McKinsey & Company released a report, “Clearing the Air on Cloud Computing,” yesterday that claims that large corporations could lose money through the adoption of cloud computing. The report paints cloud computing as over-hyped and maintains that cloud computing services like Amazon Web Services (AWS) overcharge large companies for a service the companies could do better on their own. The study also says that while cloud computing is optimal for small and medium-sized businesses, large companies will spend less if using traditional data centers. Virtualization is the optimal way to go, says McKinsey, and by implementing virtualization in-house, corporations can reduce costs when factoring in depreciation and tax write-offs. Virtualization, which McKinsey says can boost server utilization to 18% from 10%, lets you treat one machine like many, by carving the servers into many virtual engines, so that software can maximize power from one machine and add scalability. Not only is this cost-effective for companies, but cloud computing takes advantage of virtualization.
The report makes some thought-provoking points but neglects to address a few key trends that are occurring in cloud server services. Innovation is rapidly changing in the cloud. The space is still very much a work in progress and big cloud computing services, like AWS, Google, Sun Microsystems and Microsoft, are regularly coming out with different products. As these companies throw their hats into the “cloud computing ring,” AWS will face increased competition in the market and could cause prices to go down to fight for market share.
Amazon’s cloud computing services, in particular, are constantly evolving. What started out as pay-by-the-drink storage (S3) and computational processing (EC2), now includes a simple database (SimpleDB), a content delivery network (CloudFront), and computer-to-computer messaging (SQS). Most recently, Amazon added a web-scale data processing engine with Amazon Elastic MapReduce. (It is a framework for accessing data stored in file systems and databases). It allows developers leverage Amazon’s cloud computing power by creating applications which process huge reservoirs of data (conveniently stored in Amazon S3) in parallel.
The next generation of enterprise apps is already begun to be written with the cloud and virtualization both in mind. At that point, it doesn’t make much sense to do it all through conventional data centers, when you can optimize through other services and get the best of both worlds. And many large companies currently use cloud services for a segment of their data storage, and also utilize and virtualize in conventional data centers.
Microsoft recently announced Exchange 2010, a new suite of Microsoft Office-related products, are designed to be deployed and managed servers on-premises or from the cloud. Microsoft’s Azure OS, which is expected to be rolled out in the fall, can host these office-related products in the cloud. It’s not a huge stretch of the imagination to speculate that in the not too distant future, Microsoft will integrate the on-premise storage and Azure storage together, thus allowing companies to tap into both utilities in the same application.
The report seems to hype the cloud costs and understates the rapid changes in cloud market conditions and resultant innovation and price cutting that will take place in the near future.
I think that is absolutely true! Cloud computing is very over-hyped.
Most people that think cloud computing is overhyped don’t understand what cloud computing really is.
I haven’t been able to read the report yet, but based on your summary, I am going to guess that they are simply assuming a company simply starts using EC2 for their servers, replacing their own hardware 1 for 1.
The actual savings and benefits of EC2 come from approaching your problems in new ways. Rather than buying or virtualizing your own stuff in house, where you have to buy enough metal to handle your maximum load, you can go to EC2 and develop a strategy where you are paying only for what you NEED at any one point in time.
On Wednesday at noon, I need all my servers’ power to handle the load. On Sunday at 12am, I need 1/100th of the power.
Only in the cloud do you have the opportunity to scale up and down like that without paying full price.
So yeah, if your company is going to try and clone their setup exactly with EC2 and SimpleDB and S3, then it will cost you a shit-ton of money, and you’re wasting your time.
Don’t do that.
MGZ
hey dude, we can get an old windows PC and us mysql for free. do you think stogy boring corporate sites get tons of hits all day long.
oh yeah; cut out the FLEX/AIR crap and it will run really fast.
AND… if it’s something that will require millions of users; and make money; then you needs to be in lockdown… and do it right.
the problem with people like you is that you’re just looking to do something different cause you wanna be big time and failed in the current arena.
if you actually ran shit; and ran the cost; set upo hardware; wrote apps; like me; as a professional… then you wouldn’t be fck’n around in the clouds.
