Nearshore Americas

It’s Official: Cloud is Overhyped, but Does Outsourcing Cloud Really Double IT Costs?


It’s sure overcast out there. Cloud computing, the buzzword sweeping the tech world, claimed the top spot in the most recent Hype Cycle report put out by Gartner Research, while a BusinessWeek cover story compared the technology’s impact to the introduction of electricity. Even President Barack Obama’s chief information officer declared himself an acolyte, saying, “I am killing projects that don’t investigate [cloud computing] first.” Last month, a Microsoft lawyer urged the European Union to revamp its laws in a speech subtitled, “How Cloud Computing Will Change Our World.”

Cloud computing is a foggy concept. As with Web 2.0 before it, it’s something everyone thinks they need, even if they aren’t sure what it means. In a nutshell, cloud computing means tapping software, hardware or storage over the Internet (the aforementioned “cloud”), then using and paying for it on an as-needed basis. Applications like Facebook and Google Gmail have always been “in the cloud,” but you can also lease computing power from Amazon, storage from Rackspace or software from Cheaper, greener, more versatile, the paradigm promises to throw the corporate data centre onto the trash heap along with those old mainframes.

Or does it? “There’s this idea that this brave new world of cloud computing will sweep the planet, we’ll throw out our computers and just use them in the cloud,” says Duncan Stewart, a technology analyst with Deloitte Canada. “That’s goofy.” Cloud promoters are underestimating financial and logistical barriers, he says, as well as the intransigence of human nature.

For starters, cloud computing is unlikely to become ubiquitous in the business world because it doesn’t make sense for everything. Moving corporate data that require frequent updates out into a cloud is time-consuming, risky and impractical, says Daryl Plummer, a senior Gartner analyst. And sensitive information shouldn’t be outsourced to cloud providers, because current laws and contracts are too vague and inconsistent. “Some vendors don’t even make it clear if you still own the data or where it’s located,” says Plummer.

Cloud computing’s reliability is also in question. While the media glommed on to a few snafus — such as T-Mobile’s Sidekick service losing subscribers’ data when its cloud supplier’s backup systems failed — it’s not the number of breaches and failures (which is small) but what it says about providers’ practices that is worrisome. It came as a shock to many when, in September, Google admitted to the SEC that some of its most important systems “are not fully redundant” — meaning if something breaks, your data may be gone.

These issues will in time be resolved. A bigger problem concerns the economics argument. Cloud computing can provide savings — as much as 50% — for smaller businesses by lowering their upfront investments and even freeing them from having to set up IT functions on-site. However, the picture is different for major corporations — the biggest technology buyers — that have already invested millions in servers and IT staff. A McKinsey & Co. study found that outsourcing a corporate data centre to a cloud service could more than double the IT cost. Owning the hardware, the report suggests, is more cost-effective for most corporations once they include the depreciation write-offs.

As for the savings, they’re curbed by the issue of trust. If a company moves its computing infrastructure to a cloud provider, the IT staff’s role will likely change from managing their own servers to managing provider relationships, says Plummer. “They create a different IT function to replace what they got rid of. You’re spending as much money as you had before.”It’s not surprising, then, that a Goldman Sachs survey found only 2% of corporate CIOs are looking to adopt cloud computing.

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No one suggests cloud computing is a passing fad, but it will require not just technical but cultural changes to fulfil its promise. In that sense, it could be compared to telecommuting. For more than 30 years, its benefits have been obvious, yet many managers remain dubious that their employees are working when out of their sight. The same mentality may hold back the corporate adoption of cloud computing: Can you trust it when you can’t see it?

Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

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