Does the business case for cloud computing really stack up? CBR reports.
Is cloud computing ready for the enterprise, and for that matter, are enterprises ready for cloud computing? Given the current economy, few enterprises would embark on any new initiative without being sure of the business case.
So it came as something of a blow to the cloud computing hype when influential consultants McKinsey & Co put out a report in April this year which was less than positive about the cost saving potential of cloud computing for enterprise IT customers.
Skin deep research?
McKinsey and Co worked up a discussion document in which it proposed that cloud services will not return cost savings to large enterprises. After comparing the use of a platform-as-a-service option such as Amazon’s EC2 against the cost of providing similar services out of a typical enterprise data centre, the consultants said, “Large enterprises can achieve server utilisation rates similar to those cloud providers are achieving from their platforms.”
McKinsey calculates that the total cost of assets for a typical enterprise data centre runs to around $45/month for a CPU equivalent, which it says is significantly cheaper than a comparable cloud service. “Most EC2 options are more costly than TCO for a typical data centre.”
In ‘Clearing the Air on Cloud Computing’ the consultants argued that cloud computing can divert IT departments’ attention from technologies that can actually deliver sizeable benefits; most notably aggressive virtualisation. “Most of the gains are achievable through standard virtualisation,” it said.
McKinsey says that a true cloud service has to comply with three basic key requirements. It has to abstract the underlying hardware from the buyer, be elastic in scaling to demand and bill buyers on a pay-per-use basis.
The view is that cloud offerings currently are most attractive for small and medium-sized enterprises: “Clouds are very cost effective for SMEs.”
But for large enterprises there are significant hurdles to the adoption of cloud services, that cover the full range from financial and technical, to operational and organisational.
It recommends that enterprise CIOs and CTOs should form a council to advise the industry which should, “Continue to drive down prices through scale/innovation to increase potential market.”
The cloud computing vendors, however, tend to disagree. Andy Jassy, senior vice president of Amazon Web Services, slammed the report in an interview with CBR in May, saying it contains, “numerous factual errors” and research that is “skin deep”.
Jassy, who is also in charge of Amazon Payments, said: “We were very surprised and disappointed by the McKinsey report – we don’t believe it is an accurate reflection of the truth. A lot of the analysis seemed only to be skin deep at best, and quite frankly there were a lot of facts that are just plain wrong.
“We’ve been doing this for a while and believe that what we’ve learned could have helped inform this report,” Jassy said. He said Amazon was disappointed not to have been asked for input into the research.
“The McKinsey research was at best skin deep and at worst factually wrong in numerous places,” Jassy added.
Amazon’s cloud services include the Amazon Simple Storage Service (Amazon S3), the Amazon Elastic Compute Cloud (Amazon EC2), the Amazon Simple Queue Service (Amazon SQS), Amazon SimpleDB and the Amazon Flexible Payments Service (Amazon FPS).
Jassy noted that Amazon S3 currently stores 52 billion objects such as graphics files and other unstructured data, and at its peak is receiving 80,000 access requests per second from both Amazon’s own online retail activities and its external S3 customers. In the middle of 2007, Amazon’s own retail operations’ traffic on the Amazon infrastructure was eclipsed by traffic from external customers accessing Amazon Web Services.
Jassy said that Amazon built its Web Services platform on a core set of principles: “That services should be super reliable; able to scale up and also scale back down again; offer very low latency; and be simple and cost effective.”
“You only pay for what you use – it’s a ‘pay by the drink model’,” Jassy said. “We have three main businesses: a consumer business [doing the well-known Amazon.com retail]; a seller business which enables other retailers to sell on Amazon.com and a developer business, which is where Amazon Web Services comes in. We believe Amazon Web Services will continue to be a very large, very cash-flow generative business.”
Jassy maintained that for companies of all sizes, Amazon Web Services provide a platform that enables any developer or business to reach the scale of major Internet players like Amazon.com without the up-front investment that would be required to build such a large IT infrastructure.
To be fair, there are few companies claiming to offer real cloud computing capabilities to the enterprise today, and those that do are usually really doing SaaS or storage or processing on-demand. For sure, the likes of Amazon, Google, AppNexus, Joyent and GoGrid offer varying degrees of cloud computing but these are aimed really at consumers or small to medium enterprises. It’s unlikely larger enterprises would see them as a viable alternative to their in-house IT infrastructure just yet. IBM, Oracle/Sun, Intel and Microsoft have more enterprise-ready credentials, but even they cannot claim to have reached the point where they can offer true cloud computing.
But they are definitely getting there. In July last year Hewlett-Packard, Intel, and Yahoo entered into a partnership to create new research and development centres for cloud computing. The companies will set up six test facilities called Cloud Computing Test Beds for cloud computing infrastructure research, with up to 4,000 processor cores each.
In August, IBM announced plans to expand its cloud computing capabilities by investing nearly $400m to set up two data centres in the US and Japan. The centres are part of IBM’s Project Big Green initiative aimed at increasing energy efficiency in the data centre.
In fact as we went to press, IBM was about to announce a major cloud computing initiative, introducing what it will call the industry’s first set of “cloud” services and integrated products for the enterprise. This will give clients a reliable way to standardize IT functions that are rapidly becoming too costly or difficult to use, IBM said.