Ummm. What?
I was thinking the same thing, it is only overhyped and expensive to people who cannot grasp the concept.
this is so true; cloud computing is just ‘tards in the valley trying to create hype so they can get a job.
i’m so surprised that this study was released and was negative; since, hey, people in the valley, like most others, manufacture consent by paying people off.
i’m so tired of people in the valley being lemmings and trying to go back to 1998 with net box oracle computers.
ZOHO, totally fck your office up by using incompatible worthless crap that doesn’t work.
oh yeah, lets get IBM in on this an make it legit; then we’ll charge big bucks.
Beware of McKinsey. In some situations, ego gets the best of them. By this I mean they sometimes do projects on subjects and within industries their consultants know nothing about…but because they’re “smart” they think they know best. And the results are regrettable. Unfortunate, but they’re not the all-knowing, all-powerful brain trust people often think they are.
I believe McKinsey authored the report for IBM that the world wide PC computer market wouldn’t be large enough to warrant significant investment.
Just saying…
This is a highly dopey report by people whose total hands-on tech experience is Powerpoint and Outlook.
I wander who paid for the report.
Am I the only one who took the half hour to actually read the report before commenting?
Try doing so. It makes a lot of very good points very salient to a large enterprise CIO.
BTW, it doesn’t look like it was “released”, looks more like it was “leaked” given the “Confidential & Proprietary” title page.
Can you send me a copy of the McKinsey report on Cloud computing. I don’t feel like paying $299 for it.
Bill
As I said in the first comment when the NYT Bits Blog version of this story broke yesterday, you only have to look at where McKinsey’s bread is buttered (old-school global orgs with gignormous data centers) to understand their bias. And the organization where they presented this report yesterday, The Uptime Institute, same thing: their memership bucks come from data center operators, including Managed Sevices Providers — the other main competition to cloud computing.
The second comment above (from MGZ) pretty much nails it. The first comment has be from Larry Ellison, one of his many anonymous profiles? lol!
I have to say that no report gets released without sponsorship.
That said it doesn’t mean it’s not true. The facts are, if the technology has the potential to do something, then make it happen and prove it.
Otherwise it isn’t real yet.
You’re talking about science, people, not about art. You’re opinion on its potential has no impact. If you’re interested in investing, look at the revenue streams of a real company, not a snowboarder’s pipedream. Check the technology works, make sure they own the patents, and invest.
Follow Chuck D’s advice.
BTW my opinion on this research – firstly, they quote Gartner.
(A) Gartner have no credibility amongst some techies, tech journalists and many of their target companies as they are rumoured to base their work on money invested in the research by the target vendor.
(B) Gartner do have credibility with purchasing staff at corporations, happy to have some independent back up for any purchase they make that, should it go wrong, could cost millions of dollars and; sales people for the organisations that are rated highly by Gartner.
That leads me to think, secondly, McKinsey aimed this, a powerpoint presentation (not a study) at the sales people. This is because it talks about CIOs in a general, corporate sense, when CIOs will primarily think of themselves within their own industry, not as a ‘rank’.
The only people who think of these people as a ‘rank’ are the IT companies that sell to them, making this a vendor.
It also talks about ‘large enterprises’ not specific industries like manufacturers or banks. If it was for a company like one of those, McKinsey would at least have the decency to say ‘large manufacturers’ or ‘GM’ not talk about them in a generic sense.
Thirdly I think this is targeted at sales people from an IT organisation that are currently trying to discredit cloud computing, but will offer it in future. You can see it in all of the statements saying that it’s not here ‘yet’, but that people should keep buying kit.
Most of the points in it are fairly well made I would say. Make up your own mind.
Got to say though, of the press analysis, I can’t find the FT article, the rest of the articles are from 2008, many of them from other analyst research papers, sometimes quoted in the press, but usually supported by corporate sponsors (the same one?). does the rest of it hold up?
