiny providers must place on security and the deep level of expertise they are developing."

That paragraph alludes to one of the key factors that I've been highlighting in my recent evangelism of the cloud model, the economies of scale for collective scrutiny and innovation. Amazingly, the document reaches its conclusions without adding in the additional economic benefits of this factor, which surely must deliver a knock-out blow to the private cloud concept. The collective feedback and testing from a diversified customer base enhances not only the security of a public cloud infrastructure but also informs and directs its evolution at a far more rapid pace than any private cloud will allow. There's a virtuous cycle here, of course, in that public clouds are already more cost-effective as platforms for innovation, so that there is going to more innovation happening here than on private clouds anyway. That innovation will help to further accelerate the evolution of public clouds, thus amplifying their economic advantage more rapidly and to a greater extent than even Microsoft's strategy team have envisaged.

The document ends by trumpeting Microsoft's own commitment to the cloud, and in particular its work with products such as Office 365, Bing and Azure, which is fair enough. But I have to mention that it also exposes a huge, gaping hole in Microsoft's product line in the SMB market. As I highlighted earlier, the document plainly implies that any SMB would be crazy to factor on-premise or private cloud into their future strategy when these options are going to cost up to 40x more than public cloud alternatives. That finding casts a dark pall over Microsoft Dynamics, a product line that has spent the past decade running away from the cloud (that may sound like a strong verdict, but believe me, I've witnessed the whole, sorry saga). If Microsoft really wants to be 'all-in the cloud' as Steve Ballmer has been saying, then it's going to have to figure out a way to get Dynamics there before its SMB installed base starts deserting it in droves. Acquisition of an existing cloud solution is probably its only viable option.

Some readers may be wondering why I wrote 'part 1' in the title of this post. It's because I fully expect to be able to write a 'part 2' before long. The economic case to discredit private cloud has now been made. The other shoe still waiting to drop is a complete rebuttal of all the arguments over security, reliability and control that are made to justify private cloud initiatives. The dreadful fragility and brittleness of the private cloud model has yet to be fully exposed, although I have done my best to alert people of its existence. I am confident that evidence will surface soon and then we will be able to drive the remaining nails into the coffin of private cloud.

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