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April 21, 2009

McKinsey casts shadows over cloud cost savings

Large data centres match cloud providers

By CBR Staff Writer

Influential management consultancy, McKinsey and Co has worked up a discussion document in which it proposes 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 argue 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.”

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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.”

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