Oh brotha, please! A management consulting firm claiming to know about cloud computing, hah.
If anything this just further validates cloud computing. This report is simply targeted at CIO’s of large cash rich companies so they can hire these over paid MBA consultants….
I agree that cloud computing is actually a threat to those consultants/consulting firms. They are scared.
Hey not all MBA consultants are against cloud computing. Some of us are actually trying to build businesses in the cloud. (But as you can imagine the footing is still a little tentative.)
I think think there should be a price to the innovation aspect. Consider this, if you can maintain cutting edge technology without upgrading hardware and software, there is a lot of money to be saved.
Cloud computing has benefits. And they have disadvantages.
If neither of those are brought up and talked about, BY the actual users of cloud computing, then it’s hype in either direction.
There’s a reason why Facebook doesn’t use the cloud, and cost is only *one* of the many reasons.
The *real* question to me isn’t WHY should a company use the cloud now, the question is WHEN I’m too big to use the cloud, WTF will I do?
Are you, guys, aware that f…ing McKinsey was the f…ing inventor of the f…ing CDO and Credit Default Swaps? And they were selling the scheme all around the place.
Bury them!
The gap between the TechCrunch view and the McKinsey view is that TechCrunch is betting on future, unrealized innovation in the cloud (which are all believable points) but McKinsey is out in the field advising clients who are making investment decisions *today*. These clients are as large as they are risk averse, and won’t bet on any of the rebuttals in this post coming true.
Finally, believe it or not, McKinsey is not full of generalists; maybe at the college hire level that’s true, but there are plenty of experts who have spent their lives on a subject or industry and they are the ones generally producing these reports
Lastly, who even read the doc?
absolutely short sighted report from McKinsey…
and bad numbers crunching too…
the guys at Rightscale point it out very clearly:
http://blog.rightscale.com/2009/04/15/mckinsey-doesnt-get-the-cloud/
This McKinsey report is again making AWS the leader of the gang.
All other leading names have missed this business:
MSFT, GOOG, IBM, DELL, HP, SUN (the network is the computer)
Alex – it’s not targeted at CIO’s, it’s targeted at the sales guys like I said. I can show you why.
Also McKinsey’s didn’t invent CDO’s, the derivatives business has been going along fine thanks to JPMorgan et al.
QDub makes the point – have you read the doc?
READ IT.
It’s a powerpoint presentation to sales people, helping them to sell hardware when their clients might use cloud.
IT’S NOT A STUDY.
In any case, I kind of agree with the POV.
Even in the case of a start-up : when you can do it on your own, then DO IT.
We own about half a dozen dedicated servers, did the virtualization & clustering by ourselves, and it does cost far less than any cloud-based solution we first wanted to go with…
mck is in the cloud too
Interesting article, I share your opinion.
There is a simple explanation why its cheaper to build your own cloud today rather than using an existing one. Hardware prices are always going down and productivity is going up. A cloud that was built three years ago is more expensive and harder to maintain than a farm built today. Think of Akamai (big and expensive) and all the cheep streaming alternatives of today.
To simply disregard this report because you think McKinsey or Gartner only publishes sponsored material is erroneous and irresponsible. First, they don’t do that. Second, the report brings up a few good points worthy of discussion. The first is around the definition of the Cloud. There are many definitions and not all are well understood. This creates confusion in the marketplace and hinders adoption. So McKinsey is doing a service to try and clarify this issue.
Second, McKinsey’s report accurately reflects the buying preferences for many large enterprises. At AMR Research, we speak with hundreds of software vendors, service providers, and manufacturers and retailers across many verticals (A&D, Auto, High-Tech, Industrial, Life Sciences, Retail, et al), and most large enterprises are inherently suspicious of buying software based on the Cloud. Whether you think this is right or wrong is irrelevant as this is the predominant viewpoint. Many enterprises are now just considering hosted and SaaS applications and mistakenly viewing these as Cloud applications, thus my first point.
