Choose the Cloud, Lose Money, Who Says So?

Shortly after blogging about the MIT Symposium featuring Amazon’s approach to cloud computing, I found a report , McKinsey: Adopt the cloud, lose money, in the Register, which I put aside for additional thought and later comment. I had opined that victory in the Cloud market eventually goes to the low-cost producer.

When virtualizing private data centers, a company takes a powerful server and subdivides it into many servers to increase efficiency. This consolidation provides the necessary cost justification for the switch to virtual machines, leading to the current great success of VMware and others. This is the approach favored by McKinsey. Google, in contrast, does the opposite by taking a large set of low cost commodity systems and tying them together into one large supercomputer. At this level, the Amazon and Google approaches are similar.

Recently, the Official Google Blog helped clarify the issues. “While most discussions of cloud computing and data center design take place at the hardware level, we offer a set of scalable services that customers would otherwise have to maintain themselves in a virtualization model. For example, if a company wanted to implement a typical three tier system in the cloud using virtualization, they would have to build, install, and maintain software to run the database, app server, and web server. This would require them to spend time and money to acquire the licenses, maintain system uptime, and implement patches.“

In contrast, with a service like Google App Engine, customers get access to the same scalable application server and database that Google uses for its own applications. This means customers don't have to worry about purchasing, installing, maintaining, and scaling their own databases and app servers. All a customer has to do is deploy code, and we take care of the rest. You only pay for what you need, and, with App Engine's free quota, you often don't pay anything at all.”

My view so far: the benefits of the Cloud cannot be beat for new companies and new applications. For legacy applications McKinsey may have a good point, but the data is unclear. So for now, I agree with this approach:“As companies weigh private data centers vs. scalable clouds, they should ask a simple question: can I find the same economics, ease of maintenance, and pace of innovation that is inherent in the cloud?” asks Rajen Sheth, Senior Product Manager, Google Apps.