Based on nearly two years of research and hundreds of client engagements, the IBM Smart Business cloud portfolio is meant to help clients take complex business processes and turn them into simple services. To accomplish this, Smart Business brings automation technology and self-service to specific digital tasks as diverse as software development and testing; desktop and device management; and collaboration.
From utility grids to roadways, water systems and financial instruments, the world’s physical infrastructure is rapidly becoming more instrumented and IT-enabled, IBM notes, and corporate data centres will have to deal with a new flood of transactions and data coming from a billion connected people and a trillion connected devices. These offerings are aimed at helping clients deal with entirely new kinds of tasks and the colossal data burdens facing the data centre.
The IBM Smart Business portfolio will apparently include three “on-ramps”, or ways to quickly deploy the cloud model:
· IBM Smart Business standardized services on the IBM Cloud;
· Smart Business private cloud services behind the firewall built by IBM (run by IBM or the client);
· and “CloudBurst” workload optimized systems, for clients who want to build to their own cloud with pre-integrated hardware and software.
All three offerings include IBM’s service management system – a kind of air traffic control system for IT – that automates self-service, provisioning, monitoring as well as managing access and security for the cloud.
IBM said the news reflects more than $10bn in investments over the last five years in control and automation technologies, which become critical as the digital and physical infrastructure converge, including a trillion connected devices by 2011, according to IDC.
The ‘cloud’ consumption and delivery model standardizes IT and business services by type of work or function. The first IBM Smart Business portfolio offerings are optimized for two areas: development and test and virtualized desktops.
In many organizations software developers are fast becoming the nucleus of innovation, as IT becomes critical to all business processes. They build the services and capabilities that will drive future revenue and generate opportunity.
In fact, developers are driving so much business value that the average enterprise devotes 30 to 50% of its entire technology infrastructure to development and test, but typically up to 90% of it remains idle, IBM notes.
In addition to high cost of inefficiently delivering this function and low utilization rates, today software developers lose a massive amount of time and productivity getting permissions and access to the systems and tools they need to do their jobs. Safely enabling developers to serve themselves can help reduce IT labour costs by 50%, reduce provision cycle times from weeks to minutes and improve quality, eliminating software defects by up to 30%.
Automating business processes
IBM cites the example of South African financial institution Nedbank, which has been automating business processes through cloud technology. “The time and labour required to deploy business process automation environments is a pain point. IBM cloud technology has proved to us that we can shorten the provisioning time significantly, reduce our cost and also increase the agility with which we can respond to business demands,” said Nicholas Parry, Nedbank.
The flexibility provided by IBM cloud technology has the proven potential to change the way we deliver service to our business, and as we look across our IT environment we see many more opportunities where the Cloud environment can add more value to our environment.
Another reference customer cited is Sinochem. “As a Fortune 500 company, Sinochem has always had an innovative IT culture to support our business, in sync with China's national agenda of integrating industry and information technology,” said Mr. Peng Jin Song, General Manager, Information Technology, Sinochem. “Cloud computing increases our flexibility in providing IT resources to meet the growing demands of our global business.
“With IBM CloudBurst and the technical expertise from IBM Cloud Labs in China, we will be able to pool and maximize our resources to run our global business on the most efficient infrastructure possible.
Meanwhile 3tera, which already offers various on-demand and hosting capabilities, has announced what it calls Cloudware, a kind of brokering platform. “Cloudware is an architecture intended to provide an open framework allowing the development of a cloud computing environment that’s rigorous enough to take on any web or enterprise application,” the company says.
It says it will be rolling out the new cloud computing capability in the next 12 to 24 months, adding the likes of support for Solaris and Windows to existing support for Linux; choice of multiple data centres worldwide; pre-built MySQL clusters; database replication appliances and NAS integration with third party storage solutions.
In fairness, cloud computing for the enterprise is not with us just yet. So how about the next question -- is the enterprise ready for cloud computing? That is a little trickier to answer, and like so many questions in IT, is probably best summed up as, ‘it depends’.
Some enterprises have already seen the benefits of SaaS and perhaps on-demand computing, so for them cloud computing is the next logical step. With its ability to save companies electricity costs (the data centre is effectively outsourced) and reduce IT management, configuration and maintenance headaches, it’s got some compelling advantages. It also means paying for IT resources rateably, instead of making capital investments and then depreciating them.
For others, it will be a leap too far. As Sybase CEO John Chen told CBR when we met him in London last year, “There’s always a customer preference thing with IT. A lot of people want to buy it [their own IT infrastructure], own it, treat it as a capital expense and depreciate it over time.”
Chen says the company has various cloud computing capabilities to pursue thanks to the likes of its iAnywhere mobile messaging and management platform, analytics, integration and data warehousing. “You still need a database and messaging in the cloud, so this is all goodness to us,” he says.
Of course, as with any new paradigm in IT, there are potential drawbacks to work past. “Service levels, security, and performance are all areas where customers will need reassurance and clear evidence of adequate resilience,” according to Butler Group’s Jennings.
The 451 Group’s Fellows sees even more potential stumbling blocks: “Security, red tape, fate sharing, legacy infrastructure, connectivity, offline access, performance, volume, SLA management, job security and territorialism, to name a few.” Against this backdrop, only ‘bleeding edge’ enterprises are likely to be ready for cloud computing today.