I think the McKinsey report is simply saying do your homework before blinding jumping into the cloud. To interpret their work as entirely negative tells me you probably didn’t read the report as they point out many benefits of Cloud Computing: faster time to market, lower IT costs (in certain circumstances), lower barriers to innovation, scalability, and more.
I understand Cloud Computing and do think it’s overhyped. Does that mean I think there is no value or no potential? Absolutely not. But does it mean I advise my software, service provider, and manufacturing clients to be careful before blinding jumping in? Yes it does.
William-I agree with your comments. And I am particularly reticent to drive blindly into the storm clouds (I had to throw that in just couldn’t resist) based solely on one report from McK, Gartner, Forrester, et. al. Your points particularly the next to last paragraph. We all must look at as many of the data points as possible to come up with the compelling arguments and positions on ‘cloud’ or any other new technologies. There are certainly opportunities that can be derived from cloud-based services; we just don’t know yet what the best ones are yet.
It’s not too dissimilar to the ideas of VPN’s 5-6 years back when many IT leaders and strategists would say, “there’s no way we are putting our critical services onto the Internet.” Now look where we are IP-VPN’s, Voice services, Video, etc. All grew up and we determined through good hard engineering and planning where they worked and how they would work. Same is now true for cloud services.
So, I say, get out the pencils and slide-rules and work to determine how our respective organizations can leverage this potentially new game-changer.
Procrastination is the deadliest form of denial.
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Cloud Computing is changing the way people do IT in any size organizations. One of the things that should help in adoption of Cloud Computing for businesses is the right tools such as our CloudBerry Explorer for Amazon S3 http://cloudberrylab.com.
I also believe that large companies, especially on the department level will think twice before buying new hardware/ software and may favor cloud-based services instead.
I agree with McKinsey. Cloud computing is over hyped. Not only large corporations but also some of the startups have ended up spending a lot more money than what they would have if there were not gone for cloud computing. Cloud computing is still for early adopters and companies who are trying to look cool. Sure you can use fancy words like REST and Cloud to glorify your products and services but it may not really translate into a lower cost of ownership for you and your customers. I wonder if the cost will eventually go down? I doubt it though because only a handful of business can offer cloud computing for others and anyone buying their service will require these businesses to show strong balance sheets.
Full disclosure first – ParaScale sells software to enable storage clouds (Private or Public), and I used to be a partner at management consulting outfit.
A decent point of view from McKinsey – but far from the last word. All the economics are based on EC2 bashing with some very average assumptions that the whole data center is somehow going to disappear into the cloud …hmm what about certain workloads being a better fit in the public cloud and others just right in the data center. And maybe cloud storage is different from cloud compute – everything is based on EC2 with just a passing mention of S3. More on why this analysis is not the last word her http://blog.parascale.com/?p=149. Does help in reducing the hype vector though – and I think this is good. Good for the industry to underhype and overdeliver
I think McKinsey missed the point. The point of services like Amazon’s are to provide highly reliable and scalable storage solutions. INSTANTLY. Building those kind of redundant systems with huge amounts of uptime and scale to tons of use is costly and most importantly it takes a long time and is hard to get right. The value is that this stuff can be had right away, quick to get started and focus on information technology and software, not the infrastructure. Its a great technology, and improved developement speed is something Mckinsey completely missed.
I can’t help but wonder if McKinsey makes less money from consulting on cloud deployments.
Also, it’s not clear that the analysis looks at the new Reserved Instance prices for EC2.
James Hamilton does his analysis on the McKinsey report, and Jeff Barr from Amazon promoted this on his Twitter account:
http://perspectives.mvdirona.com/2009/04/21/McKinseySpeculatesThatCloudComputingMayBeMoreExpensiveThanInternalIT.aspx
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Tonido offers an interesting alternative – private cloud and p2p network
http://lifehacker.com/5208833/tonido-keeps-cloud-computing-local
http://www.freesoftwaremagazine.com/columns/kindness_strangers_can_defeat_proprietary_cloud_computing_free_software_solutions